What Medicare's Allowed Amount Is and Why It Matters to Your Bill

Medicare's allowed amount is the maximum price Medicare will pay for a specific service or supply. It is not the same as what your doctor charges, and it is not the same as what you pay. When your doctor bills Medicare, Medicare looks up that service in its fee schedule, finds the allowed amount, and pays 80 percent of it (after you meet your deductible). Your doctor is required to accept this amount as payment in full — they cannot bill you for the difference between their charge and what Medicare allows.

The allowed amount varies by location, by the type of provider, and by the specific service. A knee X-ray in rural Montana has a different allowed amount than the same X-ray in New York City. A cardiologist's office visit has a different allowed amount than a primary care doctor's office visit for the same length of appointment. Understanding how this number is set helps you predict what you will owe and what Medicare will cover.

Key Takeaways

  • Medicare's allowed amount is the maximum it will pay for a service, set in advance by location and service type, not based on what your doctor charges.
  • Your out-of-pocket cost is 20 percent of the allowed amount (after your deductible), not 20 percent of what your doctor's bill says.
  • Doctors who accept Medicare must accept the allowed amount as full payment and cannot bill you for the difference.
  • You can find the allowed amount for a specific service before your appointment by using the Medicare Physician Fee Schedule lookup tool on the CMS website.
  • If your doctor does not accept Medicare, you may owe the full charge, and Medicare's allowed amount does not protect you.

How Medicare Calculates the Allowed Amount

Medicare uses a system called the Relative Value Unit (RVU) to set allowed amounts. Each medical service — an office visit, a lab test, a procedure — is assigned a relative value based on how much work, skill, and cost it requires. A complex surgery has a higher RVU than a routine blood draw. Medicare then multiplies that RVU by a dollar conversion factor, which changes each year. The result is adjusted up or down based on where you live, because the cost of running a medical practice differs between regions.

This system has been in place since 1992 and is called the Medicare Physician Fee Schedule. Congress sets the conversion factor each year, and geographic adjustments are built in for over 80 different regions across the country. A service that costs $100 to deliver in one area might have an allowed amount of $95 in a rural region and $110 in an urban region, depending on local practice costs.

Medicare updates the fee schedule every January. If your doctor's charge is lower than the allowed amount, Medicare pays based on the lower charge. If your doctor's charge is higher, Medicare still pays only the allowed amount, and your doctor cannot bill you for the rest.

The Difference Between What Your Doctor Charges and What Medicare Allows

Your doctor sets their own fee schedule — what they charge for each service. This charge can be higher, lower, or equal to Medicare's allowed amount. If your doctor charges $200 for an office visit and Medicare's allowed amount is $150, Medicare pays 80 percent of $150 ($120), and you pay 20 percent of $150 ($30). Your doctor must write off the $50 difference and cannot ask you to pay it.

This is why the allowed amount matters more than the charge. Your cost is tied to the allowed amount, not to what the bill says. If you see a doctor who charges $500 for a visit but Medicare's allowed amount is $150, you still owe only 20 percent of $150 — not 20 percent of $500.

Some doctors charge less than the allowed amount. In those cases, Medicare pays 80 percent of the lower charge, and you pay 20 percent of the lower charge. You benefit from the lower price.

Where to Find the Allowed Amount Before Your Appointment

The Centers for Medicare & Medicaid Services (CMS) publishes the Medicare Physician Fee Schedule online at no cost. You can search by service code, by provider name, or by location. The tool is called the Medicare Physician Fee Schedule Lookup and is available on the CMS website under "Physician Fee Schedule."

To use it, you need to know the service code (called a CPT code or HCPCS code) for what you are having done. Your doctor's office can tell you this code when you schedule your appointment. Once you have the code, you enter your state and the service code, and the tool shows you the allowed amount for that region. This number is what Medicare will use to calculate its payment and your 20 percent cost.

If you cannot find the code or the tool, call your doctor's office and ask them directly: "What is the Medicare allowed amount for this service in my area?" Most offices have this information in their billing system and can tell you in one call.

What Happens If Your Doctor Does Not Accept Medicare

If your doctor is a non-participating provider — meaning they do not accept Medicare — the allowed amount still exists, but it does not protect you the same way. Medicare will still pay 80 percent of its allowed amount, but your doctor can bill you for the difference between their charge and what Medicare pays. This difference can be substantial.

Non-participating doctors can charge up to 15 percent more than the allowed amount under a rule called the limiting charge. If the allowed amount is $150, they can charge up to $172.50. Medicare pays 80 percent of $150 ($120), and you owe 20 percent of $150 ($30) plus the $22.50 difference — a total of $52.50 instead of $30.

Before seeing a non-participating doctor, ask their office what they charge and what the Medicare allowed amount is. Then you can calculate what you will actually owe. If the difference is large, you may want to find a participating provider instead.

How Allowed Amounts Affect Your Deductible and Out-of-Pocket Maximum

Your Medicare Part B deductible ($240 in 2024, though this changes yearly) and your out-of-pocket maximum are based on allowed amounts, not on what your doctor charges. If the allowed amount is $150 and your doctor charges $300, only the $150 counts toward your deductible. Once you have paid $240 in allowed amounts, your deductible is met for the year, and Medicare begins paying its share.

The same rule applies to your out-of-pocket maximum — the most you will pay in a calendar year for Part B services. Only the 20 percent of allowed amounts counts toward this limit. Charges above the allowed amount do not count, because you should never owe them if your doctor participates in Medicare.

This is another reason why the allowed amount is important to know: it determines when your deductible is satisfied and how close you are to your annual spending limit.

When the Allowed Amount Changes

Medicare updates the allowed amount for every service every January. The conversion factor may go up or down depending on what Congress approves. Geographic adjustments can also shift if CMS updates the cost data for your region, though this is less common.

If you have a service done in December and another identical service done in January, the allowed amount may be different. Your doctor's office usually knows about these changes before they take effect, so if you are planning a procedure, asking in late December whether the allowed amount will change in January can help you plan your costs.

You do not need to do anything when the allowed amount changes. Medicare handles the update automatically. Your doctor's billing system will reflect the new allowed amount on January 1.

Frequently Asked Questions

Can my doctor bill me if their charge is higher than Medicare's allowed amount?

No, if your doctor participates in Medicare. They must accept the allowed amount as full payment. If they do not participate, they can charge up to 15 percent more than the allowed amount and bill you for the difference, but they must tell you this in writing before you receive care.

Does the allowed amount include the cost of supplies or just the doctor's time?

The allowed amount covers the entire service as Medicare defines it — the provider's work, equipment, supplies, and overhead. Some supplies (like certain diabetic testing strips) have separate allowed amounts. Ask your doctor's office if a supply has its own code or if it is included in the service code.

What if I think the allowed amount is wrong?

The allowed amount is set by CMS and applies to all Medicare beneficiaries in your region. You cannot dispute it. If you believe your doctor charged you incorrectly based on the allowed amount, contact Medicare at 1-800-MEDICARE and provide your claim number and explanation of benefits.

Does the allowed amount explore to emergency room visits?

Yes. Emergency room visits have allowed amounts just like any other service. The amount may be higher than an office visit because emergency care involves different resources. Medicare pays 80 percent of the allowed amount after your deductible, the same as other Part B services.

If I have a Medigap or Medicare Advantage plan, does the allowed amount still matter?

Yes. Medigap and Medicare Advantage plans use the same allowed amounts that Original Medicare uses. Your supplemental plan pays based on what Medicare allows, not on what your doctor charges. The allowed amount is the foundation for all Medicare payment calculations.