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When you visit your doctor, you will typically be charged a small copay, coinsurance amount, or may not even have to make a payment at all.  This is done because you know that your insurance company or secondary payor will be supplementing your small payment with a larger payment to the doctor.  What amount is the insurer paying to the doctor and how is it decided?

Providers are often paid based off physician fee schedules. These fee schedules define how much a doctor will be paid for performing a service. In general, there are typically three levels of fee schedules: Medicare, Medicaid, and Commercial. The different levels of fee schedules offer varying levels of payment rates to the physician and are determined separately by the various involved parties.


Medicare fee schedules are defined by the Centers for Medicare and Medicaid Services (CMS). CMS is a federal agency within the United States Department of Health and Human Services that administers the Medicare program and partners with state governments to administer Medicaid programs. The Medicare fee schedule defines the maximum amount that Medicare will reimburse for a service. The Medicare fee schedule is part of Medicare and pays for physician services based on a list of more than 7,000 unique codes. Not every code will have a reimbursement amount. CMS categorizes services as primary and secondary services. Primary services are services that are reimbursed by the Medicare fee schedule, while secondary services are dependent on a primary service being performed and are considered to be reimbursed as part of the primary service payment.

“If run efficiently the Medicare fee schedule payments should be enough for a provider to be profitable.”

The Medicare fee schedule is adjusted according to relative value units (RVUs) that are applied to a conversion factor. This includes adjusting for zip code (area) of the provider and the specific place of service (facility or non-facility). Medicare fee schedules are designed to be fair and competitive for both payees and payors. However, not all providers view these schedules as fair and believe they should be increased. If run efficiently the Medicare fee schedule payments should be enough for a provider to be profitable.

The current and historic Medicare fee schedules can be found at


Medicaid is typically run at a state level, with some assistance from CMS.  Since Medicaid is run at a state level, the Medicaid fee schedules are determined by the state and vary across the country. Medicaid fee schedules also have the option to determine primary and secondary service reimbursement similar to the Medicare fee schedule.

Medicaid fee schedules are typically the lowest of the three types of fee schedules discussed in this report. The Medicaid fee schedules are viewed as more favorable to the Medicaid payors since these schedules have the lowest reimbursement rates. This is done as the Medicaid carrier typically receives less premium/reimbursement for their Medicaid population than a similar Commercial or Medicare population would receive. Since Medicaid fee schedules offer the lowest payment rate some doctors will be deterred from accepting patients that are covered by Medicaid.

In general, since Medicaid fee schedules are the lowest fee schedule they are viewed by providers as being subsidized by commercial fee schedules. Providers may view the higher reimbursement rates that they receive from commercial insurance patients as a balancing tool for the lower reimbursement rates received from Medicaid for the same services.

Medicaid fee schedules can typically be found through the various state Medicaid websites.


Commercial fee schedules are negotiated between the payor (typically an insurance company) and the provider. An insurance company will negotiate a fee schedule within its network of preferred doctors for members to use. Since a provider is able to bill any amount, this allows insurance companies to pay less than billed charges while still allowing the providers to be reimbursed an amount they deem reasonable. Providers will agree to these fee schedules to avoid the risk of a patient defaulting on the member cost share amount after the insurance has paid what they consider allowable. Additionally, providers will agree to a commercial fee schedule to be considered an in-network provider.  As an in-network provider insurance companies will typically help steer additional members to the provider.

When deciding upon a fee schedule, negotiations between the provider and the payor will determine what services (if any) are deemed as secondary.  Commercial fee schedules will often deem fewer services as secondary and will see a payment rate tied to more services than Medicare or Medicaid. Since commercial fee schedules are negotiated between two parties they can vary by state, region, payor, and/or provider. It is highly likely that a provider may accept multiple different fee schedules from different payors.

A general measurement of a commercial fee schedule is its relative reimbursement rate compared to the Medicare fee schedule. Fee schedules that closely match (or are below) the Medicare schedule are considered beneficial for the payor; whereas fee schedules that are greater than the Medicare schedule are considered beneficial for the provider. It is possible that a payor may want to negotiate a higher commercial fee schedule with a provider if the provider also agrees to see the payor’s Medicaid population. This helps to increase the options for the payor’s Medicaid population.

