Medicare Reimbursement Rates: Examples and FAQ

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Written by Kayla Tyson Editor, B2C Content, IntelyCare
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Reviewed by Aldo Zilli, Esq. Senior Manager, B2B Content, IntelyCare
A medical administrator discusses Medicare reimbursement rates with an older couple.

Medicare is a federal program for individuals aged 65 or older or who have other qualifying conditions that serves over 60 million individuals nationwide. If you manage a long-term care (LTC) facility, it’s likely that Medicare beneficiaries make up a large portion of your patient population.

Understanding Medicare reimbursement rates is key to navigating budgets and billing with confidence. In this article, we’ll explore the basics of these reimbursement rates, how they’re calculated, and how to determine payments ahead of time.

What Are Medicare Reimbursement Rates?

Medicare reimbursements are the monetary amounts that healthcare providers are paid by the Centers for Medicare and Medicaid Services (CMS) to provide care to Medicare beneficiaries. The CMS developed a reimbursement formula that takes a number of factors into account to provide equitable compensation.

These rates will differ depending on geographic location, specific services offered, and the type of medical provider. The idea behind these variable payment amounts is that compensation should be adjusted to match the resources required to offer a particular service.

How Does Medicare Determine Reimbursement Rates?

It’s important to understand reimbursement so you can create a budget based on the income you expect your facility to receive. Reimbursement rates are calculated using the resource-based relative value scale (RBRVS) — a formula that combines three main categories, adjusts for location, and multiplies by a conversion rate to determine final payment. Below, we’ll outline a few of the factors that go into final reimbursement and provide examples of how they apply to facilities.

Relative Value Units

These variable amounts, called relative value units (RVUs), include three main components: the provider’s work, practice expenses, and liability insurance. They’re all added together as part of the RBRVS formula.

Component Description
Work RVU Accounts for the time, skill, and effort of the physician. Medicare determines this amount based on the value assigned to the CPT code included in the billing information.
Practice Expense RVU The cost of rent, equipment, supporting staff, and other facility costs required to perform the treatment.
Liability Expense RVU Expenses related to purchasing malpractice insurance, which can vary depending on medical specialty.

Example: A physician at a primary care clinic performs a routine physical. They include the relevant CPT code when documenting the service. Billing information is then sent to Medicare and the representative uses it to identify the associated RVUs for each of the three categories.

Geographic Location

Once relative values have been determined, they’re adjusted by the geographic practice cost index (GPCI). These variances in Medicare reimbursement rates by state and zip code reflect differing practice costs in areas across the country. Medicare determines which GCPIs to apply to a claim by referring to the national provider identifier (NPI) number in the billing information, which communicates the provider’s location and identity.

Example: Two skilled nursing facilities (SNFs) provide the same service and end up with the same final RVU amount. However, one facility is located in New York City and the other in a small town in Georgia. The first facility is assigned a higher GPCI, which — when multiplied by the RVU amount — results in a greater overall payment to compensate for increased rent, malpractice fees, and operational costs associated with the location.

Conversion Factor

The next factor in determining Medicare reimbursement rates is the annual conversion factor, which is an amount set by the CMS and typically falls between $30 and $40. Adjusted RVUs are multiplied by the conversion factor to determine the payment amount.

Example: A hospital sends billing information to Medicare for a medical service. After GCPI adjustments, the final RVU equals 11. If the conversion factor that year was set to $34, the final Medicare reimbursement for the service would be $374.

Type of Provider

It’s important to note that when it comes to Medicare reimbursement, your final payment will depend on the provider who delivered the care. Medicare will reimburse a facility the full amount outlined above for a supervising physician, but services provided by physician assistants (PAs) or nurse practitioners (NPs) are reimbursed at only 85% of that amount.

Consider the medical professionals who provide care in your facility to get an accurate idea of your reimbursement amounts. If your facility serves a number of Medicare beneficiaries, the type of provider will play a large part in the revenue your facility generates.

Where Can I Find Reimbursement Rates?

While it’s helpful to understand the differences in reimbursement rates by location, specialty, and provider, you may be wondering how to actually determine the amount you’ll receive. Healthcare Common Procedure Coding System (HCPCS) codes — the numbers assigned to medical, diagnostic, and surgical services — are available to the public.

The uniformity of these codes makes it easy for patients and facility leaders to cross-reference reimbursement costs for services. The good news is you don’t have to memorize any formulas — the CMS provides CPT code reimbursement lookup tools that will do the calculations for you.

On the CMS website, you’ll find a Medicare fee schedule lookup where you can enter the codes for your services and calculate potential payments. Keep in mind that you may need to refer to a CMS CPT code list to determine the code to use in your search. Make sure to adjust your final reimbursement if a provider other than a physician provided the service.

Want Free Healthcare Insights?

Understanding Medicare reimbursement rates can help save your facility time and money. It can be challenging to know where to get accurate and up-to-date information on the latest healthcare trends. At IntelyCare, our team of experts does the research for you — follow along in our newsletter for more resources to help your organization thrive.

IntelyCare writer Danielle Roques, BSN, RN, contributed to the writing and research for this article.

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