Blog Post

The Difference Between Medicare and Medicaid Billing and Reimbursement

Medicare and Medicaid might seem like two peas in a pod, but in reality, they couldn't be any more different.

Melissa Hughes
5 min read
July 31, 2019
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At first glance, Medicare and Medicaid might seem like twins, or a dynamic duo, or two peas in a pod—basically, inseparable. They’re both government healthcare programs; they were both created at the same time; they’re both confusing and usually don’t boast the best reimbursement rates; and they even sound alike (they both start with “Medi-,” right?).

In reality, though, these two programs are very, very different. For starters, Medicare is a federally run program, which means it has a uniform set of rules that apply across the entire country. Medicaid, on the other hand, is state-based, meaning the program is a hodge-podge of rules and requirements that vary from state to state. So, the Medicaid rules in Texas aren’t necessarily the same as those in California or New Jersey. And that’s only the beginning! With that in mind, let’s discuss some major billing and reimbursement differences between Medicaid and Medicare.


Established in 1965—and now overseen by the Centers for Medicare and Medicaid Services (CMS)—the Medicare program was designed to help our country’s elderly population pay their inpatient and outpatient medical bills. Now, nearly 54 years later, 60.8 million Americans are enrolled in the program, which now covers folks who:

  • are aged 65 and older,
  • are permanently disabled, and/or
  • have end-stage renal disease (ESRD) or amyotrophic lateral sclerosis (ALS). 

Program Basics

The Medicare program is split into four different coverage plans: parts A, B, C, and D. According to the Department of Health and Human Services (HHS), Part A covers “inpatient care in a hospital or skilled nursing facility (following a hospital stay), some home health care and hospice care.” Medicare Part B covers other medically necessary costs that aren’t covered by Part A, like outpatient physician and physical therapy services as well as other supplies and medical care. Part C, often referred to as Medicare Advantage, is provided by private companies that have partnered up with Medicare to offer all-in-one inpatient and outpatient coverage—sometimes with prescription plans bundled in. And finally, Part D is a prescription drug plan that’s provided by private companies.

Billing Guidelines

Medicare updates its billing policies each year following the release of the annual final rule. The final rule often introduces and explains coding and billing changes (e.g., when to use the KX modifier or the new X modifiers) and reporting programs (e.g., the implementation of the Merit-Based Incentive Payment System (MIPS) and the death of functional limitation reporting (FLR)). There are many billing rules that participating Medicare providers must adhere to—and I can’t cover them all here. However, some of the most prominent and often-talked about documentation and/or billing policies are: 

When it comes to actually completing and submitting claim forms, Part A requires the use of UB-04 forms, and Part B requires the use of CMS-1500 forms. Part C billing form requirements vary based on payer and state: Mississippi, for instance, requires the use of a specific, state-mandated form. 


Like its billing guidelines, Medicare’s reimbursement rates are updated each year in the annual final rule release. (Fun fact: The final rule is officially called the Physician Fee Schedule, as it determines the fees Medicare will pay providers for certain services.) In 2018, for example, Medicare announced a reimbursement reduction for services provided in part or in full by PTAs or OTAs beginning in 2022. 

All in all, Medicare’s reimbursement rates tend to be a little lower than your average local payer. According to a survey conducted by the Medical Group Management Association, “more than two-thirds (67%) of medical practices report that 2019 Medicare payments will not cover the cost of delivering care to beneficiaries.”

If you want to determine whether accepting Medicare is cost-effective for your practice, the APTA created a handy Medicare reimbursement calculator that accounts for reimbursement-affecting programs and policies like MIPS and MPPR


Established in 1965 alongside Medicare—and also broadly overseen by CMS—the Medicaid program was intended to help America’s impoverished citizens pay their inpatient and outpatient medical bills. In 2019, 75.8 million Americans rely on this program. Medicaid qualifications vary from state to state, but according to this article, folks can typically acquire coverage if they “make less than 100% to 200% of the federal poverty level (FPL) and are pregnant, elderly, disabled, a parent/caretaker or a child.”

Program Basics

Medicaid receives both federal and state funding, but the state governments are responsible for administering the program. As such, the specifics of Medicaid vary from state to state. That said, according to this source, there are only “33 states that provide Medicaid physical therapy services coverage although it is under optional medical service category. This means that the states do not consider physical therapy services as a mandatory or necessary procedure.”

Billing Guidelines

Due to the nature of the program, Medicaid billing rules vary state to state. Each state Medicaid program usually has its own ABN, for instance. (Here’s Oregon Medicaid’s official ABN and a notice of non-coverage that complies with Arizona statute.) That said, here are some general Medicaid billing guidelines from CMS:

  • “Bill only for covered services
  • Ensure beneficiaries are eligible for services where they are furnished
  • Ensure medical records are accurate, legible, signed, and dated
  • Return any overpayments within 60 days”

Keep in mind that because both the federal and state governments have their hands in the Medicaid pot, “Medicaid claims must adhere to both federal and state guidelines.” In other words, if you find conflicting instructions between your state guidelines and federal guidelines, you must adhere to the strictest guideline.

Furthermore, when a patient has coverage outside of Medicaid, the provider should bill the other payer first. Take a look at some advice from that same billing and coding website: “Note also that Medicaid is officially the payer of last resource for a claim, meaning that if a person has any other health coverage for services rendered, those institutions should be billed before Medicaid.”

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Like most things Medicaid, reimbursement rates vary from state to state. This is because, according to the official Medicaid website, “states can establish their own Medicaid provider payment rates within federal requirements.” However, despite having the freedom to determine their own reimbursement rates, a large majority of states consistently set low Medicaid reimbursement rates. 

Remember how a large majority of medical practices reported that Medicare didn’t cover the cost of care in 2019? Well, Medicaid providers are braving even worse financial straits. According to a nationwide study conducted by the Urban Institute in 2016, “Medicaid programs paid physicians fees at 72 percent of Medicare rates.” Additionally, Medicaid providers can’t seek additional compensation from patients, as they are typically barred from accepting out-of-pocket payments. These unavoidable rock-bottom rates discourage providers from participating in the Medicaid program, arguably undermining it completely. 

Shift to Value-Based Payment

Medicare and Medicaid do share one monumentally important similarity: both programs are rapidly shifting toward value-based payment models. In other words, CMS wants to encourage providers (and other payers) to focus on quality of care over quantity of care the only way they know how: by fiddling with reimbursement rates. In 2017, for instance, CMS kicked off the Part B-exclusive Merit-Based Incentive Payment System (MIPS), and it has consistently encouraged—and required—more and more providers to participate in MIPS each year. Additionally, in April 2019, CMS and the HHS announced new Medicare payment programs called Primary Care First (PCF) and Direct Contracting (DC). These programs are intended to improve healthcare quality—and they’re “specifically designed to encourage state Medicaid programs and commercial payers to adopt similar approaches,” said HHS Secretary Alex Azar.

Though there isn’t an overarching Medicaid value-based program (yet), many states have stepped up to the plate and implemented their own value-based programs. In Tennessee, for example, nursing facilities’ Medicaid payments are already tied to performance measures. This article from The Healthcare Information and Management Systems Society (HIMSS) even claims that “only four states have had little-to-no value-based payment activity.” The big takeaway is that value-based payment models are the way of the future—regardless of whether you contract with Medicare or Medicaid. 

So maybe Medicare and Medicaid aren’t exactly identical—or even all that similar. The programs may be flawed, but they also provide coverage to many of the country’s most vulnerable patients. That counts for something! 


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