Medicare fee schedules explained
A Medicare fee schedule is a published list of the maximum amounts Medicare recognizes for covered items and services. Rather than paying billed charges, Medicare pays according to predetermined allowed amounts that vary by the type of service, the setting, the geographic locality, and the calendar year. The Centers for Medicare & Medicaid Services (CMS) maintains several distinct fee schedules, and the amounts are updated on a recurring cycle, so any specific figure is date-, locality-, and program-specific. This article explains how the schedules are constructed and how the resulting allowed amount relates to what a practice ultimately collects. It does not state any dollar value, because those change and must be read from the current CMS source. For how the amounts appear once a claim is processed, see reading the Medicare remittance and MSN.
Updated 7 min read
Reviewed by Anwaar Tayyab
Director of Billing Operations ·
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Key takeaways
- A fee schedule is a maximum allowed amount, not a guarantee of payment; coverage, medical necessity, and beneficiary cost-sharing still apply.
- The Medicare Physician Fee Schedule uses a resource-based relative value scale, geographic adjustment factors, and an annual conversion factor to derive payment.
- Medicare publishes several separate fee schedules — for physician services, clinical laboratory tests, durable medical equipment, and ambulance services — each with its own methodology, and prices separately payable Part B drugs under an average-sales-price methodology rather than a fee schedule.
- Actual payment depends on assignment and participation status, the applicable locality, and whether the service is subject to reductions or additional payment rules.
- All amounts are date- and locality-specific and must be verified against current CMS publications rather than memorized or reproduced.
What a Medicare fee schedule is
A fee schedule is a complete listing of the payment amounts Medicare recognizes for each covered service or item, indexed by the applicable code from a national code set. Under the fee-for-service model, Medicare does not reimburse a provider's charge; it establishes an allowed amount in advance and pays a defined share of that amount once a claim is adjudicated. The recognized figure functions as a ceiling for participating providers, and the difference between the charge and the allowed amount is typically recorded as a contractual adjustment.
An allowed amount is not the same as a payment. Whether Medicare pays anything depends on eligibility, coverage policy, and medical necessity, which may be defined by a national or local coverage determination. Even when a service is payable, the beneficiary generally owes a deductible and coinsurance, and a secondary payer may cover part of the balance under coordination of benefits.
Fee schedules change
How the Physician Fee Schedule is built
The Medicare Physician Fee Schedule (PFS) is the schedule most professional services are paid under. It is built on a resource-based relative value scale, which assigns each service a set of relative value units (RVUs) reflecting the relative resources a service consumes rather than a flat price. Those RVUs are then adjusted for geography and multiplied by a national conversion factor to produce a payment amount.
- Relative value units (RVUs)
- Each service carries three RVU components — physician work, practice expense, and malpractice — reflecting the relative effort, overhead, and liability associated with performing it.
- Geographic Practice Cost Indices (GPCIs)
- Each RVU component is adjusted by a locality-specific index so that payment reflects regional differences in input costs. Localities are defined by CMS and administered through each region's contractor.
- Conversion factor
- A national dollar multiplier that converts the geographically adjusted RVU total into a payment amount. Anesthesia services are paid using a conversion factor of their own. CMS updates these values on a defined cycle, so any figure is inherently date-specific.
Conceptually, the geographically adjusted RVUs for the three components are summed and multiplied by the conversion factor. Additional rules can raise or lower the result — for example, adjustments tied to the site of service, multiple-procedure reductions, or payment modifiers. Because localities are administered regionally, the applicable amounts for a given practice depend on its assigned Medicare Administrative Contractor jurisdiction.
Other Medicare payment methodologies
The PFS is one of several schedules. Different categories of items and services are paid under separate methodologies that CMS publishes independently. The table below compares them at a conceptual level; it does not state amounts, which vary by year and locality.
| Payment methodology | Applies to | Basis of the amount |
|---|---|---|
| Physician Fee Schedule (PFS) | Professional services billed on the CMS-1500 / electronic equivalent | RVUs adjusted by GPCIs times a conversion factor |
| Clinical Laboratory Fee Schedule | Covered clinical diagnostic laboratory tests — reached only once the laboratory date-of-service rule has settled whether the hospital or the performing laboratory bills | Statutorily defined methodology using market-based data |
| DMEPOS fee schedule | Durable medical equipment, prosthetics, orthotics, and supplies — a category with conditions an item must meet before this schedule is the one that applies | Fee amounts and, in some areas, competitively determined rates |
| Ambulance Fee Schedule | Covered ambulance transports, whose claims state the journey through origin-and-destination modifiers | Base rate plus mileage, with geographic adjustment applied from the point of pickup |
| Part B drug pricing | Separately payable drugs and biologicals | Average-sales-price methodology set in statute |
For how separately payable drugs are handled, see Medicare Part B drugs and biologicals.
Institutional services billed on the UB-04 are frequently paid under prospective payment systems rather than a fee schedule; those methodologies are addressed in the Medicare Part A billing and Medicare Part B billing articles.
From allowed amount to what is collected
The fee schedule amount is the starting point, not the ending point. What a practice actually receives depends on how it relates to Medicare and on the beneficiary's cost-sharing.
Determine the allowed amount
Identify the correct schedule, year, and locality, then read the recognized amount for the service. Medicare's allowed amount is the lesser of the actual charge on the claim or that fee schedule amount, so billing above the schedule does not raise it.Apply assignment and participation
A provider's assignment and participation status determine whether the allowed amount is accepted as full payment and how much may be balance-billed. See assignment and participation.Subtract beneficiary cost-sharing
Medicare generally pays its share after the deductible, leaving coinsurance as patient responsibility or the obligation of a secondary payer.Reconcile against the remittance
The remittance advice reports the allowed, paid, and adjusted amounts once adjudication is complete, which is where any variance is identified.
