Payment Calculation Examples - JF Part B

The Medicare Secondary Payer (MSP) process may pay secondary benefits when a physician, supplier, or beneficiary submits a claim to the beneficiary's primary insurance and the primary insurance does not pay the entire charge. Medicare will not make a secondary payment if the physician/supplier accepts, or is obligated to accept, the primary insurance payment as full payment.

Note: The method of calculating the Medicare secondary amount is the same whether the claim is assigned or unassigned. All claims are processed on a line by line detail.

Important: Medicare is not a supplemental insurance, even when secondary, and Medicare's allowable is the deciding factor when determining the patient's liability.

The payment information received from the primary insurer will determine the amount Medicare will pay as secondary payer. The Explanation of Benefits (EOB) is used to coordinate benefits and ensure that either Medicare pays the correct amount as secondary or recovers the correct amount paid in error as primary.

The EOB will list information such as the provider's billed amount, the amount the insurance company allowed, and the amount the insurance company paid. This information is used to calculate the secondary payer allowed amount (SA), the secondary payer paid amount (SP) and the obligated to accept field (OTAF) amounts:

1. Allowed Amount (SA): The allowed amount is the amount the primary insurance company allowed for the submitted charges. This may also be referred to on an EOB as eligible charges. This amount should equal the OTAF amount.
2. Paid Amount (SP): The paid amount is the amount the primary insurance company paid for the submitted charges. On an EOB, this may also be referred to as the covered charges.
3. Obligated to Accept Field (OTAF): There is not a specific column or area on an EOB that indicates the OTAF amount. However, this amount is determined by other information that is listed on the EOB, such as discount, provider write-off, withholding, risk amount, service benefit credit, contractual adjustment, provider agreement, negotiated savings, or an amount that the beneficiary is not liable for. If the beneficiary were not responsible for any of these amounts, then the OTAF amount would be the same as the SA. Using an OTAF amount will indicate that there is a discount that the beneficiary was not responsible for. This may have to be manually calculated, by taking the billed amount minus the discounts to calculate the OTAF.

What Can the Provider Collect When a Provider Accepts Assignment?

Providers cannot collect more than the "obligated to accept" amount of the primary insurance if the physician/supplier accepts, or is obligated to accept, the primary insurance payment as full payment.

If there is no "obligated to accept" amount from the primary insurance the provider cannot collect more than the higher amount of either the Medicare physician fee schedule or the allowed amount of the primary payer when the beneficiary's Medicare Part B deductible has been met (see examples 1 and 2).

Example 1

Provider submits a claim for procedure code 99214 with a submitted amount of $72.00

• Actual charge by provider: $72.00
• Amount allowed by primary payer: $65.00
• Amount paid by primary payer: $52.00
• *Medicare Par Fee amount: $53.87
• Medicare's 80% of Par Fee amount: $43.10
• MSP approves a secondary payment of: $13.00

Performing the following calculation and using the lowest amount as Medicare's secondary payment amount determines this fee.

First, calculate the difference between the actual charge by the provider or the amount the provider is obligated to accept (the lower of these two amounts should be used) and the amount paid by the primary payer:

• Actual charge by provider: $72.00
• Minus amount paid by primary payer:- $52.00
• Result: $20.00

Second, calculate 80 percent of Medicare's allowed amount:

• Medicare allowed amount: $53.87
• 80% of allowed amount: x 0.80
• Result: $43.10

Third, calculate the difference between the Medicare physician fee schedule amount or the primary payer's allowable charge, whichever is higher, and the amount actually paid by the primary payer:

• Allowed amount by primary payer: $65.00
• Minus amount paid by primary payer: $- 52.00
• Result $13.00

The lowest of the three calculations is Medicare's secondary payment: $13.00. Therefore, the maximum amount the provider could collect is $65.00. ($52.00 paid by primary and $13.00 paid by Medicare as the secondary payer). The provider would have to write-off the $7.00 difference between the provider's actual charge and the amounts paid by the primary and secondary payers ($72.00 - $65.00 = $7.00).

Example 2

Provider submits a claim for procedure code 99214 with a submitted amount of $72.00

• Actual charge by provider: $72.00
• Amount allowed by primary payer: $62.00
• Obligated to accept amount: $62.00
• Amount paid by primary payer: $52.00
• *Medicare Par Fee amount: $53.87
• MSP approves a secondary payment of: $10.00

By performing calculations similar to those in Example 1, using the "obligated to accept" amount as payment in full and subtracting the primary payer's payment ($62.00 - $52.00 = $10.00) will determine the secondary payment.

Note: When the Medicare Part B deductible is unmet, the calculations are performed in the same manner, but the amount the physician is allowed to collect is based on Medicare's allowed amount.

Example 3

Provider submits a claim in which the individual's Part B deductible of $100 was unmet of the $131 deductible 

• Actual charge by provider: $140.00
• Amount allowed by primary payer: $120.00
• Amount paid by primary payer: $96.00
• *Medicare Par Fee amount: $110.00

First Calculation:

• Actual charge by provider:$140.00
• Minus amount paid by primary payer: - $96.00
• Result $44.00

Second Calculation:

• Allowed amount by primary payer: $120.00
• Minus amount paid by primary payer:- $96.00
• Result $24.00

Third Calculation:

• Medicare allowed amount: $110.00
• Minus deductible: - $100.00
• 80% of allowed amount: $10.00
• MSP approves a secondary payment of: $8.00

The lowest of the three calculations is Medicare's secondary payment: $8.00.

The beneficiary's Medicare deductible is credited with $100. The beneficiary is still obligated to pay the physician $6.00. The beneficiary's obligation is based on any remaining balance after the payments from the primary and secondary insurance up to the Medicare allowed amount ($110 - $96.00 - $8.00 = $6.00).

* All the examples above assume the provider is participating with Medicare. If the provider is non participating, but accepting assignment, Medicare's approved amount will be based on the non par fee amount.