Chapter 3: Medicare, Medicaid, and the Government Payers: The Rulebook Everyone Else Copies

"Every commercial payer in the country has a policy department. Most of what that department does is decide how far to depart from what Medicare already published." — constructed; the working premise of this chapter

Overview

Here is a claim that sounds like an exaggeration and is not: if you learn one payer thoroughly, learn Medicare, and you will understand three-quarters of what every other payer does.

Not because Medicare is the biggest payer in your practice — depending on your specialty it may be small. Because Medicare publishes. It publishes the relative value methodology that sets what a service is worth, and most commercial contracts are written as a percentage of it. It publishes the correct coding edits, and most commercial payers adopt them wholesale or with modifications. It publishes coverage determinations in a structured, citable, public format, and commercial medical policy is written in imitation of that format and frequently in explicit reference to it. It publishes its manuals, its audit methodology, its appeal levels, and its claim processing rules, all free, all searchable.

No commercial payer does any of this. Commercial policy is proprietary, unevenly published, and inconsistent between products of the same insurer. When you cannot find out why a commercial payer did something, the fastest route to an answer is usually to find out what Medicare does and ask whether this payer followed it.

That is the argument of §3.1, and the rest of the chapter is the machinery: the four parts of Medicare, the contractor that actually processes your claims, what participation and assignment mean when the payer is the federal government, how coverage is determined and where to read the determination, what Medicare Advantage changes, why Medicaid is fifty programs wearing one name, and what happens when a patient has both.

In this chapter, you will learn to:

• Explain why Medicare's methodology governs commercial payment
• Distinguish Parts A, B, C, and D by what each covers and how each is claimed
• Describe what a Medicare Administrative Contractor decides
• Distinguish participating, non-participating, and opt-out status, and compute a limiting charge
• Find and read the coverage determination that governs a service
• Explain why Medicaid varies so much and what that means operationally
• Determine primacy under Medicare Secondary Payer rules

Learning Paths

🎓 Certification — §3.2, §3.4, and §3.5 are heavily examined. The limiting charge calculation appears on essentially every credential. Know the ABN rules in outline; Chapter 22 covers them in depth.

💼 New Coder — §3.1 and §3.5 explain why a diagnosis has to justify a procedure. §3.10 is where you will spend the rest of your career.

💵 Biller / AR — §3.3, §3.4, §3.6, and §3.8 are operational. Medicare Advantage denials and crossover failures will be a meaningful share of your queue.

🏥 Practice Manager — §3.4 (the participation decision is yours to make and it has real money in it), §3.6, and §3.7. If you take Medicaid, §3.7 is not optional.

3.1 Why Medicare's rules are your rules even when Medicare isn't the payer

Medicare is a federal health insurance program, established by the Social Security Amendments of 1965, covering people aged 65 and over, people under 65 with certain disabilities, and people with end-stage renal disease or amyotrophic lateral sclerosis. Roughly one in five Americans is enrolled.

But its influence on your daily work runs far past its enrollment, through four channels.

1. The pricing methodology. Medicare pays physicians under the Medicare Physician Fee Schedule, which prices every service by relative value units — a measure of the work, practice expense, and malpractice risk each service represents — adjusted geographically and multiplied by a national conversion factor. Chapter 23 builds it in full. The point here is that most commercial professional contracts are written as a percentage of that schedule. When you saw "118% of Medicare" in Chapter 2 §2.6, you were looking at a commercial payer outsourcing its entire relative pricing structure to CMS. It sets the shape of commercial payment — which services are worth more than which — even where it does not set the level.

2. The correct coding edits. The National Correct Coding Initiative is a CMS program that publishes, quarterly and free, a list of code pairs that may not be billed together and a list of maximum units per code per day. Chapter 21 is entirely about it. Commercial payers overwhelmingly adopt these edits, sometimes verbatim, sometimes with their own additions. When a commercial payer bundles two codes and will not tell you why, the NCCI tables are the first place to look — and frequently the answer.

3. The coverage determination structure. Medicare publishes what it covers, in what circumstances, with which diagnoses, at what frequency, in documents anyone can read: national coverage determinations and local coverage determinations (§3.5). Commercial medical policy is written in the same shape, is often derived from the Medicare policy, and — when it is more restrictive — is more restrictive against a public baseline you can point at in an appeal.

4. The compliance and audit apparatus. The False Claims Act, the Anti-Kickback Statute, the physician self-referral law, the audit contractor structure, extrapolation methodology, the documentation standards that auditors apply — all of it developed around federal health program claims, and all of it now shapes how commercial payers audit too. Chapter 37 covers this.

