Navigating the shifting reimbursement landscape

By Ruth Carol, Contributing Writer, April 1, 2026

Commercial carriers across the country are finding new ways to delay, deny, and diminish reimbursement payments. Coupled with rising operating costs, these opaque practices are taking a financial toll on dermatologists. The Academy offers tools and strategies — some new in 2026 — to help its members respond and adapt to the shifting reimbursement landscape.

Declining reimbursements

In recent years, declining reimbursements and rising costs of operating a practice have become the norm. Since 2001, Medicare physician payments have dropped 33% when adjusted for inflation, according to the American Medical Association (AMA). Effective Jan. 1, 2026, the Medicare Physician Fee Schedule provided a 2.5% increase. However, the Centers for Medicare & Medicaid Services (CMS) also implemented a -2.5% “efficiency adjustment.” This adjustment reduces payment for most non–time-based services to reflect productivity gains presumed to have resulted from technology advancements. Despite widespread opposition, CMS intends to reapply the efficiency adjustment every three years.

Private payers tend to follow Medicare’s lead when it comes to payment and policy, noted Lou Terranova, the Academy’s associate director of health policy and payment. In some markets, dermatologists have been successful in negotiating favorable fee schedules, but it really depends on the market where the practice is located and the payers they contract with, he said. “Being in a highly concentrated marketplace can make it tougher to negotiate because there is a larger pool of dermatologists from which payers can choose to include in their network.”

Meanwhile, practice costs have continued to rise. “We’re seeing this across the house of medicine,” Terranova said. “In many market areas, reimbursements are generally not keeping pace with the cost of providing care.” In 2025, the Medicare Economic Index, which is a benchmark used by CMS to measure the rate of health care inflation, rose 3.5%.

Insurers amplify tactics

Making matters worse, private payers have added new tactics to withhold, delay, and reduce reimbursements.

In recent years, many commercial carriers have implemented policies that reduce payment for an evaluation and management (E/M) service when a minor procedure is performed on the same day, Terranova said. Instead of paying for both the E/M service and the minor procedure, payers either bundle the payment as if only one service was provided or pay a reduced amount for the E/M. The Academy is gaining traction in advocating against such policies by Blue Cross Blue Shield plans in several states.

In addition, some insurance carriers continue a utilization management practice that physicians refer to as “downcoding,” which means the payer will reduce the level of complexity of an E/M service, for example, from a complexity level 4 to a level 3, resulting in lower reimbursement without giving any notice to the physician. The payers use proprietary “claim-editing” software algorithms based on the diagnosis to make these changes, often without even reviewing the medical records, Terranova said.

Others have put a new spin on this age-old strategy. Carriers are leaving the code level the same but adjusting the payment. “We are seeing an uptick in carriers implementing this approach,” Terranova said. The explanation of benefits (EOB) shows the same code level that was billed, so the dermatologist assumes they received the appropriate payment. However, the dermatologist does not realize that the actual payment has been reduced. “As we advocate with insurance payers for greater transparency, the Academy is also educating members to review EOBs and look at the remittance code advice where dermatologists can see that the payment amount was changed,” he said.

Commercial carriers have also ramped up their use of utilization review programs, such as prior authorizations. Due to recent congressional scrutiny, some insurers have pledged to reduce the number of procedures requiring prior authorization. However, “A lot more work needs to be done to see real progress in reducing the use of prior authorization,” Terranova said, adding “in our ongoing discussions with national private payers, a standing agenda topic is prior authorization reform as we continue to press to reduce the administrative burden to our members.”

In addition, insurers are implementing overzealous step therapy or fail-first programs. These programs have the potential to delay access to appropriate medical treatments and, in the long run, may result in higher costs should the patient’s condition worsen and ultimately require a more expensive treatment or a longer treatment phase. Common coverage policy modifications include formulary changes, which typically occur around the beginning of the year. Payers drop certain drugs or biologics from their formulary or reduce it to a lower tier requiring a higher co-payment, he said.

In response to the No Surprises Act, which was designed to protect consumers from unexpected medical bills, some carriers are modifying their networks, although not technically narrowing them, Terranova said. Insurers are implementing “designated provider programs” in which they rate physicians on quality and cost. A physician who remains in-network but is rated at a lower level will either receive lower reimbursements or require higher co-payments. “A dermatologist may be able to negotiate a beneficial fee schedule but can still be reimbursed at a lower rate due to being deemed a ‘high-cost provider,’” he said.

