What is a Medicare Fee Schedule, Why does it exist ?

If you have ever reviewed your Medicare Summary Notices you have likely seen that the “Amount Charged” by your Medicare provider for your medical bills may not be the same amount as the “Medicare Approved” charge. This is because Medicare will only approve the amount listed in the Medicare fee schedule for each particular type of Medicare service.

Why It Exists

The Medicare fee schedule was originally implemented as a method of protecting Medicare beneficiaries. Prior to the existence of the Medicare fee schedule, Medicare providers and suppliers were compensated for their services and products based on the amount they billed. If Medicare did not agree to pay the entire amount of the charge, the providers and suppliers were allowed to bill the Medicare beneficiary for the remaining amount. The Medicare fee schedule was implemented to help protect Medicare beneficiaries from being responsible for the outstanding balances on their medical bills. By establishing the Medicare fee schedule, Medicare was able to limit the amount Medicare providers and suppliers could be paid for each type of service. This limit effectively restricted the amount that Medicare beneficiaries could be charged as well.


In 2010, the United States Congress considered cutting many of the payments in the Medicare fee schedule by up to 25 percent in an effort to control rising healthcare costs. The proposal was controversial for several reasons. Primarily, doctors and other medical providers and suppliers were unhappy with the prospect of receiving less from Medicare for their work with Medicare beneficiaries. Additionally, some associations were concerned that if doctors who contracted with Medicare were forced to take a significant cut in payment for medical services, then the doctors would decide to cancel their contracts with Medicare. The associations were concerned that this could leave Medicare beneficiaries with significantly fewer choices for Medicare providers in their areas. Due to the heated debate, Congress passed legislation that extended the current Medicare fee schedule through the end of 2011, thus leaving time for continued consideration.

The debate has since continued, and in February 2012, Congress granted a 10-month extension to the 2011 fee schedule. The bill freezes physician payments at their current rates until December 31, 2012. Without this legislation, physicians would have seen a 27.4 percent decrease in Medicare payments starting March 1, 2012. According to the American Medical Association, however, keeping rates stable only through the end of the year means that providers’ pay is scheduled to decrease by an estimated 32 percent in January 2013.

In addition to freezing the pay, the legislation requires the Government Accountability Office and U.S. Department of Health and Human Services to submit reports to Congress on developing a long-term replacement for the existing Medicare physician fee schedule.

Affect on Medical Insurance Premiums

The Medicare fee schedule does not directly affect your Medicare premiums or your Medicare copayments. Your medical insurance premiums are typically based upon the number of beneficiaries enrolled in your plan and the cost of providing medical insurance in your area. Additionally, Medicare premiums for Medicare Part A and Medicare Part B are based primarily on each beneficiary’s income level. However, the cost to provide medical care in your area may also be a factor in your medical insurance premiums. Therefore, changes to the Medicare fee schedule may trigger slight changes to your medical insurance premium in future years, particularly if you have a Medicare Advantage Plan.

Affect on Provider Choice

The Medicare fee schedule could indirectly affect your choice of Medicare providers. Physicians in the United States who would like to provide medical services to Medicare beneficiaries have the choice of contracting with Medicare as a participating or a non-participating physician. A participating physician agrees to accept the Medicare approved charge listed in the Medicare fee schedule as full payment for any medical service provided to a Medicare beneficiary. A nonparticipating physician can determine on a case-by-case basis whether they will accept the Medicare approved charge listed in the Medicare fee schedule as payment in full for medical services provided to a Medicare beneficiary or whether they will bill the Medicare patient directly and charge more than the Medicare approved amount. Physicians may also opt out of the Medicare system entirely and choose to be a private contracting physician. Physicians who do this cannot receive Medicare payments for the medical services they provide to patients. A private contracting physician’s patients also cannot submit Medicare claims for reimbursement for their medical bills.

It is often assumed that if the Medicare fee schedule changes to reflect a significant cut in Medicare payments to physicians, then many physicians will choose to opt out of the Medicare system altogether and work simply as private contracting physicians. If this happens, Medicare beneficiaries may find that their choice of Medicare providers is limited.


Source: Medicare.com

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