WHY MEDICARE IS UPSTREAM OF EVERYTHING

                        ┌──────────────────────────┐
                        │   CMS publishes, free    │
                        └────────────┬─────────────┘
        ┌────────────────┬───────────┼───────────┬────────────────┐
        ▼                ▼           ▼           ▼                ▼
   ┌─────────┐   ┌──────────────┐ ┌──────┐ ┌──────────┐  ┌──────────────┐
   │  MPFS   │   │ NCCI edits + │ │ NCDs │ │ Manuals  │  │ Audit &      │
   │  RVUs   │   │ MUEs         │ │ LCDs │ │ 100-04   │  │ appeal       │
   │         │   │              │ │      │ │ 100-08   │  │ structure    │
   └────┬────┘   └──────┬───────┘ └───┬──┘ └────┬─────┘  └──────┬───────┘
        │               │             │         │               │
        ▼               ▼             ▼         ▼               ▼
   "118% of        adopted by    imitated by  cited in    modeled by
    Medicare"      commercial    commercial   appeals     commercial
                   payers        medical                  SIU review
                                 policy

   NET EFFECT: to explain a commercial payer's behavior, first find out
   what Medicare does. Then ask how far this payer departed from it.

⚠️ Where Claims Die

Assuming the reverse. Medicare's influence is real and it is not total, and the specific way people get burned is by assuming a commercial payer follows Medicare when it does not.

Three reliable divergences:

• Consultation codes. Medicare stopped recognizing the 992xx consultation family for payment years ago; many commercial payers still pay them. Billing a consultation to Medicare gets you a denial; billing an initial visit code to a commercial payer that pays consultations gets you underpaid. Chapter 16 §16.5.
• Modifier and edit overrides. Commercial payers frequently add edits Medicare does not have and relax ones Medicare does.
• Coverage of preventive and screening services. The Medicare benefit and the commercial preventive-services benefit have different lists, different frequencies, and different modifiers — modifier PT for Medicare, modifier 33 for commercial. Chapter 22 and Chapter 34.

The habit that protects you: use Medicare as the default hypothesis, never as the answer. Verify against the specific payer's published policy before you rely on it.

3.2 Part A, Part B, Part C, Part D

Four parts, and the division confuses everyone including clinicians. The cleanest way to hold it is by who furnishes the service and where.

Parts A and B together are "Original Medicare" or "traditional Medicare" or "fee-for-service Medicare." A beneficiary in Original Medicare can see any provider who accepts Medicare, has no network, and needs no referral.

Part C is not additional coverage. It is Parts A and B, delivered differently. A beneficiary who enrolls in a Medicare Advantage plan is still a Medicare beneficiary, but their claims go to the plan, not to Medicare, and the plan's rules apply. §3.6.

The cost sharing, structurally

The specific dollar amounts change annually and must be looked up for the current year. What does not change is the structure, and the structure is what generates your work:

• Part A has a deductible per benefit period — not per year — plus daily coinsurance amounts that begin after a set number of days in a stay. A benefit period begins on admission and ends after the beneficiary has been out of a hospital or skilled nursing facility for 60 consecutive days, which means a beneficiary can owe more than one Part A deductible in a calendar year.
• Part B has an annual deductible and then 20% coinsurance on most services, with no out-of-pocket maximum. That last clause is the important one: Original Medicare has no ceiling. This is why the majority of Original Medicare beneficiaries carry supplemental coverage — a Medigap policy, retiree coverage, or Medicaid.
• Certain preventive services are covered with no cost sharing at all, which creates the screening-versus-diagnostic problem Chapter 22 and Chapter 34 both address.

🎓 Exam Watch

Three reliably examined points:

The benefit period. Part A's deductible is per benefit period, not per year, and the benefit period ends after 60 consecutive days out of an inpatient setting. Expect a stem asking how many deductibles a beneficiary owes given two admissions with a gap between them.

No out-of-pocket maximum in Original Medicare. Distractors will offer a figure. There is none.

Part B covers outpatient hospital services. Students reason "hospital = Part A" and get it wrong. The rule is not building-based: an inpatient admission is Part A; an outpatient encounter at the same hospital is Part B, billed by the hospital on a UB-04 and paid under OPPS (Chapter 34).

3.3 The Medicare Administrative Contractor and what it decides

You do not send a claim to Medicare. You send it to a Medicare Administrative Contractor — a private company under contract with CMS to process claims for a defined geographic jurisdiction.

MACs are assigned by jurisdiction and by claim type. A single organization can deal with an A/B MAC for its Part A and Part B claims and a separate DME MAC for durable medical equipment. Which MAC you deal with is determined by where the service was furnished (or, for DME, generally by where the beneficiary lives).

