How Does Medicare Billing Work: Claims, ABNs, and Appeals

Medicare billing works in a predictable cycle: your provider delivers care, documents it with standardized diagnosis and procedure codes, submits an electronic claim to a Medicare contractor, and the contractor applies Medicare’s payment rules to decide what Medicare pays and what you owe. Your share depends on which part of Medicare covers the service, whether the provider accepts Medicare’s approved rate, and whether you have supplemental coverage. For 2026, the Part B annual deductible is $283, and most Part B services carry a 20% coinsurance after that deductible is met.¹

How a Claim Gets to Medicare

Every Medicare claim carries two identifiers. Yours is the Medicare Beneficiary Identifier, an 11-character code on your red, white, and blue Medicare card that is randomly generated and contains no Social Security information.² Your provider’s is the National Provider Identifier, a 10-digit number used for administrative transactions in the federal healthcare system.³

The claim itself has to describe what was wrong with you and what the provider did about it. Diagnoses are reported using ICD-10 codes. Physician services are billed with CPT codes, and items like durable medical equipment and ambulance services use HCPCS Level II codes.⁴ A single wrong digit in a diagnosis code can trigger a denial, which is why coding accuracy is where most billing problems start.

Individual physicians and other non-institutional providers file on the CMS-1500 form. Hospitals and other facilities use the UB-04.⁵ Almost all claims are filed electronically using the HIPAA-standard 837P (the electronic version of the CMS-1500) or the 837I (the electronic version of the UB-04). These claims travel through Electronic Data Interchange systems to the Medicare Administrative Contractor for the provider’s region. MACs are private companies under contract with CMS to process and pay claims for specific geographic areas.

What Medicare Pays and What You Owe

When a provider “accepts assignment,” they agree to accept Medicare’s approved amount as full payment. They can collect only your deductible and coinsurance.⁶ All participating providers are required to accept assignment, and most physicians and suppliers who treat Medicare patients do.

Non-participating providers who do not accept assignment can charge more than Medicare’s approved amount, but federal law caps the excess at 15% above that rate. This is called the limiting charge. A few states prohibit excess charges entirely, so the rules depend on where you live. Before scheduling a procedure with a new provider, confirming whether they accept assignment can save you from an unexpected bill.

Part A Costs in 2026

Most people pay no monthly premium for Part A if they or a spouse paid Medicare taxes for at least 10 years. Each time you are admitted to a hospital, however, you pay a per-benefit-period deductible of $1,736 in 2026, which covers the first 60 days. If you stay longer, daily coinsurance applies:¹

Days 61 through 90: $434 per day.
Lifetime reserve days beyond day 90: $868 per day, with 60 lifetime reserve days available across your entire life.
Skilled nursing facility, days 21 through 100: $217 per day.

Part B Costs in 2026

The standard Part B monthly premium is $202.90 in 2026, and higher-income beneficiaries pay more through income-related adjustments. After the $283 annual deductible, you pay 20% coinsurance on most Part B services. Original Medicare has no annual out-of-pocket maximum, so that 20% can add up quickly during a serious illness. This is the main reason many beneficiaries carry Medigap supplemental coverage.

One boundary worth flagging: if you are enrolled in a Medicare Advantage plan rather than Original Medicare, your billing experience runs on the plan’s own network rules, copay schedule, and prior authorization requirements, not the Part A and Part B numbers above.

How the Contractor Reviews and Pays

Once the MAC receives a claim, it enters adjudication. The contractor checks whether you were eligible on the date of service, whether the codes support medical necessity, and whether the claim contains all required information. A claim that passes without needing additional documentation is called a clean claim.⁷

Federal law requires that at least 95% of clean claims be paid within 30 calendar days of receipt. If the MAC misses that deadline, it owes interest on the late payment.⁷ On the other side of the timeline, providers must submit their claims within one calendar year of the date of service, or Medicare will not pay them at all.⁸

After review, the provider receives an Electronic Remittance Advice showing how each line item was handled: paid, reduced, or denied. Denials come with reason codes that tell the billing office what went wrong. Common triggers include missing or incorrect patient information, diagnosis codes that lack the required specificity, and failure to identify another insurer that should have paid first.

When a Provider Asks You to Sign an ABN

Sometimes a provider expects that Medicare will not cover a particular service even though it is the type of service Medicare normally pays for. In that case, the provider must give you a written Advance Beneficiary Notice (Form CMS-R-131) before delivering the service.⁹ The ABN explains why coverage may be denied and gives you three options: receive the service and agree to pay if Medicare denies it, receive the service but ask Medicare to make an official coverage decision you can appeal, or decline the service.

