When Medicare Changes What It Pays Doctors and Hospitals

Medicare updates its fee schedules once a year, on January 1st

The Centers for Medicare & Medicaid Services (CMS) releases new payment rates for doctors, hospitals, and other providers every January. These changes affect what Medicare pays for almost every service — office visits, surgeries, imaging, lab work, physical therapy, and hundreds of other procedures. The new rates take effect on the first day of the year and stay in place for the full 12 months.

CMS publishes the proposed rates in the Federal Register in the fall, usually in late October or early November. There is a public comment period of about 60 days where doctors, hospitals, patient groups, and others can submit feedback. CMS then publishes the final rates in November, giving providers about six weeks to update their billing systems before January 1st.

The rates do not all move in the same direction. Some services get a payment increase, others a decrease. The overall change depends on a formula that includes inflation adjustments, changes in the cost of running a medical practice, and updates to how CMS values different types of work. In recent years, the overall Medicare physician payment rate has sometimes stayed flat or gone down, even as some individual services went up.

Key Takeaways

Medicare fee schedules change once per year, effective January 1st, and the new rates explore to all Medicare claims filed from that date forward.
CMS publishes proposed rates in the Federal Register in fall and final rates in November, giving providers time to reprogram their billing systems.
Payment rates for different services move independently — some increase while others decrease in the same year.
The overall payment adjustment is set by a formula that includes inflation, practice cost changes, and updates to how CMS values medical work.
You can find the current year's fee schedules and historical rates on the CMS website, organized by service type and provider specialty.

How the payment rates are calculated

CMS uses a system called the Resource-Based Relative Value Scale (RBRVS) to set most Medicare physician fees. Under this system, every service gets a relative value unit (RVU) based on three components: the work the doctor does, the practice expense (rent, staff, equipment), and malpractice insurance costs. CMS multiplies the RVU by a conversion factor — a dollar amount that changes each year — to arrive at the actual payment.

The conversion factor is where the annual adjustment happens. Congress sets a target for how much total Medicare physician spending should grow each year. If spending is projected to exceed that target, the conversion factor may be reduced. If it is projected to stay under the target, the factor may increase slightly. This is why the overall payment adjustment can be zero or negative even in years when inflation is rising.

Hospital inpatient payments work differently. CMS uses a system called Diagnosis-Related Groups (DRGs), where each hospital stay gets assigned to a group based on the diagnosis and procedures performed. Each DRG has a base payment amount that is adjusted for the hospital's location, teaching status, and other factors. These base amounts also update every January.

Where to find the current fee schedules

The official Medicare fee schedules are published on the CMS website at cms.gov. You can search by specialty, service code, or year. The site has separate sections for physician fees, hospital inpatient rates (DRGs), hospital outpatient rates, and other provider types.

The easiest way to find what Medicare pays for a specific service is to search the CMS Physician Fee Schedule Lookup tool. You enter the procedure code (called a CPT code) and your state, and the tool shows you the 2024 payment amount, the work RVU, the practice expense RVU, and the malpractice RVU. The tool also shows historical rates going back several years, so you can see how a particular service's payment has changed.

If you are looking at a hospital bill or a doctor's bill and want to know what Medicare paid, you can also request an Explanation of Benefits (EOB) from your Medicare plan. The EOB shows the allowed amount (what Medicare says the service is worth) and what was actually paid after any deductible or coinsurance.

Why the rates change year to year

The main driver of year-to-year changes is the conversion factor adjustment, which is set by a formula in federal law. The formula compares projected Medicare physician spending to a target growth rate. If spending is expected to grow faster than the target, the conversion factor shrinks. If it is expected to grow slower, the factor may grow.

A second reason rates change is that CMS periodically updates the RVU values for individual services. This happens when medical societies submit evidence that a service's work, practice expense, or malpractice cost has changed significantly. For example, if a new surgical technique takes much longer than the old one, the surgeon's work RVU for that procedure may increase. These updates are less common than the annual conversion factor adjustment, but they can have a big effect on payment for specific services.

CMS also adjusts rates to account for geographic differences. The practice expense component of the RVU includes a geographic adjustment factor that reflects differences in rent, wages, and other costs across regions. These geographic factors are updated periodically based on actual cost data.

How rate changes affect your out-of-pocket costs

When Medicare payment rates go down, doctors and hospitals do not automatically lower what they charge you. However, the change does affect how much you owe. If you have Original Medicare, you pay 20 percent of the Medicare-approved amount after you meet your deductible. If the approved amount goes down, your 20 percent coinsurance also goes down.

If you have a Medicare Advantage plan, the rate changes may affect your copays and coinsurance, but the effect is indirect. Your plan's copay structure is set by the plan, not by Medicare's fee schedule. However, plans do use Medicare's payment rates as a reference when negotiating with providers and setting their own payment amounts.

If you see an out-of-network provider, the rate changes have less effect on you. Out-of-network providers can charge whatever they want, and you are responsible for the full bill minus any Medicare payment. The Medicare fee schedule is only a reference point in that case.

When to expect announcements about next year's rates

CMS publishes the proposed physician fee schedule in the Federal Register in late October or early November each year. The notice includes the proposed conversion factor, any RVU changes, and the reasoning behind the changes. There is a 60-day public comment period.

The final rates are published in November, usually in the middle of the month. The final rule includes a summary of the comments received and CMS's responses. The rates take effect on January 1st of the following year.

If you want to track these announcements, you can sign up for email alerts on the Federal Register website (federalregister.gov) for notices from CMS about the Medicare physician fee schedule. You can also check the CMS website directly — the Medicare Learning Network publishes a calendar of upcoming rate releases.

Frequently Asked Questions

Do Medicare Advantage plans use the same fee schedules as Original Medicare?

Medicare Advantage plans must pay providers at least as much as Original Medicare does, but they can pay more. Plans often negotiate their own rates with providers, so the actual payment may be higher than the Medicare fee schedule. Your out-of-pocket costs depend on your plan's copay structure, not directly on the Medicare fee schedule.

Can a doctor charge me more than the Medicare fee schedule allows?

If your doctor accepts Medicare assignment, they agree to accept the Medicare-approved amount as payment in full (except for your deductible and coinsurance). They cannot bill you for the difference. If your doctor does not accept assignment, they can charge up to 15 percent more than the Medicare-approved amount under the limiting charge rule.

How far back can I find historical Medicare fee schedules?

The CMS website maintains fee schedules going back to 2007 for most services. The Physician Fee Schedule Lookup tool shows historical rates for the past several years. If you need rates from before 2007, you may need to contact CMS directly or check with your provider's billing department.

Do the fee schedules change for things like lab work and imaging?

Yes. Lab tests, X-rays, ultrasounds, and other diagnostic services all have their own fee schedules that update every January. These are sometimes called the Clinical Laboratory Fee Schedule and the Physician Fee Schedule for diagnostic services. They follow the same annual update cycle as physician office visit fees.

What happens if Medicare's payment rate drops below what a service actually costs a provider?

Some providers stop accepting Medicare patients or limit how many they see. Others absorb the loss or shift costs to private insurance patients. There is no automatic adjustment if a provider argues that the rate is too low — the rate stays in place for the full year unless Congress changes the law.

This guide is for general information only and is not medical, financial, legal, or other professional advice. For decisions specific to your situation, consult a qualified professional. See our Editorial Policy.