What a MAC does:

• Processes and pays claims
• Publishes local coverage determinations and billing and coding articles — §3.5, and the reason your MAC's website is a bookmark rather than a curiosity
• Enrolls providers and maintains enrollment records
• Conducts medical review, including prepayment review and Targeted Probe and Educate (Chapter 37)
• Handles the first level of Medicare appeals, redetermination (Chapter 30 §30.7)
• Answers provider inquiries and publishes education

What a MAC does not do: set national policy, decide what Medicare covers nationally, or change a national coverage determination. It applies national policy and fills gaps locally.

⚠️ Where Claims Die

Reading the wrong MAC's policy.

Local coverage determinations are local. A practice that finds an LCD through a search engine and relies on it without checking which jurisdiction published it can be following a policy that does not apply to it — and the differences between jurisdictions are real, particularly on frequency limits and covered diagnosis lists.

Find out which MAC covers your location. Bookmark its LCD index. Check that the policy you are reading is the one that governs your claims. It takes one minute and it is the difference between an argument you win and one you lose on a technicality.

3.4 Assignment, participation, and the limiting charge

Chapter 2 §2.3 distinguished participation (a pricing question) from assignment (a routing question) and noted that in Medicare the two are linked and carry statutory meanings. Here they are.

A physician or supplier chooses one of three statuses each year:

Participating

The provider signs an agreement to accept assignment on all Medicare claims. That means: accept the Medicare-approved amount as payment in full, collect only the deductible and coinsurance from the beneficiary, and receive payment directly from Medicare.

In exchange, participating providers are paid at the full Medicare Physician Fee Schedule amount, are listed in Medicare's directories, and have their claims paid directly.

The overwhelming majority of physicians participate.

Non-participating

The provider has not signed the participation agreement and may choose, claim by claim, whether to accept assignment.

Two things follow, and both are examined constantly:

First, non-participating providers are paid at 95% of the fee schedule amount — a five percent reduction.

Second, when a non-participating provider does not accept assignment, they may bill the beneficiary more than the approved amount — but only up to the limiting charge, which is 115% of the non-participating fee schedule amount (that is, 115% of the already-reduced 95% figure).

🧮 Run the Numbers

The limiting charge, computed properly. [constructed teaching example; verify current fee schedule values]

Assume the participating Medicare fee schedule amount for a service is \$200.00.

Step	Calculation	Result
Participating fee schedule amount	given	\$200.00
Non-participating fee schedule amount	\$200.00 × 0.95 | **\$190.00**
Limiting charge	\$190.00 × 1.15 | **\$218.50**

Now compare what happens to everyone under three scenarios:

(a) Participating provider. Approved amount \$200.00. Medicare pays 80% = \$160.00; the beneficiary owes 20% = \$40.00 (assuming the Part B deductible is met). Provider collects \$200.00.

(b) Non-participating, accepts assignment. Approved amount \$190.00. Medicare pays 80% = \$152.00; beneficiary owes \$38.00. Provider collects \$190.00. Medicare pays the provider directly.

(c) Non-participating, does not accept assignment. The provider may charge the beneficiary up to the limiting charge of \$218.50, and collects it from the beneficiary. Medicare reimburses the beneficiary \$152.00 (80% of the \$190.00 approved amount). **Provider collects \$218.50 — the most of the three — and the beneficiary is out \$66.50 net** (\$218.50 paid, \$152.00 reimbursed), against \$40.00 in scenario (a).

The interpretation. Non-participation without assignment yields the most revenue per service and costs the beneficiary the most, and the provider now has to collect the entire amount from an individual rather than receiving \$152.00 automatically from Medicare. It is a real trade-off, it is legal, it is not free of consequences, and it is a decision the practice makes once a year during the annual participation election period.

(The 95% and 115% factors are statutory. The \$200.00 is illustrative. Certain practitioner types and certain services have different rules, and some states impose stricter limits than the federal limiting charge. Verify.)

Opting out

A third status: a physician may opt out of Medicare entirely and furnish services under private contracts with beneficiaries. In that arrangement Medicare pays nothing, the beneficiary pays the agreed amount, and — this is the part that matters — no claim may be submitted and the limiting charge does not apply. Opt-out has a defined duration and specific requirements for the private contract's content, and it is not a decision to make casually or per-patient.

⚖️ Compliance Check

The limiting charge is a legal cap, not a guideline. Charging a Medicare beneficiary more than the limiting charge on an unassigned claim is a violation with refund obligations and penalty exposure, and it is the kind of thing that is trivially detectable in data.

Two related traps:

Balance billing a beneficiary on an assigned claim. If you accepted assignment, the approved amount is payment in full. The only things collectible from the beneficiary are the deductible, coinsurance, and any non-covered service for which proper notice was given (Chapter 22).