This notice decides who pays if Medicare says no. If the provider hands you a properly completed ABN and you choose to proceed, you are responsible for the bill. If the provider skips the ABN when one was required, the provider bears the financial risk of the denial.⁹ Services Medicare never covers under any circumstance, like cosmetic surgery, do not require an ABN, though many providers issue a voluntary notice as a courtesy.

Reading Your Medicare Summary Notice

If you are enrolled in Original Medicare, you receive a Medicare Summary Notice at least every six months during periods when you use covered services.¹⁰ The MSN is not a bill. It is a detailed statement showing each service billed to Medicare on your behalf, the amount Medicare approved, what Medicare paid, and any amount you may still owe the provider.

Read it carefully. The MSN is your best tool for catching billing errors and potential fraud. If you see a service you never received, a date that does not match a real appointment, or a provider you have never visited, contact 1-800-MEDICARE. The MSN also serves as the starting point for an appeal, because the notice triggers your deadline to request a redetermination.

If you carry a Medigap policy alongside Original Medicare, you generally do not need to file a separate claim with your Medigap insurer. The CMS Coordination of Benefits Agreement crossover program automatically forwards your Medicare-adjudicated claim data to participating supplemental insurers daily, and nearly all standard Medigap plans participate.¹¹ Your Medigap insurer sees the claim, calculates what it owes on your remaining deductible and coinsurance, and pays the provider without any action on your part.

When Another Insurer Pays First

Medicare does not always pay first. Federal rules known as the Medicare Secondary Payer provisions list situations where another insurer must pay before Medicare does.¹² The common scenarios:

Group health plan coverage. If you are 65 or older and still covered by an employer group health plan through your or your spouse’s current employment, the group plan generally pays first.
Workers’ compensation. For work-related injuries, workers’ compensation is the primary payer.
Liability and no-fault insurance. If you are hurt in a car accident or another situation covered by liability or no-fault insurance, that coverage pays first.

When the primary insurer delays payment, which is common in liability cases and legal disputes, Medicare may make a conditional payment so you are not left waiting for care. That money comes with strings. Once the primary insurer settles, CMS has a legal right to recover every dollar of the conditional payment, and it can pursue recovery from the insurer, the beneficiary, or any other party that received the primary payment.¹³ If you are involved in a personal injury settlement and Medicare made conditional payments, resolving the Medicare lien before distributing settlement funds matters.

If a Claim Is Denied: The Five Appeal Levels

A denied claim is not the final word. Original Medicare provides a five-level appeals process, and each level has its own deadline. Missing a deadline generally forfeits your right to that level of review.¹⁴

Level 1, Redetermination. File with the MAC within 120 days of your denial notice. The MAC reviews the claim internally, and you typically get a decision within 60 days.
Level 2, Reconsideration. If the MAC upholds the denial, you have 180 days to request review by an independent Qualified Independent Contractor with no connection to the MAC that made the original decision.
Level 3, Administrative Law Judge hearing. You have 60 days to request a hearing, and the claim must meet a minimum dollar threshold. For 2026, the amount in controversy must be at least $200.¹⁵
Level 4, Medicare Appeals Council. You have 60 days to ask the Council to review an unfavorable ALJ decision. The Council can also review cases on its own initiative.
Level 5, Federal District Court. If the Appeals Council rules against you and the amount in controversy is at least $1,960 for 2026, you can file for judicial review within 60 days. You may combine multiple denied claims to meet the threshold.¹⁵

Most beneficiaries never go beyond Level 1 or 2. Knowing the full process still matters, because a provider or insurer denying a claim knows that an ALJ hearing puts the decision in front of a judge who reviews the medical evidence independently. That prospect alone can change the calculus at the earlier levels, especially for expensive services where the documentation genuinely supports medical necessity.

1
Centers for Medicare & Medicaid Services. 2026 Medicare Parts A and B Premiums and Deductibles
2
Centers for Medicare & Medicaid Services. Understanding the Medicare Beneficiary Identifier (MBI) Format
3
CMS. NPI Fact Sheet
4
Centers for Medicare & Medicaid Services. Overview of Coding and Classification Systems
5
Centers for Medicare & Medicaid Services. CMS 1500
6
eCFR. 42 CFR 424.55 – Payment to the Supplier
7
Social Security Administration. Social Security Act Section 1842
8
eCFR. 42 CFR 424.44 – Time Limits for Filing Claims
9
Centers For Medicare & Medicaid Services. Advance Beneficiary Notice of Non-coverage Tutorial
10
Medicare. Medicare Summary Notice (MSN)
11
CMS. Claims Crossover
12
eCFR. 42 CFR 411.20 – Basis and Scope
13
eCFR. 42 CFR 411.24 – Recovery of Conditional Payments
14
Medicare.gov. Appeals in Original Medicare
15
Federal Register. Medicare Program; Medicare Appeals; Adjustment to the Amount in Controversy Threshold Amounts for Calendar Year 2026