Medicare Secondary Payment Calculation

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When a claim is filed in a timely manner and meets all other filing requirements of the third-party payer (TPP), the amount of secondary benefits payable by Medicare is the lowest of three figures:

  1. Actual charge by the provider (or the amount the provider is obligated to accept as payment in full if that is less than the charges) minus the amount paid by the third-party payer;
  2. Amount Medicare would pay if services were not covered by a TPP.; or
  3. Higher of the Medicare fee schedule or other amount that would be payable under Medicare (without regard to any Medicare deductible and/or coinsurance amounts) or the TPP's allowable charge (without regard to any copayment imposed by the policy or plan) minus the amount actually paid by the TPP.

NOTE: In general, Workers Compensation (WC) medical benefits constitute a service benefit (i.e., the payment constitutes full discharge of the patient's liability for services). In such cases, physicians/suppliers are obligated to accept the WC payment as payment in full and no secondary Medicare benefits are payable. However, if WC pays for Medicare covered services and, under the WC plan, the physician/supplier is not obligated to accept the payment as payment in full, Medicare secondary benefits may be payable.

To calculate the amount of Medicare secondary benefits payable on a given claim, it is generally necessary to have the following information not otherwise required in processing Medicare claims:
  • The amount paid by the TPP; and
  • The TPP's allowable charge.

This information can generally be derived from the TPP's EOB. In the following examples, all physicians/suppliers have accepted assignment.

EXAMPLE 1: An individual received treatment from a physician who charged $175. The individual's Part B deductible had been met. As a primary payer, an employer allowed $150 of the charge and paid 80 percent of this amount or $120. The fee schedule amount for this treatment is $125. The Medicare secondary payment is calculated as follows:
  1. Actual charge by the physician minus the third party payment: $175 - $120 = $55.
  2. Determine the Medicare payment in the usual manner: .80 X $125 = $100.
  3. Employer plan's allowable charge of $150 (which is higher than Medicare's fee schedule amount of $125) minus the employer plan's payment of $120 equals $30.
  4. Pay $30 (lowest of amounts in steps 1, 2, or 3).

EXAMPLE 2: An individual received treatment from a physician who charged $50. The individual's Part B deductible had been met. As a primary payer, an employer plan allowed a fee schedule payment of $20. The Medicare fee schedule amount for the treatment is $40. The Medicare secondary payment is calculated as follows:
  1. Actual charge by the physician minus the third party payment: $50 - $20 = $30.
  2. Determine the Medicare payment in the usual manner: .80 X $40 = $32.
  3. Medicare's fee schedule amount of $40 (which is higher than the employer plan's allowable charge of $20) minus the employer plan's payment of $20 equals $20.
  4. Pay $20 (lowest of amounts in steps 1, 2, or 3).

EXAMPLE 3: An individual received treatment from a physician who charged $140. The individual's unmet Part B deductible was $100. As primary payer, an employer plan allowed $120 and paid 80 percent of this amount or $96. The Medicare fee schedule amount for his treatment is $110. The Medicare secondary payment is calculated as follows:
  1. Actual charge by the physician minus the third party payment: $140 - $96 = $44.
  2. Determine the Medicare payment in the usual manner: $110 - $100 = $10 X .80 = $8.
  3. Employer plan's allowable charge of $120 (which is higher than Medicare's fee schedule amount of $110) minus the employer plan's payment of $96 equals $24.
  4. Pay $8 (lowest of amounts in steps 1, 2, or 3).

The beneficiary's Medicare deductible is credited with $100, the amount that would have been credited to the deductible based on the fee schedule amount of $110 if Medicare had been primary payer.

The beneficiary can be charged $6 (the $110 fee schedule amount minus the sum of the $96 primary payment plus the $8 Medicare payment).

EXAMPLE 4: An individual received treatment from a physician who charged $250. The individual had previously met $50 of the $100 Part B deductible for that year. As primary payer, an automobile insurer allowed the $250 charge in full. The insurer deducted $100 from the $250 physician charge to meet its own deductible and paid 80 percent of the remaining $150, or $120. The Medicare fee schedule amount for this treatment is $200. The Medicare secondary payment is calculated as follows:
  1. Actual charge by the physician minus the third party payment: $250 - $120 = $130.
  2. Determine the Medicare payment in the usual manner: $200 - $50 = $150 X .80 = $120.
  3. TPP's allowable charge of $250 (which is higher than Medicare's fee schedule amount of $200) minus its payment of $120 equals $130.
  4. Pay $120 (lowest of amounts in steps 1, 2, or 3).

The beneficiary's Medicare deductible is credited with $50, the amount that would have been credited to the deductible based on the fee schedule amount of $200 payable if Medicare had been primary payer.

The beneficiary's Medicare deductible has now been met in full since $50 of the $100 deductible was met previously.

