How Medicare Fee Schedules Are Calculated
What Is the Medicare Physician Fee Schedule?
The Medicare Physician Fee Schedule (MPFS) is CMS’s payment framework for physician and qualified professional services. It assigns value to each code and translates that value into a dollar amount.
How the Reimbursement Formula Works
Medicare payment is generally calculated as adjusted total RVUs multiplied by the annual conversion factor. In practice, this means the code’s Work, Practice Expense, and Malpractice RVUs are geographically adjusted and then converted into dollars.
What RVUs Are
Relative Value Units (RVUs) are the building blocks of physician payment under the MPFS. For a deeper breakdown, see RVUs Explained.
What GPCI Is
The Geographic Practice Cost Index (GPCI) adjusts each RVU component to reflect local market conditions. This is why reimbursement can differ by ZIP code and locality even for the same CPT code.
What the Conversion Factor Is
The conversion factor is a national dollar multiplier CMS publishes each year. Once total GPCI-adjusted RVUs are known, Medicare multiplies by this factor to produce an allowable payment amount.
How Facility vs Non-Facility Settings Affect Payment
Practice Expense RVUs can differ between office and facility settings, producing different reimbursement values. Read Facility vs Non-Facility Reimbursement for a full explanation.
Worked Example (CPT 99214)
For an office/outpatient established patient visit such as CPT 99214, Medicare starts with Work + PE + MP RVUs, applies geographic adjustments, and multiplies by the conversion factor.
If the same service is billed in a facility setting, the PE component typically changes, which can materially change the allowed amount. Comparing the code page directly helps you see those differences in context.