What is Sliding Scale Fees

Sliding scale fees are a type of tax or cost that may change according to an associated factor. It is designed to capture value according to the movement of an underlying variable – most commonly income – so that those with a higher value pay more. This type of pricing has the effect of spreading out the consumption of goods and services, although it may reduce consumption for the wealthy.

BREAKING DOWN Sliding Scale Fees

Sliding scales fees are used to require those who have the ability to pay more to actually pay more. For example, a hospital may not charge a poor or uninsured patient the market value of the medicine that he receives for an ailment, but may charge a wealthy or insured patient the market value. Companies and organizations may make up for a revenue shortfall from providing below-market price services to the less fortunate through grant funding or donations.

A variety of motivations may be in play when a business or organization wishes to adjust pricing a product or service on a sliding scale. These motivations may include a desire to be charitable to those less able to afford the product or service, getting a tax deduction for offering their services as charity, the ability to benefit from the revenue even from a partial payment or the ability to retain a longtime customer/client or the referrals that such a customer/client may provide.

For medical care providers, it may make sense to offer sliding scale fees in order to keep billing simple and cut down on the time and costs of dealing with insurance companies, which can be significant. Insurance companies can refuse to cover several diagnoses and the associated treatments. They can also require constant updates and authorization. The paperwork alone can be quite voluminous.

Criticisms of Sliding Scale Fees

Some believe sliding scale fees are unnecessary, unwise and problematic. This is because most sliding fee scales used by nonprofits and other entities base the fee on the financial condition of the billable party. Critics of the practice contend that in order to properly implement such a policy, entities must ask for certain information and perhaps supporting documentation, like tax returns. Most private practitioners do not want to get into that kind of detail in their practices. Consequently, physicians and other practitioners likewise establish a “usual and customary fee” and typically do not change their fee for different patients. If the patient can’t afford the fee, he or she can be referred elsewhere.