“Allowable rate” refers to the maximum rate at which Medicare compensates doctors for their services, regardless of what the provider might otherwise charge.
Medicare’s allowable rate may also be called “reimbursement rate.” However, this should not be confused with the money a person gets back from Medicare when they have to pay a provider directly for their care.
Since 1992, Medicare has used the Physician Fee Schedule (PFS) to list the “allowable rates” for the services of doctors and other medical professionals. You can find the allowable rate for a particular medical service on CMS.gov.
Terms to know
- Fee: The amount that a provider charges Medicare per service
- Allowable limit: The maximum Medicare will pay a provider per service
- Limiting charge: The extra amount that nonparticipating providers may bill over the allowable limit
In the context of Medicare, the Centers for Medicare & Medicaid Services (CMS) updates the allowable rates for Original Medicare (parts A and B) annually and compiles them in the PFS.
The allowable rates vary depending on whether you see a participating or opt-out provider. CMS updates these rates annually based on factors such as the type of medical service, the cost of the service, malpractice costs, geographic location, and legal factors. In 2025, CMS lowered these rates by 2.93% from 2024.
That said, a nonparticipating provider who chooses to accept an Original Medicare patient is not subject to these rates and can charge as much as 15% more. However, some states may set lower percentages.
Parts C and D
Medicare Advantage (Part C) and Part D are managed by private insurers who set allowable rates that vary by plan.
The amount a provider charges for a person’s care is often called the “fee,” whereas the maximum amount Medicare will pay is called the “limit.” This means the “allowable limit” often differs from the actual “cost” of a person’s care.
Generally, after a person meets their Part B deductible, Medicare pays 80% of the “allowable limit.” The rest comes out of the enrollee’s pocket as coinsurance.
Regarding Medicare Part A, Original Medicare will pay 100% of the amount for the first 60 days of hospitalization or 20 days at a skilled nursing facility. That said, a person will also have to meet their deductible first.
While the allowable rates for Parts C and D may vary, they generally work the same: The insurer will pay the provider up to the limit.
Glossary of Medicare terms
- Out-of-pocket cost: This is the amount a person must pay for care when Medicare does not pay the total amount or offer coverage. Costs can include deductibles, coinsurance, copayments, and premiums.
- Premium: This is the amount of money someone pays each month for Medicare coverage.
- Deductible: This is an annual amount a person must spend out of pocket within a certain period before Medicare starts to fund their treatments.
- Coinsurance: This is the percentage of treatment costs that a person must self-fund. For Medicare Part B, coinsurance is 20%.
- Copayment: This is a fixed dollar amount a person with insurance pays when receiving certain treatments. For Medicare, this usually applies to prescription drugs.