As both private and public insurers push cost reductions, physicians are paying the price through increased financial and administrative burdens. Responding to excessive prior authorization requirements, appealing inappropriately denied medical claims or lower reimbursements, and closely reviewing EOBs to ensure that payments align with the billed codes, all significantly increase dermatology practice staff time and resource use, Terranova said. “The Academy encourages members to appeal inappropriate denials, yet that time could be better spent by dermatologists providing direct patient care.”

“As we advocate with insurance payers for greater transparency, the Academy is also educating members to review EOBs and look at the remittance code advice where dermatologists can see that the payment amount was changed.”

Staying on top

Dermatologists can improve their coding, documentation, and billing processes to respond and adapt to the latest insurance carriers’ strategies.

The Academy offers a comprehensive set of resources to assist members and their staff on how to optimally code, document, and bill for services. Ranging from practical tips and tools to quizzes and videos about common dermatologic coding issues, these resources are available in the Academy’s Practice Management Center. Topics include E/M codes, surgical and procedural codes, and modifiers. Derm Coding Consult provides the latest information about accurate diagnostic and procedural coding, including reimbursement topics. Members can even email the Academy’s coding team to ask specific questions.

Despite dermatologists generally meeting Medicare requirements for the use of modifier 25, according to an Office of Inspector General report issued in November 2025, the use of modifier 25 raises the most coding questions, noted Faith McNicholas, CPT staff liaison and senior manager for coding in practice management at the AAD. “Modifier 25 is a low-hanging fruit because dermatologists use it so often,” she said.

Dermatologists should review their use of modifier 25 and ensure that their documentation supports separate E/M and procedure visits. Modifier 25 should be used to report a significant, separately identifiable E/M service performed by the dermatologist on the same day as a procedure or another service, McNicholas explained. It indicates that the E/M service went above and beyond the usual pre- and post-operative care associated with the procedure. For example, when a dermatologist prescribes medication to get rid of residual lesion that may remain after the lesion was removed during the office visit, the payer will consider that going above and beyond the procedure because it focuses on lesion management, she explained. “The payer is looking for what else you did outside of looking at the lesion and cutting it out,” McNicholas said. “It’s the extra work and expertise the payer is paying you for with modifier 25.” If the claim does get denied, the dermatologist can add more information to the medical record and submit an addendum to justify the use of modifier 25, she added.

Terranova recommends periodically reviewing the practice’s billing processes. “Make sure you have all the documentation necessary to support your claims,” he said. “Once payment is made, review it thoroughly to make sure that the payment hasn’t been adjusted and that it is in line with the agreed-upon fee schedule.”

Additionally, “dermatologists can use practice management software to track metrics for denials and underpayments. This information can help identify which payers, codes, and services are problematic,” noted Melissa Robinson, the AAD’s senior manager of practice management. How often the practice runs the metrics depends on its capacity to do so. Most carriers pay in 14 days, so running the metrics monthly allows enough time for the claims to go through, said McNicholas. “If the dermatologist doesn’t have the bandwidth, they can track these quarterly,” Robinson added.

The data can also be used to identify the practice’s best payers. Don’t make that determination based on payments alone, Terranova cautioned. Look at the payer’s prior authorization requirements, turnaround time on claims, and payment policies. “You may have a payer who pays pretty well, but if they are difficult to work with and run up your administrative expenses, you have to ask yourself if it’s worth it,” he said. The Academy offers spreadsheet templates that dermatologists can use to track and compare payers. They can compare, for example, payments for each CPT code, how long it takes to get paid, and how often an appeal needs to be filed for each carrier.

Issues with a specific carrier — such as claims being held too frequently or low reimbursement for certain services — can be addressed by contacting the payer’s physician representative.

“You may have a payer who pays pretty well, but if they are difficult to work with and run up your administrative expenses, you have to ask yourself if it’s worth it.”

Engaging payers proactively

Dermatologists should engage payers proactively regarding contracts, appeals, and prior authorizations.

It is critical to thoroughly review the contract, including addendums, administrative manuals, and other documents referred to by the contract, Terranova stressed. “The contract provides an overview, but the details are often in those other documents,” he said, adding, “If the dermatologist doesn’t know what is spelled out in these other documents, they could find themselves agreeing to something that puts them at a disadvantage.” For example, a contract may state that payment will be made based on the carrier’s current coding and payment edits. However, the coding edits specify that for modifier 25, when an office visit is reported with a minor procedure, the carrier will reduce payment by 50%. If the dermatologist never reads the coding edits, they won’t know they agreed to this payment reduction. The Academy offers an insurance contract review resource to help members identify concerning language and red flags as well as strategies to negotiate better alternatives available.