Collecting from a dual-eligible beneficiary. A beneficiary enrolled in both Medicare and Medicaid — specifically, a Qualified Medicare Beneficiary — is protected from Medicare cost sharing by federal law, and providers may not bill them for Medicare deductibles or coinsurance, regardless of whether the state Medicaid program actually pays it. This protection is widely violated, usually inadvertently, and CMS has issued repeated guidance about it. §3.8.

Verify current rules and your state's requirements, which may be stricter, with your compliance officer.

3.5 National and local coverage determinations

Medicare covers services that are "reasonable and necessary for the diagnosis or treatment of illness or injury or to improve the functioning of a malformed body member" — statutory language from the Social Security Act that Chapter 22 §22.2 examines closely.

That sentence does not decide individual cases. Two document types do.

National coverage determinations (NCDs)

A national coverage determination is a nationwide decision by CMS about whether Medicare covers a particular item or service, and under what conditions. NCDs are binding on all MACs. They are relatively few, they are developed through a formal process with public comment, and they tend to address expensive, contested, or new technologies.

Where an NCD exists, a MAC cannot contradict it.

Local coverage determinations (LCDs)

A local coverage determination is a MAC's decision, for its jurisdiction, about whether an item or service is reasonable and necessary — used where there is no NCD, or to fill in details an NCD leaves open.

Alongside an LCD, a MAC typically publishes a billing and coding article (sometimes called a local coverage article) that contains the operational specifics: the covered diagnosis codes, the frequency limits, the documentation requirements, and the modifiers.

This is the part practitioners most often miss. The LCD states the policy; the article usually carries the code lists. If you read the LCD and stop, you may not have found the list of ICD-10-CM codes that support coverage — which is generally the thing you actually needed.

