Medicare fees have become more complex over the years as new systems are implemented to improve quality while reducing costs. The majority of healthcare providers are paid through either the Prospective Payment System (PPS) or the Medicare Fee-for-Service (FFS) system. Some of Medicare's Alternative Payment Models (APMs) and Accountable Care Organization (ACO) programs have different reimbursement systems which are not discussed in this article.

Prospective Payment System (PPS)

A Prospective Payment System (PPS) is a method of reimbursement in which Medicare payment is made based on a predetermined, fixed amount. The payment amount for a particular service is derived based on the classification system of that service (e.g., diagnosis-related groups for inpatient hospital services). CMS uses separate PPSs for reimbursement to acute inpatient hospitals, home health agencies, hospice, inpatient psychiatric facilities, inpatient rehabilitation facilities, long-term care hospitals, federally qualified health centers, and skilled nursing facilities.

Resource: Click here for information by Medicare regarding these programs.

Medicare Fee-for-Service (FFS)

The FFS system is for payments to providers, including physicians, other practitioners, and suppliers. CMS develops fee schedules for physicians, ambulance services, clinical laboratory services, and durable medical equipment, prosthetics, orthotics, and supplies. The remainder of this article discusses fees for professional types of services.

Medicare Physician Fee Schedule (MPFS)

Every participating healthcare office should receive its annual Medicare Physician Fee Schedule (MPFS) from its Medicare Administrative Contractor (MAC) prior to the new year. The MPFS is also available on individual MAC websites, as well as the CMS website. Providers should be aware of the local Medicare allowed amounts and limiting charges for the upcoming calendar year in order to properly evaluate their current fee schedule.

The MPFS lists the allowed amounts for participating providers and non-participating providers, as well as the limiting charges for non-participating providers (non-PAR) not accepting assignment. Fees for all codes in your MPFS are already adjusted by the Geographic Adjustment Factor (GAF) for your area. These published fees become an excellent basis for evaluation and calculation of your other fees. Non-PAR providers are not allowed to exceed the limiting charge for Medicare covered services by any amount for any reason.

Your Medicare fee schedule is probably a good minimum standard. Traditionally, many payors across the nation use the MPFS as a baseline and then add a percentage to it to set their own fee schedules. For example, some states (e.g., Florida) mandate that auto claims are paid at a set percentage above the Medicare fee schedule. The rationale behind this practice is that Medicare fees are known to be far below a provider's usual and customary fees. Unfortunately, a few payors have fee schedules that are less than the Medicare fee schedule.

Fee Calculations for Medicare

Medicare fees are calculated annually. They are a combination of: 

• An adjusted Relative Value Unit (RVU) assigned by CMS to each procedure for each area/locality.
• The adjusted RVU is multiplied by the Medicare Physician Fee Schedule (MPFS) Conversion Factor (CF) to calculate the MPFS into a dollar amount, which is the allowed amount for participating providers. Non-participating providers have a different payment rate which is called the limiting charge.
• Physicians who qualify are paid at 100% of the applicable fee schedule. Other types of qualified healthcare providers are paid at a lesser rate. For example, Nurse Practitioners (NP), Clinical Nurse Specialists (CNS), and Physician Assistants (PA) are paid at 85% of the fee schedule, while other types of providers may be paid even less.
• Adjustments are then applied based on the level of participation in the provider's chosen payment program. The result is that final payments may go up or down depending on how well the provider meets threshold requirements.

Note: Fees are shown with payment adjustments at FindACode.com (with subscription).

If there are questions or concerns about whether or not Medicare has assigned the appropriate fee schedule to your practice, contact the local MAC to have this verified.

Regarding the impact of submitted fee amounts, always submit your usual and customary fee on claims unless you are a non-PAR provider who is not accepting assignment. Not using your standard rate can lead to overall lower national fees.

Resource: Click here for more information.

CMS (Medicare) Conversion Factor

The annual Medicare Conversion Factor (CF) is the pivotal component in the fee calculation process. Without a proper conversion factor, fees will be depressed. A simple internet search on “Medicare conversion factor” with the year will usually show what that amount is.

Participation Status

Participating (PAR): This means that a provider has signed an agreement with Medicare to bill them directly with assignment on all claims for direct payments, according to the allowed amount on the Medicare fee schedule. Names of participating providers are published by Medicare for patients to use.

The fee amount submitted on a claim is not bound by law to be the Medicare allowed amount. PAR providers may bill whatever they wish on the claim. However, only the allowed amounts for covered services may actually be collected. Therefore, anything beyond the allowed amount must be written off and never billed to the patient!

Non-Participating (Non-PAR): This means that a provider has not signed the participation agreement to take assignment on all claims. Assignment is an option. Non-PAR providers can collect from a patient at the time of service, up to the limiting charge amount, when not accepting assignment.

If a healthcare provider does not accept assignment on the claim, Medicare will reimburse the patient 80% of the non-PAR fee allowance. If a non-participating provider accepts assignment, they must accept the non-PAR fee allowance as payment in full. When a non-PAR provider does not accept assignment, the fee amount on a submitted claim cannot be more than the limiting charge.

Limiting Charge Warning:  Not understanding the limiting charge could be costly. The following warning has been issued by Medicare (Resource 455): 

“Submission of a non-PAR, non-assigned Medicare Physician Fee Schedule (MPFS) service with a charge in excess of the Medicare limiting charge amount constitutes a violation of the limiting charge. A physician or supplier who violates the limiting charge is subject to a civil monetary penalty of not more than $10,000, an assessment of not more than 3 times the amount claimed for each item or service, and possible exclusion from the Medicare program. Therefore, it is crucial that EPs are provided with the correct limiting charge they may bill for a MPFS service.”

Source: Medicare Fee Schedule Information. (2024, August 5). Find-A-Code Articles. Retrieved from https://www.findacode.com/articles/medicare-fee-schedule-information-37529.html