When faced with inappropriately denied claims, the Academy encourages dermatologists to appeal them. “If they are not challenged, carriers will continue to expand practices to deny claims,” Terranova said. The Academy’s appeal letter generator can help minimize the burden associated with appealing denied claims.

The same goes for appealing prior authorizations. The AAD’s Prior Authorization Letter Tool can streamline the appeals process and help overturn denials for prior authorizations. The Academy also offers prior authorization tips, including strategies for reducing burdens and optimizing workflows.

The importance of staff education cannot be overstated. Administrative staff must be aware of policy changes, payer rules, and steps for appealing denied claims, Robinson said. Payers used to send policy updates to the dermatology office, McNicholas noted. Nowadays, they post policy changes on their website. Staff should visit the payers’ websites on Fridays to check for updates. Dermatologists should encourage their staff to attend AAD webinars and check the Academy’s website for resources. Dermatologists should consider adding the practice manager or other staff to their account for convenient access to AAD Practice Management Center resources. “The practice must be proactive in finding the information,” McNicholas stressed.

Leverage data

As the largest dermatology clinical data registry, the Academy’s DataDerm™ can be used for benchmarking, performance, and payer negotiation leverage.

DataDerm supports users of Medicare’s Merit-based Incentive Payment System (MIPS) program, both the traditional MIPS program and the newer MIPS Value Pathway (MVP). “DataDerm gives dermatologists flexibility in scoring to get optimized reimbursement from Medicare,” said Toni Kaye, quality innovation director at the AAD.

Dermatologists can also use DataDerm to show private payers that they are providing high-quality patient care and that their patients have positive outcomes based on Medicare measures.

The Academy has launched a new platform to better support dermatologists using DataDerm. The enhanced platform expands their ability to mine their own data, Kaye stated.

Academy staff also leverage DataDerm for negotiations with payers. They collect data on dermatologic procedures and share it with Academy experts who serve on physician panels that make recommendations to Medicare about the profession and the resources required to provide medical services. The data is used to negotiate on issues such as coverage, scope of practice, and correct use of reimbursement codes, she said. The Academy staff also leverages DataDerm to help with advocacy efforts with payers.

Following changes in billing documentation requirements, Academy staff provide educational materials on these changes for the membership. Staff can then review DataDerm data to determine if the new guidance materials are effective in changing documentation behavior, Kaye said. If not, staff can modify their approach to get the information where it is needed. “We want to make sure that we are being effective in communicating these changes to ensure that dermatologists obtain full reimbursement,” she said.

Advocacy efforts

The Academy is committed to addressing payer issues at the national and state level. Alleviating administrative burdens, maintaining appropriate reimbursement, and ensuring access to dermatology care are top priorities, Terranova said. “The Academy’s approach has been to build relationships with private payers,” he added.

To that end, the AAD has established regular meetings with national carriers, including Aetna, Cigna, Elevance Health, and UnitedHealthcare. “This ongoing contact not only addresses dermatology reported issues, but it gives us an opportunity to provide feedback and have dialogue with the payers about carrier policies that are impacting our members,” Terranova said. As a direct result of these discussions between the carriers and the AAD Payer Advocacy/Patient Access and Payer Relations Committee, Elevance Health (formerly Anthem) revised its policies to allow coverage for home-based light therapy for vitiligo and expanded its coverage for autologous cell therapy, he said.

The Academy has worked with state dermatology societies to address regional payer issues, as well. Last year, the AAD worked with societies in Colorado, Idaho, Oregon, and Washington to convince the regional Blue Cross Blue Shield (BCBS) carrier not to implement a modifier 25 payment reduction policy. Academy advocacy efforts with state societies and regional carriers in California and North Carolina did the same.

Reporting payer issues to the AAD is critical to prioritize payment issues and address them collectively. “Advocacy efforts are an ongoing strategic priority that not only requires a concerted effort by the Academy and the state dermatology societies, but also by our members,” Terranova stressed.

The reimbursement landscape may be shifting, but that doesn’t mean dermatologists can’t navigate their way through the changes. The Academy is poised to help dermatologists keep their practices flourishing and ensure they can continue to provide quality patient care every day.

Additional DermWorld Resources