Note
Why fee schedules matter for billing
Because Medicare pays from a published schedule, accurate expectations depend on using the right amount for the right service, setting, locality, and date. Charging above the allowed amount does not increase Medicare payment for participating providers; the excess is adjusted. Misreading the applicable schedule or locality can produce underpayment write-offs or reconciliation gaps, which is why fee schedule data is a routine input to revenue cycle management.
- Fee schedule amounts are inputs to patient cost estimates, but estimates should account for deductible status and secondary coverage.
- Coverage policy and medical necessity determine whether a scheduled amount is payable at all; a listed amount does not imply coverage.
- Amounts differ across contractor jurisdictions, so multi-site organizations may work from more than one locality.
- Because values are revised on a cycle, fee schedule files should be refreshed for each applicable period.
Caution
Frequently asked questions
Does the fee schedule amount mean Medicare will pay that amount?
No. The fee schedule states the maximum allowed amount Medicare recognizes for a covered service. Actual payment depends on coverage and medical necessity, the beneficiary's deductible and coinsurance, the provider's assignment and participation status, and whether another payer is primary. The listed figure is a ceiling, not a payment guarantee.
Why do Medicare payment amounts differ between locations?
The Physician Fee Schedule adjusts each service using Geographic Practice Cost Indices, which reflect regional differences in input costs. Localities are defined by CMS and administered through regional Medicare Administrative Contractors, so the same service can carry different recognized amounts in different jurisdictions.
Is there a single Medicare fee schedule?
No. CMS maintains several separate schedules, including the Physician Fee Schedule, the Clinical Laboratory Fee Schedule, the DMEPOS fee schedule, and the Ambulance Fee Schedule, plus a separate methodology for Part B drugs. Many institutional services are paid under prospective payment systems rather than a fee schedule.
How is a Physician Fee Schedule amount calculated?
Each service carries relative value units for work, practice expense, and malpractice. Those units are adjusted by locality-specific geographic indices and then multiplied by a national conversion factor. Additional rules, such as site-of-service adjustments or multiple-procedure reductions, can further modify the result. The specific values change on a defined cycle.
Where are current Medicare fee schedule amounts published?
CMS publishes the fee schedules and their methodologies, and updates them on a recurring cycle. Because amounts are date- and locality-specific, they should be read from the current CMS source for the correct year and jurisdiction rather than reproduced from a static figure.
Related glossary terms
Terms that recur when working with Medicare fee schedules and the amounts they produce.
Related reading
Related Medicare billing topics that build on how fee schedules are applied.
Assignment and participation
How a provider's relationship to Medicare determines whether the allowed amount is accepted as full payment.
Medicare Administrative Contractors (MACs)
The regional contractors that administer localities and process claims against the fee schedules.
Reading the Medicare remittance and MSN
How allowed, paid, and adjusted amounts appear once a claim is adjudicated.
Medicare Part B drugs and biologicals
The separate average-sales-price methodology used for many separately payable drugs.
National and local coverage determinations
How coverage policy decides whether a scheduled amount is payable at all.
Anesthesiology billing
The specialty paid outside relative value units entirely — base units plus time units, multiplied by a conversion factor of its own.
Authoritative sources
- Medicare fee schedules — general information (opens in a new tab)
Centers for Medicare & Medicaid Services. Describes a fee schedule as a complete listing of fee maximums used to pay physicians and other providers and suppliers on a fee-for-service basis, names the schedules CMS develops — physician, ambulance, clinical laboratory, and DMEPOS — and hosts the ZIP-code-to-carrier-locality file that maps localities to Medicare Administrative Contractors.
- 42 CFR 414.20 — Formula for computing fee schedule amounts (opens in a new tab)
eCFR. States the physician fee schedule formula — the RVUs for the service, multiplied by the geographic adjustment factor for the fee schedule area, multiplied by the conversion factor — and sets the amount for a nonparticipating supplier at 95 percent of that figure.
- 42 CFR 414.22 — Relative value units (RVUs) (opens in a new tab)
eCFR. Establishes the three RVU components CMS sets for each service — physician work, practice expense, and malpractice insurance — and the separate facility and nonfacility practice expense RVUs (414.22(b)(5)) that make the site of service change the amount.
- 42 CFR 414.26 — Determining the geographic adjustment factor (opens in a new tab)
eCFR. Sets out the three geographic indices — physician work, practice expense, and malpractice — each applied to the corresponding share of a service's relative value in a given fee schedule area, which is why the same service carries different recognized amounts in different localities.
- 42 CFR part 414 — Payment for Part B medical and other health services (opens in a new tab)
eCFR. The part that holds the separate methodologies compared here: physicians and other practitioners (subpart B, where 414.21 bases payment on the lesser of the actual charge or the applicable fee schedule amount), durable medical equipment and prosthetic and orthotic devices (subpart D, including the fee schedule adjustments drawn from competitive bidding information at 414.210(g)), clinical diagnostic laboratory tests (subpart G, where 414.507 sets the rate at a weighted median of private payer rates), ambulance services (subpart H, where 414.610 sets a base rate plus mileage adjusted by a geographic adjustment factor), and drugs and biologicals under Part B (subpart K, where 414.904 bases payment on average sales price).