Medicare Reimbursement Rates and Plan G Coverage

[JonathanW243002]

Can someone help me understand Medicare a little bit more than I do.  I have traditional Medical Part B, D and Plan G.  I had a procedure done recently for which the hospital billed Medicare $60,000.  The Medicare approved amount was around $1,800, or 3% of the billed amount.  How is Medicare able to reduce their price to 3% of market?  Why would any physician want to do business with Medicare given that they pay 3% of what the market pays.  What is in it for them?

My second question has to do with Plan G.  When I signed onto Plan G I was thinking that the Medicare approved amount was going to be closer to market, like maybe a 15-20% discount.  This would still leave the patient with a sizeable co-pay on expensive surgeries.  But if a $60,000 surgery is negotiated down to $1,800 then the co-pays are peanuts…20% of $1,800 is $360.  I would have to have a $1MM medical procedure once every three years for the Plan G Premium of $185/mo make sense.  If Part B never really amounts to much, how can the expense of Plan G possibly make any sense?

Thank you.

[TRL1111]

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@JonathanW243002 wrote:

I had a procedure done recently for which the hospital billed Medicare $60,000.  The Medicare approved amount was around $1,800, or 3% of the billed amount.  

From the limited number of EOBs I've seen, I'd say that the 3% is unusually low. 

I've seen some EOBs where what the provider charged was the same as the Medicare-approved amount (100%), but more typical is the Medicare-approved amount being, in very round terms, about 50% of what the provider charges, but it varies a lot.

For an office visit for a bum ankle, I have an EOB that shows the provider charged $125 for the office visit and the Medicare-approved amount was $110, and for the x-ray the provider charged $44 and the Medicare-approved amount was $35.

For some physical therapy EOBs I saw, the provider charged $56 and the Medicare-approved amount was $51. 

But for an x-ray of a knee, the provider charged $350 and the Medicare-approved amount was $89.  

It's all over the map, and I definitely wouldn't count on the Medicare-approved amount being 3%.  Best to ignore what the provider charges entirely.

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@JonathanW243002 wrote:

If Part B never really amounts to much, how can the expense of Plan G possibly make any sense?

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Part B can amount to a lot.  I think your experience with this one procedure is a definite outlier.

But more importantly, there is no limit on your exposure under traditional Medicare.  But if you have a Medigap plan, it pays your 20% coinsurance under part B, so your exposure is $0 instead of infinity.

Also, be aware that the 20% coinsurance under Part B is different from your responsibility under Part A (hospitalization).  The deductible under Part A is $1,676, and you could have to pay it more than once a year.  Go here to see your costs under Part A; the 20% coinsurance under Part B is kind of abstract, but the dollar amounts I'd have to pay under Part A got my attention when I was deciding on whether to get a supplement:

medicare.gov/basics/costs/medicare-costs 

[GailL1]

@JonathanW243002 - Yep, you do have a whole lot to learn.

I noticed you did not say that you had Medicare Part A or Hospital insurance - so if you had an inpatient hospital stay, you may be in for a rather shocking awaking.

Medicare Part A is usually premium free if you worked and contributed long enough - that’s where your payroll taxes went - to the Trust Fund for Medicare Part A (HI)

Sounds like you have Traditional Medicare since you have a Plan G Medigap plan so I am only gonna cover the Traditional program -the other type is Medicare Advantage plans or Medicare Part C.  And this will be simple as I can make it so don’t think that this is a full explanation - it is much more complicated.

The Center of Medicare and Medicaid Services (CMS) sets the prices paid for all approved medical services to which there is a code.  These prices are set by geographical area since all health care cost are local.  The payment varies as to the service - and some services are paid in a bundled fashion.  

Any provider can bill what they want but if they have agreed to accept Medicare Assignment then they will accept the Medicare payment amount - Medicare sets an amount for a service and then (for Part B) pays 80% of that figure.  the other 20% is from you - either out of pocket or by some other coverage like a Medigap plan, Medicaid or some other coverage.  Part B is for outpatient services and durable medical equipment - the day to day medical care type stuff.

For Part A it isn’t exactly a % but what Medicare pays for an inpatient service, hospice, rehab and then the rest is your cost - paid by you out of pocket or by some other methods - Medigap (your Plan G), Medicaid or some other coverage.  

Of course, there are deductibles for each type too - Part B $ 257 (2025) and Part A ($ 1,676 for each inpatient hospital benefit period) before the plan starts to pay.

You can look up anything you want on the Medicare site - Medicare.gov for a full explanation.