The beneficiary cannot be billed by the physician because the sum total of the primary payment ($120) and the Medicare payment ($120) exceeds the fee schedule amount ($200).

EXAMPLE 5: An individual received treatment from a physician who charged $360. The individual paid the physician $50 and the physician also filed a claim with a GHP. The individual's unmet Medicare deductible was $100. The GHP's allowable charge was $250 and, as a primary payer, it paid the physician $200. The claim showed the total charge and other amounts paid by the GHP and the individual. The Medicare fee schedule amount for the treatment is $300. The Medicare secondary payment is calculated as follows:
  1. Actual charge by the physician minus the third party payment: $360 - $200 = $160
  2. Determine the Medicare payment in the usual manner: $300 - $100 = $200 X .80 = $160.
  3. Medicare's fee schedule amount of $300 (which is higher than the EGHP's allowable charge of $250) minus the EGHP's payment of $200 equals $100.
  4. Pay $100 (lowest of amounts in steps 1, 2, or 3).

Since the physician collected $50 from the individual, the $100 Medicare payment is split: $50 goes to the individual and $50 goes to the physician. The beneficiary's Medicare deductible is credited with $100, the amount that would have been credited to the deductible based on the fee schedule amount of $300 if Medicare had been primary payer.

The beneficiary cannot be billed by the physician because the sum total of the primary payment ($200) and the Medicare payment ($100) equals the fee schedule amount ($300).

EXAMPLE 6: An individual received treatment from a physician who charged $175. The individual's Part B deductible had been met. As a primary payer, an employer plan allows $160 but has a preferred physician arrangement under which the physician agrees to accept 90 percent of the plan's allowable amount as payment in full [i.e., $144 ($160 x .90)]. The plan also has a $50 deductible for physician services, which yet has not been satisfied in any part. Thus, the plan pays $94 ($144 preferred physician rate minus $50 deductible). The fee schedule amount for this treatment is $150. The Medicare secondary payment is calculated as follows:
  1. The amount the physician is obligated to accept as payment in full minus the third party payment: $144 - $94 = $50.
  2. Determine the Medicare payment in the usual manner: $150 X .80 = $120.
  3. Employer plan's allowable charge of $160 (which is higher than Medicare's fee schedule amount of $150) minus the employer plan's payment of$94 equals $66.
  4. Pay $50 (lowest of amounts in steps 1, 2, or 3).

Effect of Medicare Limiting Charge on Medicare Secondary Payments

A non-participating physician/supplier who does not take assignment on a claim may not charge more than the Medicare limiting charge and no person is liable for payment of any amounts in excess of the limiting charge. Therefore, a nonparticipating physician/supplier who does not take assignment must reduce his/her actual charge to the TPP, or to the beneficiary, to reflect the Medicare limiting charge. When the limiting charge is less than the actual charge, the limiting charge will be considered to be the actual charge as well as the plan's allowable charge in applying the payment rules. This is because CMS cannot recognize an illegal charge as a basis for calculating Medicare benefits.

EXAMPLE: A physician erroneously billed $200 for a procedure. The TPP allowed $175 and paid $150 (which was more than it was obligated to pay under the Medicare limited charge law). The Medicare allowable amount for the nonparticipating physician is $125 (95 percent of the fee schedule amount for participating physicians). The limiting charge is $143.75 (115 percent of $125). The secondary payment should be determined as follows:
  1. The actual charge by the physician (the limiting charge) minus the TPP's payment: $143.75 - 150 = 0.
  2. Determine the Medicare payment in the usual manner: .80 X $125 = $100.
  3. Employer plan allowable charge (the limiting charge) minus the third party payments: $143.75 - 150 = $0
  4. Pay $0 (lowest of the amounts in 1, 2, or 3).

TPP Does Not Pay for Certain Services

When a TPP pays for certain services furnished to an individual but does not pay for other services or when the benefits available under the policy or plan have been exhausted, Medicare may pay primary benefits for the services not reimbursed by the TPP, provided they are otherwise covered.

EXAMPLE: A physician charges $600 for his/her services related to an on-the-job injury. The physician also charges $400 for the services of an independent physical therapist, which were for treatment of a preexisting condition unrelated to the job injury. The fee schedule amount for the physician's services is $400 and the fee schedule for the therapist's services is $300. The beneficiary does not have GHP coverage. He previously met the Medicare Part B deductible. Workers Compensation paid a fee schedule amount of $375 for the work-related injury, which the physician was required to accept as payment in full for the services, but WC did not pay for physical therapy related to the preexisting condition. Since the WC payment is payment in full for the physician's services, no secondary Medicare benefits are payable for these services. However, Medicare may pay for the covered physical therapy services (provided by an independent physical therapist) not covered by WC. Medicare pays primary benefits of $240 (80 percent of the fee schedule amount of $300) for the independent therapist's services.

Page Last Updated: Monday, 09-Jun-2008 13:34:19 CDT