The 85% Rule: How Medicare's Reimbursement Gap Costs Nurse Practitioners $18,000-$32,000 Per Year

By NurseCompensation Research Team · 2026-09-03 · 14 min read

CMS pays nurse practitioners 85% of the physician fee schedule for identical services. For a full-panel primary care NP, that gap translates to $142,000-$198,000 in lost practice revenue annually. The policy has no clinical justification — and it directly suppresses NP salaries.

Medicare pays nurse practitioners 85 cents for every dollar it pays a physician performing the same service. Same patient. Same diagnosis code. Same CPT code. Same documentation. Fifteen percent less.

This is not a rumor or a talking point. It is codified in the Social Security Act, Section 1833(a)(1)(O), and implemented through the CMS Physician Fee Schedule. It has been in effect since 1998. It has never been adjusted.

The question is not whether the gap exists — that is arithmetic. The question is how much money it actually costs NPs and the practices that employ them, and why it persists despite two decades of outcomes research showing equivalent quality.

The Mechanics: How the 85% Rule Works

When a physician bills Medicare for a service, CMS pays based on the Physician Fee Schedule (PFS), which assigns a Relative Value Unit (RVU) to each CPT code, then multiplies by a geographic conversion factor.

When an NP bills the same CPT code under their own NPI, CMS applies an automatic 15% reduction. No review. No quality adjustment. Flat cut.

Reimbursement Comparison: Common Primary Care Services

Source: CMS Physician Fee Schedule Final Rule, CY 2024. National average, non-facility rates.

The Annual Revenue Impact

What does this mean over a year for a full-time NP practice?

Revenue Loss by Practice Volume (Primary Care NP)

Assumes 250 working days/year, blended visit mix (60% established moderate complexity, 20% established low, 10% new, 10% preventive).

A primary care NP seeing 20 patients per day generates approximately $92,000 less in Medicare revenue per year than a physician with the same panel and visit mix. That revenue gap flows directly to the employing practice or health system.

How the Gap Translates to NP Salary Suppression

Employers set NP salaries based on the revenue NPs generate. If Medicare pays 15% less for NP services, the NP's revenue contribution is 15% lower, and compensation follows.

Sources: MGMA 2024 Provider Compensation Data, AANP 2024 National NP Compensation Survey.

The gap is worst in geriatrics and SNF settings, where Medicare is 85-95% of the payer mix. In those settings, the 85% rule hits nearly every visit.

Estimated Direct Salary Impact of the 85% Rule

PMHNPs are less affected because Medicare is a smaller share of their payer mix (private insurance and Medicaid dominate). Acute care NPs in hospitals often bill "incident to" the supervising physician, meaning their services are reimbursed at the full physician rate — but the NP gets no individual billing credit, which creates a different problem.

The "Incident To" Workaround

Many practices route NP services through "incident to" billing — billing Medicare under the supervising physician's NPI at the full 100% rate, as long as the physician is physically present in the office suite.

"Incident to" billing recaptures the 15% — but at a cost:

The Legislative History: Why It Hasn't Changed

The American Medical Association (AMA) has consistently opposed rate parity. The AMA's stated position: "Payment parity could undermine physician-led team-based care and increase Medicare expenditures." The Congressional Budget Office has not published a cost estimate for rate parity, making it difficult for sponsors to advance the legislation.

The Evidence That Undermines the 85% Rationale

The 85% rate was originally justified by the assumption that NPs provide "less complex" care or require physician oversight. Two decades of research challenges this:

No published study has found that the 15% discount corresponds to a 15% quality difference. The discount is a legislative artifact, not an evidence-based calibration.

What Rate Parity Would Mean: The Numbers

If CMS Set NP Payment at 100% of PFS

The spending increase estimate ($3.4-$5.2B) assumes static utilization. If rate parity shifts volume from physician visits to NP visits (which are currently discouraged by the lower rate), net spending could be lower — NP visits cost less in total (shorter visits, fewer tests ordered, lower downstream utilization in some studies).

What Individual NPs Can Do Now

Sources: CMS Physician Fee Schedule Final Rule CY 2024 (FR Vol. 88, No. 220); Social Security Act Section 1833(a)(1)(O); AANP 2024 National NP Compensation Survey; MGMA 2024 Provider Compensation and Productivity Report; MedPAC Report to Congress, March 2024 (Chapter 4: Physician and Other Health Professional Services); Stanik-Hutt J et al., "The Quality and Effectiveness of Care Provided by Nurse Practitioners," JAMA Internal Medicine, 2013; Kurtzman ET et al., "Does the Regulatory Environment Affect NPs' Patterns of Practice?," Medical Care, 2017; Yang BK et al., "Nurse Practitioner Prescriptive Authority and Drug Costs," BMJ, 2021; Perloff J et al., "NPs in US Hospital Outpatient Departments," Health Affairs, 2019; H.R. 2150 (116th Congress); S. 2418 (117th Congress); H.R. 2713 (118th Congress).