📋 Read the Chart

text FIGURE 3.1 — "The policy that decides the claim" [constructed teaching example, modeled on the structure of a real LCD] THE DOCUMENT A local coverage determination and its companion billing and coding article, published by the MAC for this jurisdiction. Effective date and revision history shown at the top of each; both are versioned. THE CONTEXT A provider wants to know whether an injection procedure will be covered for a particular patient and diagnosis. WHAT IT SHOWS The LCD states the indications, the limitations, and the frequency the contractor considers reasonable and necessary. The ARTICLE lists the specific ICD-10-CM codes that support medical necessity and the CPT/HCPCS codes the policy applies to. WHAT IT DOESN'T It does not tell you what the service pays — that is the fee schedule. It does not bind any commercial payer. It does not apply outside this MAC's jurisdiction. And it is versioned: the policy in effect on the DATE OF SERVICE governs, not the one on your screen. THE DECISION Check the diagnosis against the article's covered list BEFORE the service. If the patient's documented diagnosis is not on it, that is a conversation to have now, not a denial to appeal later. THE LESSON Coverage is knowable in advance, for free, in a published document with a version history. A denial for medical necessity on a service governed by an LCD is almost always a failure to read it.

```text LOCAL COVERAGE DETERMINATION L##### [constructed structural example] ───────────────────────────────────────────────────────────────────────── CONTRACTOR A/B MAC, Jurisdiction ▪ ORIGINAL EFF ▪▪/▪▪/▪▪▪▪ REVISION EFF ▪▪/▪▪/▪▪▪▪ REV # 7

COVERAGE GUIDANCE Indications ......... the clinical circumstances under which the contractor considers the service reasonable and necessary Limitations ......... circumstances under which it is NOT covered, including frequency Documentation ....... what the medical record must contain

▸ SEE ALSO: Billing and Coding Article A##### — contains the ICD-10-CM codes that support medical necessity and the CPT/HCPCS codes to which this policy applies. ◄── THIS is where the code lists live. ───────────────────────────────────────────────────────────────────────── ```

When a service is not covered

Two categories, and they are not the same:

Statutorily excluded. The service is not a Medicare benefit at all — routine dental, most cosmetic surgery, hearing aids and routine hearing exams, most routine foot care. No coverage determination is involved; the statute simply does not include it. These are never covered, and no documentation changes that.

Not reasonable and necessary in this case. The service is a Medicare benefit in general but is not covered for this patient, this diagnosis, or at this frequency, under an NCD or LCD.

The distinction determines which notice is required and which modifier applies, and it is Chapter 22's central operational content. In outline: an Advance Beneficiary Notice of Noncoverage (Form CMS-R-131) is used when a normally covered service is expected to be denied as not reasonable and necessary, transferring financial liability to the beneficiary if they choose to proceed. It is not required for statutorily excluded services, and issuing one routinely — to every patient, for every service, as a blanket protection — is improper and can invalidate it.

3.6 Medicare Advantage: same benefit, different rules

A Medicare Advantage plan (Part C) is a private plan under contract with CMS that delivers the Part A and Part B benefit — usually with Part D, and usually with extra benefits Original Medicare does not cover, such as routine dental, vision, or hearing.

The beneficiary is still a Medicare beneficiary. But operationally, almost everything changes.

That last row is the operational trap and it produces a specific, extremely common failure.

⚠️ Where Claims Die

Billing Medicare for a Medicare Advantage beneficiary.

A patient says "I have Medicare." They do. They also enrolled in a Medicare Advantage plan, which means the MAC is not the payer, and a claim sent to the MAC will be denied — commonly with a reason code indicating the claim is not covered by this payer or contractor and directing you to the correct one.

The patient frequently does not understand the distinction. They may carry both cards. They may say "it's just my Medicare, through [plan name]," which is, in fairness, an accurate description of the thing.

The only reliable defense is the eligibility transaction, which will return the Medicare Advantage enrollment. Ask for the card, run eligibility, and do not reason from what the patient tells you about their coverage. Chapter 24 §24.3.

The second, subtler failure: a practice that is in network with a commercial insurer's commercial products is not automatically in network with that insurer's Medicare Advantage product. Same insurer, different network, different contract. Chapter 2 §2.4 warned about this and Medicare Advantage is where it bites hardest.

Medicare Advantage also introduces the payment mechanism that Chapter 36 is about. CMS pays the plan a risk-adjusted capitated amount per enrollee per month, based in substantial part on the diagnoses documented and reported for that enrollee. Which means: in a Medicare Advantage population, diagnosis codes do not merely justify services — they determine what the plan is paid for the member for the following year. That is why risk-adjustment coding exists as a specialty, why it is under sustained enforcement attention, and why Account 10-4471's diabetes line is going to come back in Chapter 36.

3.7 Medicaid: fifty programs, one name

Medicaid is a joint federal-state program providing coverage to people with low incomes and to certain other categories — including, importantly, a large share of American births and the majority of long-term care.

It is administered by the states, within federal requirements, and the variation is enormous. Different eligibility categories, different covered benefits beyond the mandatory federal minimum, different fee schedules, different prior authorization rules, different claim forms and submission portals, different timely filing windows, different provider enrollment processes.

A biller who has worked one state's Medicaid program knows one state's Medicaid program.

Four structural facts that hold everywhere:

1. Medicaid is the payer of last resort. By federal law, Medicaid pays after all other liable payers. If a patient has Medicare, commercial insurance, or any other coverage, that pays first. Billing Medicaid before the primary payer produces a denial in every state.