Any physician that has agreed to accept Medicare assignment will accept their rate of pay for the service(s) rendered - they do this because there are so many beneficiaries on Medicare - MILLIONS  - but there are other providers that don’t accept it and these you will either pay a excess payment of about 15% for those that are non-participating or all of the cost of the visit if they have opted out and only take patients on a contract basis.  

Medicare.gov - Does your provider accept Medicare as full payment? 

There is also a look up of provider status on the Medicare site - to know why accepts assignment and who does not and if they aren’t listed they may be contract or an opt out provider.

Your Plan G is your Medigap plan or Medicare Supplemental plan.  Once your Part B deductible is met for the year $257 (2025) your Medigap plan picks up your 20% of the cost of the Part B Services and what the plan pays for the Part A benefit 

Medicare.gov- Compare Medigap Plan Benefits 

Medigap is very simple - it is a GAP plan, it is not health insurance - If Medicare pays, the Medigap plan pays its portion.  If Medicare does not pay, the Medigap plan does not pay.  Medigap makes no health care decisions.  

In fact, your provider should just bill Medicare and then if your Medigap has been set up correctly, Medicare will do their claim processing and send the claim onto your Medigap plan to do their processing.  

The $ 185 a month is the 2025 premium for most people for Medicare Part B (higher income beneficiaries pay more) Your Medigap plan G premium is not a part of this and will bill you for whatever is your premium.  Both of these premiums rise with Plan usage and medical inflation and whatever way your Medigap is rated - Community rate, attained age rate or issue age rate.  Your state Dept of insurance. controls much of the premium oversite of Medigap plans.  

Your Part B premiums represent about 25% of the overall cost of the program; unless you are higher income then they pay more than this % - The rest of the Part B program cost comes from our Government ‘s General Fund.

Maybe you should have gone with a High Deductible Plan G Medigap.  

Medigap will be beneficial when your cost is high - now that could be now or it could be a long way off.  But say if you are diagnosed with some cancer and your chemo cost $ 10,000+ for each one and you have to have many - you will be glad you aren’t funding the whole amount on your dime.  

States also make any special rules as to when you maybe able to change your Medigap plan without underwriting.  So your state makes a big difference in how high your Medigap premiums are and when you can switch plans without underwriting outside of the initial enrollment period.  So keep that in mind - you might have already picked the one that you have to live with for the rest of your life depending upon your health.  

Again Medicare.gov has a wealth of knowledge.  So does the Medicare issued booklet of Medicare and You - also available in pfd, video and audio format - 

https://www.medicare.gov/medicare-and-you 

AARP has a wealth of knowledge on Medicare and often gives seminars on it - 

Me, I have been on Medicare longer than dirt so I know it pretty well after ages of reading, studying it and getting into the deep weeds on it.  I don’t really use it that much but who knows, someday I might .

May I also suggest  Reddit Medicareif you really want to get deep into it 

Yea, you do have a lot to learn about it - 

[JonathanW243002]

Well I appreciate the input, but I don't think you understand what I'm try to convey.  Here are the last two rolling 12-month periods ending 6/30/24 and 6/30/25 for Part B charges.  I've had no Part A charges yet.

Billed	Plan Discount	Allowed	Plan Paid	Plan G Paid
$140,529	$135,339	$3,889	$3,889	$777
$33,715	$32,085	$931	$931	$186

On a combined basis over the last 24 months, Part B billings were $174,244 and plan reimubursements were $4,820, or 2.7% of billings. Medicare paid all charges did not deny any claims. Plan G's share was $963 vs. my premium payments of $4,440.  Included were at least 10 office visits with specialists, 10 visits with GP, 10 MRI's and four out patient procedures that required full sedation.  I had what is called a Y90 cancer procedure done which is done in the hospital under anesthesia on an outpatient basis; total billing was $73,454 and the plan reimbursement was $1,676.  That includes two nurses, 1 anethesiologist, 2 surgeons and hospital facilities.    $23 reimbursement for an MRI?.   OK, so forget the billed amount (list price); on what planet do these reimbursement amounts make sense relative to the care provided.  I live in San Francisco, so it's not like I live in a low cost area.  So I ask again, why would any physician, medical group or hospital want to take Part B Medicare patients given that they clearly lose money on the deal.

[GailL1]

@JonathanW243002 

It sounds like you think the BILLED amount is accurate to the provider - it isn’t - who knows what it might have within it - $ 100 aspirin, $ 500 syringes, an add on profit for whomever might own the provider practice.  

