The reimbursement rates are the monetary amounts that Medicare pays to health care providers, hospitals, laboratories, and medical equipment companies for performing certain services and providing medical supplies for individuals enrolled in Medicare insurance. To receive reimbursement payments at the current rates established by Medicare, health care professionals and service companies need to be participants in the Medicare program. While non-participating professionals and companies are able to submit claims and receive reimbursements for their services, their reimbursements will be slightly lower than the rates paid to participants.

The Medicare reimbursement rates for traditional medical procedures and services are mostly established at 80 percent of the cost for services provided. Some medical providers are reimbursed at different rates. Clinical nurse specialists are paid 85 percent for most of their billed services and clinical social workers are paid 75 percent for their billed services.

When Medicare was enacted in 1965, medical professionals were paid according to their charges and the enrollees were billed for the entire outstanding balances. The original objective was to establish a uniform payment system to minimize disparities between varying usual, customary, and reasonable costs. Today, Medicare enrollees who use the services of participating health care professionals will be responsible for the portion of a billing claim not paid by Medicare. The majority of enrollee responsibility will be 20 percent, often referred to as coinsurance. With clinical nurse specialists that responsibility would be 15 percent and 25 percent for clinical social workers.

Why Does Medicare Use Reimbursement Rates?
Using established rates for health care reimbursements enables the Medicare insurance program to plan and project for their annual budget. The intent is to inform health care providers what payments they will receive for their Medicare patients. While the reimbursement rates do take into consideration a number of variable factors, those differences are factored into the reimbursement projections for enrollees living in different geographical locations. The budget is based on the projected income from the number of enrollees and the number of potential payments for all medical procedures and services.

How are Medicare Reimbursement Rates Determined?
The establishment rate schedules are complex, multifunctional, and revised annually. The schedules for Medicare reimbursement rates are pre-determined base rates developed using a variety of factors that include the following.
• Type of service or equipment provided
• The type of medical professional or facility
• The complexity of service provide
• The geographical location of services
• Inflation adjustments for procedures and services

Who Develops the Medicare Reimbursement Rates?
Medicare establishes the reimbursement rates based on recommendations from a select committee of 52 specialists. The committee is composed of 29 medical professionals and 23 others nominated by professional societies. While Medicare is not obligated to accept all of the recommendations, it has routinely approved more than 90 percent of the recommendations.

The process is composed of a number of variables and has been known for lack of transparency by the medical community that must comply with the rates. Primary health care providers, employee health plan managers and private insurers have argued for more committee representation from their respective groups.

By Federal statute, the Medicare annual budget request cannot increase more than $20 million from the current budget. If the known relative values of services would create a need for more than $20 million in a new budget request, the current statutory formula is used to maintain budget neutrality. Congress has the authority to override the formula used and routinely uses that authority to increase the Medicare budget to benefit Medicare enrollees.

Where are the Medicare Reimbursement Rates Effective?
The Medicare reimbursement rates are applied across all medically approved procedures and services provided to Medicare enrollees. The rates paid out will apply to all medical claims received from authorized health care professionals and services.

Related articles:

How Does Medicare Pay Hospitals?(Opens in a new browser tab)

What Does “Original Medicare” Mean?(Opens in a new browser tab)