The Medicare Physician Fee Schedule, Explained

Medicare uses the Resource-Based Relative Value Scale (RBRVS) to determine payment for every service on the Physician Fee Schedule. The system was designed to reflect the actual inputs that go into a physician's work — time, skill, overhead, and liability — rather than historical charge patterns. The result is a formula that applies uniformly across the country, adjusted for local costs.

The RBRVS formula

Payment for each service is calculated as:

Payment = (Work RVU + Practice Expense RVU + Malpractice RVU) × Geographic Adjustments × Conversion Factor

Each component reflects a real input:

—Work RVU:the physician's time, mental effort, technical skill, physical effort, and psychological stress associated with the service.
—Practice Expense RVU: overhead costs — staff, equipment, supplies. Varies between facility and non-facility settings.
—Malpractice RVU: the relative cost of professional liability insurance for the service.
—Geographic Price Cost Index (GPCI): adjusts each RVU component for local cost differences across 89 payment localities nationwide.
—Conversion Factor: a single dollar multiplier that translates total adjusted RVUs into a dollar payment. Updated annually by CMS through the Medicare Physician Fee Schedule final rule.

The Conversion Factor and individual RVU values change each year. Always reference the current CMS Physician Fee Schedule Lookup Tool for exact figures — do not rely on values from prior years.

Facility vs. non-facility rates

The same procedure code pays at two different rates depending on where it's performed. The distinction matters for every site-of-service decision your practice makes.

Office (non-facility)

—Higher Practice Expense RVU
—Medicare pays more because the physician bears the overhead
—Applies when:service performed in the physician's own office or clinic

Hospital or ASC (facility)

—Lower Practice Expense RVU
—The facility bills separately for overhead; Medicare pays the facility fee
—Applies when: service performed at a hospital outpatient department, ASC, or other facility

The same procedure code can pay significantly differently depending on where it's performed. This directly affects site-of-service decisions — particularly for procedures that can be performed either in-office or at an outpatient facility.

Geographic Price Cost Indices

GPCIs adjust each RVU component — Work, PE, and MP — based on where you practice. CMS maintains 89 payment localities, each with its own GPCI values. A GPCI above 1.0 means your locality costs more than the national average; below 1.0, less. Rural and underserved areas often have lower GPCIs, which has been a persistent policy concern driving rural physician reimbursement discussions. CMS posts updated GPCI values annually with the MPFS final rule.

Finding your actual rates

The CMS MPFS Lookup Tool (available at cms.gov → Medicare Physician Fee Schedule) lets you look up payment for any CPT code in any locality. It is the authoritative source — not a third-party estimator.

01Go to the CMS MPFS Lookup Tool
02Select the current calendar year
03Enter the CPT or HCPCS code
04Select your locality or enter your ZIP code
05Choose facility or non-facility setting

Why the allowed amount is less than what you bill

Physicians often bill above Medicare's allowed amount — sometimes intentionally to maintain flexibility across payers, sometimes because charge masters aren't updated annually to reflect fee schedule changes. The billed charge is irrelevant to what Medicare will pay; the fee schedule governs. Billing above the fee schedule does not increase your Medicare payment.

Medicare pays 80% of the allowed amount under Part B, with the patient responsible for the 20% Part B coinsurance (or a Medigap supplement covering it). The write-off between your charge and the allowed amount is a contractual obligation of participating in Medicare — it cannot be billed to the patient.

For CO-45 denials — charge exceeds allowed amount — the relevant question is whether Medicare's allowed amount was correctly calculated for your locality and setting, not whether your charge was reasonable.

→CO-45 denial guide: charge exceeds allowed amount

Common questions

Does Medicare Advantage use the same fee schedule?

No. Medicare Advantage plans negotiate their own rates with providers. MA plan rates may be higher or lower than traditional Medicare's fee schedule, depending on the contract. Your MA contracts govern, not the CMS MPFS — though many MA plans use a percentage of the MPFS as a benchmark when setting their reimbursement levels.

Why did my Medicare payment drop from last year?

Two factors move annually: the Conversion Factor (set by Congress through the physician payment update, subject to budget neutrality requirements) and RVU values (updated by CMS based on AMA RUC recommendations). Even if your volume is the same, a lower CF or reduced RVUs for your specific codes will reduce your payment. The annual MPFS final rule, published each November for the following year, details every change.