Medicare and Medicaid Billing Rules

Medicare and Medicaid Billing Rules

Medicare and Medicaid are the two largest government-sponsored health insurance programs in the United States. Because they operate under federal rules administered by the Centers for Medicare & Medicaid Services (CMS), billers must understand their specific requirements to submit clean claims, protect patients, and avoid compliance violations.

Medicare Participation Status

Physicians and other providers who see Medicare patients must decide whether to enroll as participating or non-participating providers, or to opt out entirely.

• Participating providers sign a participation agreement with Medicare and accept assignment on every Medicare claim. This means they agree to accept the Medicare-approved amount as payment in full. They may not bill the patient more than any applicable deductible or coinsurance.
• Non-participating providers have not signed a participation agreement. They may choose whether to accept assignment on a claim-by-claim basis. If they do not accept assignment, they may bill the patient more than the Medicare-approved amount—but only up to a federally set ceiling called the limiting charge.
• Opted-out providers have formally withdrawn from Medicare. They may not bill Medicare at all; patients who see them must sign a private contract and pay entirely out of pocket.

Participation status directly affects how much a patient can be charged, making it a patient-safety and patient-financial-safety issue. Billing above the limiting charge is a compliance violation.

Assignment of Benefits

When assignment is accepted, Medicare pays the provider directly rather than reimbursing the patient. The patient owes only their share (deductible and coinsurance). When assignment is not accepted by a non-participating provider, Medicare may still pay—but it sends the payment to the patient, not the provider. The provider must still abide by the limiting charge when billing the patient.

The Limiting Charge

For non-participating providers who do not accept assignment, the limiting charge caps the total amount they may collect from the patient. The limiting charge is a percentage above the non-participating fee schedule amount, which is itself a percentage of the standard Medicare physician fee schedule. The exact percentages are set by federal statute and updated periodically by CMS. Billing above the limiting charge is prohibited and can result in refund obligations and civil monetary penalties. As a biller, always verify the current limiting charge using CMS fee schedule tools before finalizing a claim.

Medicare Secondary Payer (MSP) Rules

Medicare is not always the primary payer. The Medicare Secondary Payer (MSP) rules determine when another insurance must pay first. Common situations where Medicare is secondary include:

• The patient has employer group health insurance through active employment (employer plan pays first if the employer has enough employees).
• The patient was injured in an automobile accident with applicable automobile insurance.
• The patient has workers' compensation coverage for a work-related illness or injury.
• The patient has a liability insurance settlement pending.

Billers must ask the right questions at registration, document primary insurance information accurately, and bill the primary payer first. Only after the primary payer has processed (or denied) the claim should a claim go to Medicare as the secondary payer. Submitting to Medicare first when another payer is primary is a compliance violation that can constitute fraud.

Medicaid: Payer of Last Resort

Medicaid is a joint federal-state program that covers low-income individuals. A critical rule governs every Medicaid claim: Medicaid is always the payer of last resort. This means if a Medicaid beneficiary has any other source of coverage—Medicare, private insurance, or another government plan—that source must be billed and must pay (or deny) before Medicaid is billed. Medicaid then covers any remaining patient liability up to its own allowable amount, subject to state rules.

Billers must identify all coverage for Medicaid patients at registration. Skipping the primary payer and billing Medicaid first is improper and can trigger audits, recoupments, and exclusion from the program.

Dual-Eligible Beneficiaries

Some patients qualify for both Medicare and Medicaid—these individuals are called dual eligibles or dual-eligible beneficiaries. The correct billing sequence for a dual-eligible patient is:

1. Bill Medicare first (primary).

2. After Medicare's Explanation of Benefits (EOB) is received, bill Medicaid second for the remaining patient liability (deductible, coinsurance, or copayment), up to the Medicaid allowable.

Medicaid will often pay little or nothing beyond what Medicare has already paid, but the claim must follow this sequence. Billing Medicaid before Medicare for a dual-eligible patient violates both MSP rules and the Medicaid payer-of-last-resort requirement.

Coordination of Benefits and Patient Safety

Incorrect payer sequencing does more than create compliance risk—it can result in patients being billed incorrectly, paying more than they owe, or having coverage denied. Medical billers have an ethical and regulatory responsibility to protect patients from overbilling. Always verify payer order, document it in the patient record, and update it at each visit. Never alter EOB amounts or misrepresent primary payer responses on a secondary claim.

Summary

Medicare and Medicaid billing requires careful attention to provider participation status, assignment rules, the limiting charge, MSP payer order, and Medicaid's payer-of-last-resort status. For dual-eligible patients, Medicare always comes first. Accurate, compliant billing protects patients financially and keeps providers and billing offices in good standing with CMS.