2. Medicaid payment is generally low, and balance billing the beneficiary is generally prohibited. In most circumstances a provider who accepts Medicaid accepts its payment as payment in full and may not bill the beneficiary for the difference. The specific rules on nominal cost sharing vary by state and by eligibility category.

3. Most Medicaid enrollment is now in managed care. States contract with Medicaid managed care organizations, and the operational reality for a biller is that "Medicaid" is frequently a private plan with its own network, its own prior authorization requirements, and its own claims address. Verify which one, every time.

4. CHIP — the Children's Health Insurance Program — covers children in families with incomes above Medicaid limits, and is administered by states as an expansion of Medicaid, as a separate program, or as a combination.

📞 On the Phone

Medicaid conversations have a particular difficulty: eligibility can change month to month, and the patient often does not know it has.

What happens: a patient who was eligible in March has a redetermination in April, does not return the paperwork, and loses coverage on the first of May. They present on May 12 with a card that looks perfectly valid, because it is the same card. They believe they are covered. Nothing visible has changed.

What to do: verify eligibility on the date of service, every visit, without exception. This is not a formality for Medicaid the way it can be for a stable commercial plan; monthly eligibility churn is a structural feature of the program.

What to say if coverage has lapsed: "Your Medicaid coverage shows as inactive as of the first of this month — that usually means a renewal form is outstanding, and it's very often fixable. Can I give you the number to call? If you get it reinstated retroactively, we can bill it normally. I don't want you to leave here thinking you owe us money that you may not."

Many states allow retroactive reinstatement for a lapse of this kind, which means the difference between a bill the patient cannot pay and no bill at all is frequently one phone call that nobody told them to make.

3.8 Dual eligibles, crossover claims, and Medicare Secondary Payer

Dual eligibles

A dual eligible is enrolled in both Medicare and Medicaid. Medicare pays first; Medicaid may pay some or all of the Medicare cost sharing, depending on the state and the eligibility category.

The category to know is the Qualified Medicare Beneficiary (QMB). Federal law prohibits providers from billing a QMB for Medicare deductibles, coinsurance, or copayments — whether or not the state actually pays them. If the state's payment is zero because its rate is below what Medicare already paid, the provider absorbs it and may not bill the patient.

This is one of the most frequently violated protections in American healthcare billing, almost always inadvertently, and CMS has issued repeated guidance about it. The remittance advice from Medicare indicates QMB status; the practice management system frequently does not surface it; and the balance flows to a patient statement automatically.

If your practice sees dual eligibles, build a control for this. It is a compliance obligation, not a courtesy, and the population it protects is the least able to absorb the error.

Crossover claims

When a beneficiary has Medicare plus a secondary payer registered through Medicare's coordination of benefits process — Medicaid, a Medigap policy, or certain other coverage — Medicare can automatically forward the adjudicated claim to the secondary. That is a crossover claim, and when it works, the provider does nothing: the secondary receives the claim with Medicare's adjudication attached and processes it.

When it does not work — and it frequently does not, usually because the secondary is not correctly registered in the coordination-of-benefits file — the claim sits, and the provider discovers it in the aging report thirty or sixty days later.

The operational habit: the Medicare remittance advice tells you whether the claim crossed over. Read that indicator. If it says the claim crossed, do not bill the secondary — you will create a duplicate. If it says it did not, bill the secondary yourself, promptly, with the Medicare adjudication attached. Chapter 28 §28.10.

Medicare Secondary Payer

Medicare is not always primary. The Medicare Secondary Payer provisions define circumstances in which another payer pays first, and getting this wrong produces both denials and, in the other direction, overpayments that must be refunded.

The common situations:

The employee-count thresholds — 20 and 100 — are examined constantly, and they are the reason practices are required to ask about current employment and other coverage. The Medicare Secondary Payer Questionnaire is the standard instrument; Chapter 24 §24.7 covers administering it.

🎓 Exam Watch

Expect a stem like: "A 68-year-old patient is actively employed at a company with 42 employees and is covered by the employer's group health plan. Which is primary?"

The group health plan. The employer has 20 or more employees and the beneficiary is actively working.

Change the stem to 12 employees and the answer flips to Medicare. Change it to a retired 68-year-old with retiree coverage and the answer is Medicare, because retiree coverage is not "current employment status." That last distinction — active employment, not merely coverage — is the one candidates miss most.

The 100-employee threshold applies to the disability entitlement basis, not the age-65 basis. Keep the two thresholds attached to their entitlement categories.

3.9 The Medicare Summary Notice and what the beneficiary sees

Chapter 1 §1.2 taught the four numbers from the provider's side. Here is what the beneficiary receives.

A Medicare beneficiary in Original Medicare gets a Medicare Summary Notice — not a bill, quarterly rather than per-claim, listing services, the amount the provider charged, the Medicare-approved amount, what Medicare paid, and the maximum the beneficiary may be billed.

That last column is worth pausing on. It is a legal ceiling printed and mailed to the patient. A beneficiary comparing your statement to their Medicare Summary Notice and finding your number higher has strong grounds for a complaint and a straightforward path to make one.

Medicare Advantage enrollees receive an Explanation of Benefits from their plan instead, on the plan's schedule and in the plan's format.

🧮 Run the Numbers

Reading a Medicare Summary Notice line against your own account. [constructed teaching example]

