HCR 202 Week 3 The Medical Insurance Reimbursement Process Example

Why a $185 Charge Becomes a $104.21 Payment: The Reimbursement Process From Relative Value Units to the Posted Remittance, Traced Through One Office Visit

[Student Name]

University of Phoenix

HCR/202: Medical Insurance

Week 3 Assignment

[Instructor Name]

[Date]

The practice, its charges and the visit are composites written for a model paper; the payment formula, conversion factor and research come from the sources listed.

A new staff member at a composite family practice asked the practice manager a fair question: the practice charges $185 for a moderate established patient office visit, 99214, but Medicare's payment is much lower. Where does the rest go, and who decides? This paper answers by tracing that visit through the reimbursement process, from how Medicare sets its price to how the payment is posted.

Charges Versus Payments

A charge is the practice's list price, set once a year and applied to every patient. Payers rarely pay charges. They pay their own allowed amount, set by a fee schedule or contract, and most practices set charges above their highest-paying contract so that no payer's allowed amount is capped by the charge. In-network providers agree to accept the allowed amount as payment in full, with the patient paying any cost sharing.

The Resource-Based Relative Value Scale

Medicare pays physicians from a fee schedule built on the resource-based relative value scale, which grew out of research estimating the work involved in physicians' services. Hsiao et al. (1988) measured physician work across specialties by estimating time, mental effort, technical skill and stress for defined services, creating the foundation for relative values Medicare adopted in 1992.

Three Kinds of Relative Value Units

Each service has three relative value units: physician work; practice expense, covering staff, space, supplies and equipment; and professional liability insurance. Congress's Medicare advisers describe how these units are adjusted by geographic practice cost indices, summed and multiplied by a conversion factor, and noted that Medicare generally pays 80% of the resulting amount while the patient owes 20% coinsurance (Medicare Payment Advisory Commission, 2024).

The 2026 Conversion Factor

For 2026, the final rule set two conversion factors: about $33.57 for clinicians qualifying through advanced alternative payment models and $33.40 for others (Centers for Medicare & Medicaid Services, 2025). The practice does not qualify, so its services use the lower factor.

Calculating the Visit

Suppose that, after geographic adjustment, the practice's 99214 carries 1.92 work units, 1.83 practice expense units and 0.15 liability units, a total of 3.90. Multiplied by the 2026 conversion factor of $33.4009, the fee schedule amount is $130.26. The patient has already met her annual Part B deductible, so Medicare pays 80%, or $104.21, and she owes 20%, or $26.05. The practice's $185 charge never enters the calculation; it only sets the size of the write-off.

The Contractual Adjustment

The difference between the $185 charge and the $130.26 allowed amount, $54.74, is a contractual adjustment. The practice writes it off because it agreed to Medicare's rates. It is not bad debt and cannot be billed to the patient.

If the Deductible Had Not Been Met

Had this been her first visit of the year, the patient would have paid the full allowed amount up to her remaining Part B deductible before Medicare's 80% applied. The same service can therefore produce very different patient bills in January and July.

The Same Visit Under a Commercial Contract

The practice's contract with a regional commercial plan pays 120% of the Medicare fee schedule. The allowed amount for the visit is $156.32. The patient has a $30 copayment for primary care visits, so the plan pays $126.32, the patient owes $30 and the contractual adjustment is $28.68.

Supplemental Coverage

Many Medicare patients carry a supplemental policy, often called Medigap, or have Medicaid as a secondary payer. After Medicare processes the claim, it can cross over automatically to the supplemental plan, which may pay some or all of the $26.05 coinsurance. The practice bills the patient only for what remains after every payer has processed the claim, which is why staff wait for the secondary payment before sending statements.

Medicaid Payment

Medicaid programs set their own fee schedules, and payment for office visits in many states is below Medicare's. Where Medicaid is secondary to Medicare for dually eligible patients, it often pays little or nothing beyond Medicare's payment if the Medicaid rate is lower, and the practice cannot bill the patient for the remaining coinsurance. Knowing the payer mix helps the manager forecast revenue.

Finding Underpayments

Because payment depends on contracts, the practice loads each commercial plan's expected allowed amounts into its billing system. When a remittance pays less than expected, the system flags the line for review. Last year this caught a plan that had loaded an outdated fee schedule, recovering about $9,000.

Adjudication

When a claim arrives, the payer checks eligibility, coding validity and edits, applies coverage policies, determines the allowed amount and applies the patient's deductible, copayment or coinsurance. The result appears on the remittance advice to the practice and on an explanation of benefits to the patient.

Reading the Remittance

The electronic remittance for the Medicare visit shows the charge, $185.00; allowed, $130.26; paid, $104.21; and two adjustments. The first carries group code CO, contractual obligation, for $54.74. The second carries group code PR, patient responsibility, for $26.05, with a reason code for coinsurance.

Posting

Staff post the $104.21 payment, the $54.74 contractual adjustment and transfer $26.05 to the patient's balance, then bill the patient or her supplemental insurance if she has one. Many practices post electronic remittances automatically and review exceptions by hand.

Measures the Manager Watches

The practice manager tracks days in accounts receivable, the share of claims paid on first submission, denial rates by reason and net collection rate, the share of allowed amounts actually collected. The practice's net collection rate last year was 96%, meaning most of the gap between charges and cash is contractual, not lost revenue.

Conclusion

The $185 charge becomes a $104.21 Medicare payment because payment follows the payer's allowed amount, built from relative value units, geographic adjustments and a conversion factor, then split by cost sharing. The rest is a contractual adjustment and the patient's coinsurance. Understanding each step lets staff explain bills, post payments correctly and spot underpayments.

References

Centers for Medicare & Medicaid Services. (2025). Medicare and Medicaid programs; CY 2026 payment policies under the physician fee schedule and other changes to Part B payment and coverage policies. Federal Register, 90, 49266. https://www.federalregister.gov/d/2025-19787

Hsiao, W. C., Braun, P., Yntema, D., & Becker, E. R. (1988). Estimating physicians' work for a resource-based relative-value scale. The New England Journal of Medicine, 319(13), 835-841. https://doi.org/10.1056/NEJM198809293191305

Medicare Payment Advisory Commission. (2024). Physician and other health professional payment system (Payment basics). https://www.medpac.gov/wp-content/uploads/2024/10/MedPAC_Payment_Basics_24_Physician_FINAL_SEC.pdf