The monthly numbers come in on a call with your billing lead, and one line gets more attention than the rest: what the insurance companies allowed, shown as a percent of what Medicare would have paid. At a practice we worked with, that number fell from about 104% to under 90% in two months. No contract had been renegotiated. No insurance company had announced a rate cut. The owner asked what happened, billing opened the report and looked harder, and the report could not say.
That turned out to be the finding. The report let the number fall for reasons that had nothing to do with rates, and it had no way to separate those reasons from a real one. To see how, it helps to know where this number sits on the path from a visit to money in the bank. A visit happens, it becomes a claim (the bill sent to the insurance company), and the insurance company answers with an allowed amount, which is the price it agrees the visit was worth, split between its share and the patient’s share. This number compares that allowed amount to Medicare’s price for the same service. It sits at the moment the insurance company answers, before any of the money moves.
Why would reimbursement as a percent of Medicare drop when no contract changed?
Because the number is a ratio, and three things inside the ratio can move without any insurance company touching a rate: what the report treats as the Medicare amount, which visits are counted on the top of the fraction versus the bottom, and how the report decides which kind of provider billed the visit. Any one of them can move the number on its own. All three were moving here.
What the number is supposed to measure
The idea is sound. Take what the insurance companies allowed for each service code (the billing code that names what was done), divide it by what Medicare pays for the same code, and watch that ratio by month. The ratio is the goalpost, because it tells you what a visit is worth before anyone tries to collect it. When it moves, the money you can expect to collect moves with it, before a single claim goes wrong.
The trouble was in how the ratio was put together. Three choices, each reasonable on the day it was made, and each one able to move the number for reasons that have nothing to do with what insurance companies pay.
“Medicare” in the report was half the fee
The report did not use Medicare’s actual price list, the fee schedule Medicare publishes for every service each year. It used half of the practice’s own charge. That rests on one assumption: that the charge for every code, every year, on every provider’s setup in the billing system is set at exactly twice the Medicare rate.
Charge lists drift. Prices get updated for some providers and left alone for others. The day one code or one provider slips off “exactly double,” the yardstick slips with it, and nobody notices, because nobody watches the yardstick. A yardstick made from your own prices is a mirror.
The top and the bottom counted different visits
The average allowed amount, on top, was worked out over visits that had actually been paid. The average fee, on the bottom, was worked out over every visit that month. Those are two different groups of visits, and the report treated them as one.
Now picture what happens when posting slows down (posting is recording each insurance company’s answer against the visit in your billing system), or when a large insurance company stops answering. Both happened at this practice in the same month, and the silent insurer was one of the better paying ones. The pile of paid visits shrinks and shifts toward whoever is still paying, so the average allowed amount moves, and the number on the page moves with it. No contracted rate has changed. A ratio built that way measures which insurance companies have answered so far.
“Billed under a physician” was a typed list of names
Medicare pays a nurse practitioner 85% of the physician rate for the same service, and commercial insurance contracts set their own discount for the same reason. So the first place to look when this number drops is the split between visits billed under a physician and visits billed under a nurse practitioner, because a shift toward nurse practitioners lowers the number without any rate changing.
The report had that split. It was built from a list of physicians’ names someone had typed in, with hand-entered start dates. Add a physician, change a name, or bill under a supervising physician who is missing from the list, and the split is wrong with no warning. The billing system already knew each provider’s type. Nobody had asked it.
Part of the fall was real
The share of visits billed under a physician had dropped, and at 85 cents on the physician’s dollar, that moves the goalpost on its own. That part deserves a real conversation about who bills which visits and why, because it is a real change in what the practice’s work is worth.
The rest was arithmetic: the pile of paid visits shrinking and shifting in a month when posting slowed and a large insurance company went quiet. The report could not say how much of the fall was real and how much was arithmetic. Until it can, “our reimbursement is down” is a feeling with a decimal point.
How to build the number so it cannot fool you
Four choices, and none of them is exotic. Use Medicare’s real fee schedule for the code, the year, and the place of service (office, telehealth, or facility, because Medicare prices them differently). Your billing system already holds that price list. Keep “half our fee” on the chart as a second line if you like, because the gap between the two lines is your own charge list drifting.
Put the same visits on the top and the bottom. Only claims the insurance company has answered go into the ratio. Answers of zero dollars (a claim the insurer answered and paid nothing on) get shown both ways, in and out of the ratio, and labeled. Claims nobody has answered yet get their own count, because they are a different problem. Take provider type from the billing system, which knows it, never from a list of names that somebody has to remember to update.
Then split every month-to-month change into its causes: provider mix, place of service, insurance company mix, code mix, zero-dollar answers, and, after all of that, an actual change in what an insurance company allows. That last step is where a report stops being a report. “The goalpost fell six points this month. Four are provider mix, one is an insurer processing us as out of network, and one we cannot explain yet.” A person can act on that sentence. “Reimbursement is down” gives them nothing to act on.
What this means for you
Ask three questions about your own report this week. What is “Medicare” in this report? If the answer is any fraction of your own charge list, you have a mirror. Do the top and the bottom of the fraction count the same visits? If the top counts only paid claims and the bottom counts everything, the number moves whenever posting slows or an insurer goes quiet. How does the report decide “billed under a physician”? If someone typed the names, ask when the list was last updated, then ask what the billing system says.
Grab 30 minutes with us. Prep nothing. You will see whether your percent of Medicare number is measuring your rates or measuring which insurance companies have answered.
Questions people ask
What does “percent of Medicare” mean in medical billing?
It is the amount insurance companies allow for a service (their share plus the patient’s share) divided by what Medicare pays for the same service code in the same year and setting. A practice at 104% of Medicare is allowed 4% more than Medicare would pay. The number should move only when rates or the mix of visits move.
Why did our reimbursement drop when no contract changed?
Check the report before the insurance companies. A percent of Medicare number can fall when the report uses half the charge as “Medicare,” when it averages paid visits on top and all visits on the bottom, or when it decides provider type from a typed list of names. A shift toward nurse practitioner visits also lowers it, and that part is real.
How should allowed amount as a percent of Medicare be calculated?
Use Medicare’s fee schedule for the code, year, and place of service. Put only answered claims in the ratio, count unanswered claims separately, take provider type from the billing system, and split each month’s change into provider mix, place of service, insurer mix, code mix, zero-dollar answers, and real rate change.
Does Medicare pay nurse practitioners 85% of the physician rate?
Yes. Under the Medicare physician fee schedule, services billed under a nurse practitioner’s own number are paid at 85% of the physician amount. Under specific supervision rules, some visits can be billed under a supervising physician at the full rate, which is why the physician-versus-nurse-practitioner split matters.
Which visits belong in a reimbursement rate?
Only the ones an insurance company has answered. A claim with no answer yet has no allowed amount, so it belongs in a separate count. Answers of zero dollars should be shown both ways, in the ratio and out of it, and labeled, because a wave of zero-dollar answers is its own warning sign.