```text MEDICARE SUMMARY NOTICE — Part B [constructed]

Service Amount Medicare- Medicare Maximum you date provider approved paid may be billed charged amount provider --------- -------- -------- -------- ------------- 03/14 185.00 96.52 77.22 19.30 ```

• Charge \$185.00; Medicare-approved amount **\$96.52; contractual adjustment \$88.48**
• Medicare paid 80% of \$96.52 = **\$77.22** (\$77.216 → \$77.22)
• Beneficiary owes 20% = **\$19.30** (\$19.304 → \$19.30)
• Check: \$77.22 + \$19.30 = \$96.52 ✓

If your statement to this beneficiary says anything other than \$19.30, you have a problem — unless they have a secondary payer that covers part of it, in which case your statement should say less. It may never say more.

(The \$96.52 is the constructed Medicare allowed amount for 99214 used throughout this book; see Chapter 23 §23.6 for its derivation. Verify current values.)

3.10 Where to look things up, free, every time

The most valuable thing in this chapter is not a fact. It is a list of places.

Bookmark all of them today. Not when you need them.

🔍 Check Your Understanding

1. A commercial payer bundles two codes and its policy is not published. What is your first move, and why is it likely to work?
2. A patient presents a red-white-and-blue Medicare card and a card from a commercial insurer. What are the two entirely different situations this could be, and how do you tell them apart?
3. A non-participating provider does not accept assignment. The participating fee schedule amount is \$300.00. What is the most the beneficiary may be charged?

(Answers: 1. Check the NCCI edit tables and Policy Manual — most commercial bundling logic is adopted from or modeled on NCCI, so the federal file frequently explains the commercial behavior. 2. Either (a) Original Medicare with a Medigap or other secondary, or (b) a Medicare Advantage plan, in which case the commercial card is the payer and Medicare is not. Run the eligibility transaction; do not guess from the cards. 3. \$300.00 × 0.95 = \$285.00 non-par amount; × 1.15 = \$327.75.)

🗂️ The Encounter

🗂️ The Encounter

What this chapter contributes: the counterfactual.