“Commercial fee schedules are the least transparent, carriers do not publicly publish fee schedules to avoid losing their competitive edge.”

Commercial fee schedules are the least transparent; carriers do not publicly publish fee schedules to avoid losing their competitive edge.


Comparing a fee schedule to the Medicare fee schedule will indicate how competitive or beneficial of a schedule has been negotiated.  As previously mentioned, the Medicare fee schedule is designed with the intention to be a fair and competitive schedule for all involved. The Commercial fee schedule is often developed to be larger than the Medicare fee schedule and has been viewed as subsidizing the Medicaid and Medicare fee schedules by many providers.

Below is an example comparing how each payor type compares to the Medicare fee schedule for a specific service. This table shows how a provider would be paid based off a Commercial, Medicare, and Medicaid fee schedule for a standard office visit. As shown, the Commercial population will reimburse the service provider the most, $87.50 per visit (111% of the Medicare reimbursement). The Medicaid population with reimburse the provider the lowest amount for the equivalent services, $55.00 per visit (69.8% of the Medicare reimbursement). This is an example of why many providers either limit or do not accept Medicaid and Medicare patients, they prefer the higher reimbursement schedules.

Payor and Medicare Allowed Charge Comparison for “99213 – Office/Outpatient Visit”

Total Dollars Ratios Medicare
Payor Billed/Visit Allowed/Visit Allowed/Billed Medicare Equivalent Allowed Payor % of Medicare
Commercial $147.50 $87.50 0.59 $78.75 111.1%
Medicare $147.50 $80.29 0.54 $78.75 102.0%
Medicaid $147.50 $55.00 0.37 $78.75 69.8%

A Single Fee Schedule

Recently there has been increasing talks of moving the health care system to a “Medicare for All” structure. This would involve moving to a single payor system, which would potentially involve moving to a single physician fee schedule. How would a “Medicare for All” fee schedule need to be structured to make it acceptable for all involved parties?

As previously mentioned, the current Medicare fee schedule are designed to be fair and competitive for both payees and payors. However, we also noted that many providers do not believe that the Medicare schedule is fair, but rather that it is below an acceptable threshold. Since the providers believe that their commercial population rates are the fairest, we would expect them to lobby to increase the “Medicare for All” fee schedule. If there were not an increase to the Medicare fee schedule how would providers push back? Would we see a wave of early retiring providers? Would we experience more efficiency in the healthcare system? If providers operated with high efficiency, they could accept the current Medicare fee schedule for all patients and still be profitable.

How would the Medicaid fee schedule be affected by a single fee schedule system? As we mentioned, the Medicaid schedules are set at a state level.  Would the states be willing to increase their fee schedules to the level of the current Medicare fee schedule? This may require additional government subsidization to cover the increase in cost to the payors. What would the adverse effects be if the Medicaid carriers were not afforded a higher subsidization? Could we be left with fewer Medicaid carriers?

Moving to a “Medicare for All” reimbursement schedule may not introduce a single fee schedule structure. However, if a single fee schedule were adopted, it would require compromise and cooperation among all the involved parties. Finding a fair reimbursement schedule that all parties would agree upon will be a very tall task.  If this is a direction that the health care system is trending towards, there could be adverse effects that would need to be addressed. There might also be positive effects that stem from a single fee schedule, i.e. introducing more efficient care by the providers.


As we move forward in the healthcare world, there will be more pressure and attention put on physician fee schedules. Payors and consumers will continuously put pressure on lowering fee schedules, which will help to make healthcare more affordable to them. Providers will want to raise or maintain fee schedules. This could address rising medical costs and still provide a fair and acceptable salary for providers.The correct answer for where fee schedules will ultimately be set is still to be determined. They need to be set at a level where all involved parties will be compensated appropriately.

Perhaps the broader attention brought to fee schedules will offer us more transparency into how they are determined. This could potentially lead us to a single fee schedule across all populations and payors; we could only speculate on how that might be determined. Given the current health care climate, I anticipate that fee schedules will continue to be a contentious topic of conversation.

About the Author

Zachary Westphal, ASA, MAAA is an Actuary at Axene Health Partners, LLC and is based in AHP’s Temecula, CA office.