Benchmarking fee schedules to Medicare — and negotiating from there

Why fee schedules are expressed as a percent of Medicare

A percent of Medicare is exactly what it sounds like: a provider fee schedule set as a multiple of what the Medicare Physician Fee Schedule pays for the same service. A contract at 120% of Medicare pays the provider 1.2 times the Medicare allowed amount for each covered code; a facility contract might be expressed as a percent of the applicable Medicare payment system for that setting.

This convention exists because Medicare already solved the hardest problem in pricing: it assigns a relative value to every one of thousands of billing codes and updates them every year. Under the fee schedule, each service carries relative value units for physician work, practice expense, and malpractice, and those are converted to dollars through a national conversion factor — for calendar year 2026, CMS set the non-qualifying-APM conversion factor at $33.40 and the qualifying-APM factor at $33.57.

Rather than rebuild that relative-value architecture yourself, you inherit it. Pegging your fee schedule to Medicare means you are pricing thousands of codes with a single, negotiable dial — the percentage — instead of hand-setting every rate. It also gives both sides a shared, neutral reference point in negotiation.

How Medicare already accounts for geography

One reason the Medicare benchmark is so useful is that it is already geographically adjusted. Medicare applies Geographic Practice Cost Indices — GPCIs — to each of the three relative-value components, so the Medicare allowed amount for the same code differs between a high-cost metro and a rural locality. That geographic adjustment is baked into the number before you ever apply your percentage.

This matters because it means a single percent-of-Medicare figure does not pay everyone the same dollar amount. Set every specialty in your network at 115% of Medicare and you are still paying more in high-cost areas and less in low-cost ones, because Medicare's own geographic adjustment flows through. You get regional fairness without having to model it from scratch.

Understanding this also keeps you from double-counting. Providers sometimes argue for a higher percentage on the grounds that their market is expensive — but if the cost difference is already captured in the GPCI-adjusted Medicare rate, part of that argument is already priced in.

Building a defensible benchmark by specialty

A single percentage across your whole network is simple but blunt. Different specialties command different market rates relative to Medicare, and a defensible fee schedule reflects that. The way to build one is to research what services actually pay in your market as a percent of Medicare, specialty by specialty, before you set your offers.

Published benchmarking gives you a national anchor. Milliman's 2025 commercial reimbursement benchmarking found that commercial payment for professional services averages roughly 148% of Medicare fee-for-service nationally — a reminder that commercial rates commonly sit well above 100% of Medicare, and that private-payer rates broadly span from around 120% to 300% depending on service and market. Those are orientation figures, not targets: your defensible benchmark is the one grounded in your specific specialties and geography.

The discipline is to set a target percentage per specialty, informed by real market data, and then treat that as your reference. When you can point to a sourced benchmark and say a given offer sits at a deliberate position relative to it, you can defend the number to a provider, to your actuary, and to yourself.

The difference between what you offer and what closes

Your benchmark is where you start. It is not always where you land. The number that appears in a signed agreement is a negotiated number, and negotiation is where a fee schedule meets reality.

Two things drive the gap between your opening offer and the closing rate:

• Provider leverage — a sole cardiology group in a rural county, or a must-have health system, can command a higher percent of Medicare than a specialty with many competing providers in the same market.
• Deal urgency — when a specialty or county is thin and you need it to meet network adequacy, the provider knows it, and the rate reflects that pressure.
• Contract structure — a provider may accept a lower percent of Medicare in exchange for value-based upside, prompt-pay terms, or steerage of volume, so the headline percentage is not the whole deal.
• Existing benchmarks — a provider's current commercial rates set their expectation, and an offer far below what they already accept elsewhere will not move.

Fee-for-service, capitation, and value-based terms

Percent of Medicare is the native language of fee-for-service, where the plan pays per service rendered. But it is not the only reimbursement model, and the model you choose shapes how the benchmark is used.

Under capitation, the provider receives a fixed per-member-per-month payment to cover a defined scope of care regardless of the volume of services, shifting utilization risk to the provider. Value-based arrangements sit between the two: the provider is still paid, often on a fee-for-service chassis, but a portion of payment is tied to quality and total-cost-of-care performance, echoing Medicare's own move toward alternative payment models.

Even in capitated and value-based deals, the percent-of-Medicare benchmark rarely disappears. It commonly underlies the fee-for-service equivalent used to set the capitation rate, to price out-of-scope services, or to define the baseline against which shared savings are measured. Knowing your Medicare-referenced benchmark is prerequisite to pricing any of these models.

Keeping the fee schedule consistent across a whole build

The hardest part of fee-schedule discipline is not setting one good rate. It is keeping hundreds of them coherent across an entire network build, negotiated by different people, over months. Without a governing framework, you drift — two similar providers in the same market end up at materially different rates for reasons no one can reconstruct later.

The antidote is a documented fee-schedule strategy that every offer is measured against: a target percent of Medicare by specialty and geography, defined negotiation guardrails (an opening position and a walk-away ceiling), and a single record of what was offered and what closed. When the framework is explicit, a rate that falls outside the guardrails is visible immediately, and exceptions become deliberate decisions rather than accidents.

Consistency is also a compliance and cost-control asset. A coherent, Medicare-referenced fee schedule is far easier to defend to regulators and actuaries, easier to trend and forecast, and far less likely to hide the outlier contracts that quietly inflate medical cost. This is precisely the discipline we bring to a build — one benchmark logic, applied consistently, from the first offer to the last.