Account 10-4471's patient is 58 and commercially insured. Suppose instead they were 68 and enrolled in Original Medicare, and everything clinical about the visit were identical.

```text ACCOUNT 10-4471 — the Medicare counterfactual [constructed teaching example; every figure illustrative — verify current values]

LINE CODE CHARGE MEDICARE ADJUSTMENT PATIENT MEDICARE ALLOWED (20%) (80%) ---- -------- ------- -------- ---------- ------- -------- 1 99214-25 185.00 96.52 88.48 19.30 77.22 2 20610-RT 150.00 63.28 86.72 12.66 50.62 3 J1030 18.00 5.44 12.56 1.09 4.35 4 36415 14.00 3.00 11.00 0.60 2.40 ---- -------- ------- -------- ---------- ------- -------- TOTAL 367.00 168.24 198.76 33.65 134.59

CHECK 1: 367.00 - 168.24 = 198.76 ✓ CHECK 2: 168.24 - 33.65 = 134.59 ✓ (Part B deductible assumed already satisfied for the year.) ```

Set that beside the commercial result from Chapter 2:

	Commercial (Northfield Mutual)	Original Medicare
Charges	367.00	367.00
Allowed	216.28	168.24
Contractual adjustment	150.72	198.76
Patient responsibility	47.58	33.65
Payer	168.70	134.59

Four things to notice, and the third is the interesting one.

The practice collects 22% less. \$168.24 against \$216.28 — a difference of \$48.04 on one four-line encounter. Multiply by a panel and you have the reason payer mix determines whether a practice is viable.

The contractual adjustment grows. Same charge, lower allowed amount, so more is written off. The charge did nothing in either case.

The patient pays less under Medicare — \$33.65 against \$47.58 — and that is not what anyone expects. The reason is structural: the commercial plan applies a flat \$30.00 copay to the office visit, while Medicare applies 20% coinsurance to everything. Twenty percent of \$96.52 is \$19.30. The copay is worse for the patient than the coinsurance on this particular line, because the copay was set without reference to what the service is worth. Chapter 2's rule that cost sharing is computed on the allowed amount has an exception, and the exception is the copay — which is computed on nothing at all.

And the Medicare beneficiary would receive a Medicare Summary Notice stating, in a column, \$19.30 as the maximum they may be billed for line 1. The commercial patient receives nothing comparable.

What this settles. How payer identity changes every number on an account without changing a single thing about the care.

What it does not settle. Whether the codes are right — still Parts II and III. And where \$96.52 came from, which is Chapter 23 and which now has a second reason to matter: it is the reference point the commercial contract in Chapter 2 was written against.

Open questions: Q5 (the knee) and Q6 (the \$185.00 charge) remain open. This chapter did not touch either.

Conclusion

Medicare is not the largest payer in most practices and it is the most important one to understand, because it publishes and everyone else copies.

What was decided in this chapter. The four channels through which Medicare's methodology reaches commercial claims: pricing, edits, coverage structure, and audit. The four parts and what each covers, with the structural facts that do not change — Part A's benefit period, Part B's 20% coinsurance and absence of any out-of-pocket maximum. What a Medicare Administrative Contractor decides and why its website is a bookmark. The three participation statuses, the 95% non-participating reduction, and the 115% limiting charge — with the arithmetic worked and the trade-off named. NCDs, LCDs, and the billing and coding article where the code lists actually live. What Medicare Advantage changes, which is nearly everything operational. Why Medicaid is fifty programs and why eligibility must be verified every single visit. Dual eligibles, the QMB billing prohibition, crossover claims, and the Medicare Secondary Payer thresholds of 20 and 100. And a list of free places to look things up that will outlast every specific fact in this chapter.

What remains open. Everything about the codes. Chapter 22 will return to coverage determinations with the operational depth this chapter only outlined; Chapter 23 will derive \$96.52; Chapter 36 will show what Medicare Advantage's risk-adjusted payment does to a diagnosis code.

The bridge to Chapter 4. Three chapters have now discussed at length what a claim is worth and who decides. Not one of them has looked at the thing all of it rests on: the clinical documentation. Every allowed amount in this book is an allowed amount for a code, and every code is an assertion about what a provider wrote in a medical record. If the record does not support the code, none of the machinery in Chapters 1 through 3 matters — the money is recoverable, the claim is false, and the coder is the person who put it there. Chapter 4 is the note.

Key Terms

Medicare Part A (Hospital Insurance) — covers inpatient hospital, skilled nursing facility, home health, and hospice, with a deductible per benefit period rather than per year. (Ch.3)

Medicare Part B (Medical Insurance) — covers physician services, outpatient hospital, durable medical equipment, laboratory, and most preventive services; annual deductible then 20% coinsurance, with no out-of-pocket maximum. (Ch.3)

Medicare Part C (Medicare Advantage) — Parts A and B (usually with D) delivered by a private plan under contract with CMS, with networks, referrals, prior authorization, and its own appeal process. (Ch.3)

Medicare Part D — outpatient prescription drug coverage through private plans. (Ch.3)

Medicare Administrative Contractor (MAC) — the private company under contract with CMS that processes claims for a jurisdiction, publishes local coverage determinations, conducts medical review, and handles the first level of appeal. (Ch.3)

Beneficiary — a person enrolled in Medicare. (Ch.3)

Assignment — an agreement to accept the Medicare-approved amount as payment in full and receive payment directly from Medicare. (Ch.3)

Participating provider — one who has agreed to accept assignment on all Medicare claims, paid at the full fee schedule amount. (Ch.3)

Non-participating provider — one who may accept assignment claim by claim, paid at 95% of the fee schedule amount, and limited to the limiting charge on unassigned claims. (Ch.3)

Limiting charge — the statutory maximum a non-participating provider may charge a beneficiary on an unassigned claim: 115% of the non-participating fee schedule amount. (Ch.3)

National coverage determination (NCD) — a nationwide CMS decision on whether Medicare covers an item or service, binding on all MACs. (Ch.3)

Local coverage determination (LCD) — a MAC's jurisdiction-specific determination of whether a service is reasonable and necessary, usually accompanied by a billing and coding article carrying the covered diagnosis codes. (Ch.3)

Advance Beneficiary Notice of Noncoverage (ABN) — Form CMS-R-131, used to transfer financial liability to a beneficiary when a normally covered service is expected to be denied as not reasonable and necessary. Not used for statutorily excluded services, and improper if issued routinely. (Ch.3)

Medicaid — the joint federal-state program covering low-income and certain other populations, administered by the states within federal requirements, and the payer of last resort. (Ch.3)

Dual eligible — a person enrolled in both Medicare and Medicaid. (Ch.3)

Qualified Medicare Beneficiary (QMB) — a dual-eligible category whose members may not be billed by providers for Medicare deductibles or coinsurance, regardless of what the state pays. (Ch.3)

CHIP — the Children's Health Insurance Program, covering children in families above Medicaid income limits, administered by states as a Medicaid expansion, a separate program, or a combination. (Ch.3)

Medicare Secondary Payer (MSP) — the statutory provisions defining when another payer pays before Medicare, including the 20-employee and 100-employee group health plan thresholds. (Ch.3)

Crossover claim — a Medicare-adjudicated claim automatically forwarded to a registered secondary payer. (Ch.3)

Medicare Summary Notice (MSN) — the quarterly statement sent to Original Medicare beneficiaries listing charges, approved amounts, what Medicare paid, and the maximum they may be billed. (Ch.3)

Spaced Review

1. The participating fee schedule amount for a service is \$420.00. Compute the non-participating amount and the limiting charge, and state what a beneficiary would be out of pocket, net of Medicare's reimbursement, if a non-participating provider did not accept assignment.

2. (Chapter 2) A 67-year-old is actively employed at a firm with 31 employees and is covered by the employer's group health plan. Which payer is primary? Now change the firm to 9 employees. Now change the patient to retired. Explain each answer.

3. A patient hands you a Medicare card and a card from a large commercial insurer. Name the two distinct situations this could be, say how you would tell them apart, and state what happens if you guess wrong in each direction.

4. (Chapter 1) Medicare's approved amount for a service is \$96.52 and the provider charged \$185.00. State all four numbers and both checks, assuming the Part B deductible is met and there is no secondary coverage.

5. You need to know whether Medicare covers a particular imaging study for a particular diagnosis. Name the document type you are looking for, the companion document that usually carries the code list, and the one thing you must check about the version you find.