There are resources that explains it all -

KFF.org - 03/24/2025 - What to Know About How Medicare Pays Physicians 

from the link 

Physician fee schedule rates for a given service are based on a weighted sum of three components: (1) clinician work, (2) practice expenses, and (3) professional liability insurance (also known as medical malpractice insurance). These three components are measured in terms of “relative value units” (RVUs). Together these three components represent the overall cost and effort associated with a given service, with more costly or time-intensive services receiving a higher weighted sum. Each component is adjusted to account for geographic differences in input costs, and the result is multiplied by the fee schedule conversion factor (an annually adjusted scaling factor that converts numerical RVUs into payment amounts in dollars). Fee schedule services are each associated with a unique service code, which allows clinicians to seek reimbursement for the care they provide on a service-by-service basis.

Payment rates specified under the physician fee schedule establish a baseline amount that Medicare will pay for a given service, but payments may be adjusted based on other factors, such as the site of service, the type of clinician providing the service, and whether the service was provided in a designated health professional shortage area. Physicians can also receive quality-based payment adjustments under the Quality Payment Program (QPP)

Is the CMS adjusted payment right - who knows,  so a provider has the option to opt out of Medicare assignment and work either as a non-participating provider in order to collect more, a defined more.  OR become an opt-out provider and work under a contractual agreement with the beneficiary (patient).

CMS.gov - Annual Medicare Participation Announcement 

Of course, there is also a lot of cost shifting in the medical landscape - MEDICAID pays the lowest amount, followed by MEDICARE, then employer group coverage.  Then there are all the providers that negotiate with the vast number of insurers - from ACA sanctioned plans to private individual plans - 

Where and how a provider participates in any plan is up to them in each case.  But going it alone, definitely increases their cost in collections.

Most providers participate in MEDICARE - traditional - there are some specialties that have long been outliers - Psychiatrist being one that comes to mind.

Your Medigap plan is financial protection for you in the traditional program since Medicare has NO limit - annual or lifetime - as to the dollar amount that is your responsibility.  But here again, choice comes into to play just like with any other insurance type cost.

[TRL1111 · Accepted solution]

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@GailL1 wrote:

It sounds like you think the BILLED amount is accurate to the provider - it isn’t - who knows what it might have within it - $ 100 aspirin, $ 500 syringes, an add on profit for whomever might own the provider practice.  

There are resources that explains it all -

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But they don't answer his question.

At first, he was looking at the what the provider charged, and calculating a reimbursement rate percentage.  But he's been talked out of that, and said, "OK, so forget the billed amount (list price); on what planet do these reimbursement amounts make sense relative to the care provided."

He's not talking about a percentage of the billed amount now--he's talking about an MRI being reimbursed at $23.  I agree with him that that's insane.  I know nothing about MRIs, but I'd be shocked beyond belief if it costs a provider less than $23 to do an MRI.

All I can figure is that Jonathan's particular situation is an outlier.  It's certainly not in line with the reimbursement amounts I've seen, be it percentage of amount billed or reimbursement amount.  

But to answer his question, who knows.  No amount of volume is going to make up for (presumably) losing money on every service, but the providers do other services that they presumably don't lose money on.  

And in his particular case, paying for a supplement is a bad financial deal.  But I can assure him that not all services are reimbursed at such low amounts.

[JonathanW243002]

Thanks TRL1111 for getting at the point I was trying make, but no one was listening.  I appreciate it.

[GailL1]

So now the question is 

on what planet do thesereimbursement amounts make sense relative to the care provided."

You two are trying to make simple sense out of very complicated formulas that CMS uses to pay providers.  This also differs between Medicare Part A and Medicare Part B.  CMS has their own ways of determining what a provider should be paid for a service or what a specific service cost in the eyes of Medicare.  Then also remember that those same payment amounts are used to pay for MEDICAID providers and services but even at a lower rate.

MEDPAC makes the suggestions on how these payment amounts are determined and Congress either agrees or not - but usually they do agree.  

I am not an actuary nor a mathematician but it is complicated.  

To learn about it one has to focus on the government agency of MEDPAC - the Medicare Payment Advisory Commission, an independent congressional agency that advises the US Congress on Medicare policy. It was established to analyze and make recommendations on Medicare payment, access, and quality of care issues. 

MedPAC's main role is to advise Congress on Medicare payment policies, particularly regarding payments to health plans in Medicare Advantage and providers in traditional fee-for-service Medicare. 

So here are the Payment Basics for at least this part of Medicare.

MEDPAC.gov revised 10/2023 - Payment Basics - PHYSICIAN AND OTHER HEALTH PROFESSIONAL PAYMENT SYSTEM 

It is also updated each year too - MEDPAC reports to Congress in March and June.  

Here is the March 2025 where they are evaluating the payments for the up and coming year of 2026 

MEDPAC.gov - Assessing payment adequacy and updating payments in fee-for-service Medicare