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How does Medicare reimbursement work?

  • March 1, 2015

Q: How does Medicare reimbursement work?

A: Medicare reimbursement refers to the payments that hospitals and physicians receive in return for services rendered to Medicare beneficiaries. The reimbursement rates for these services are set by Medicare, and are typically less than the amount billed or the amount that a private insurance company would pay.

Participating providers

Physicians who agree to fully accept the rates set by Medicare are referred to as participating providers. They accept Medicare’s reimbursements for all Medicare-covered services, for all Medicare patients, and bill Medicare directly for covered services. About 96 percent of eligible providers are in this category.

Non-participating providers

Because the reimbursement rates are generally lower than physicians receive from private insurance carriers, some physicians (about 4 percent of eligible physicians) opt to be non-participating providers, which means that they haven’t signed a contract agreeing to accept Medicare reimbursement as payment-in-full for all services, but they can agree to accept Medicare reimbursement for some procedures.

If you receive treatment from a non-participating provider who doesn’t accept assignment for the treatment you receive, you may have to pay the bill upfront and seek reimbursement from Medicare for the portion they’ll pay. In this case, the providers is paid 95 percent of the fee schedule amount, and can only bill you up to 15 percent more than the Medicare reimbursement amount.

Opt-out providers

A small number of doctors (less than 1 percent of eligible physicians) opt out of Medicare entirely, meaning that they do not accept Medicare reimbursement as payment-in-full for any services, for any Medicare patients.

If a Medicare beneficiary receives services from one of these doctors, the patient must pay the entire bill; Medicare will not reimburse the doctor or the patient for any portion of the bill, and the provider can set whatever fees they choose. Of the tiny fraction of doctors who have opted out of Medicare entirely, 42 percent are psychiatrists.