Introduction

Milliman Commercial Reimbursement Benchmarks¹ reflect the average provider reimbursement rates for commercial payers separately for each metropolitan statistical area (MSA) and service category. These benchmarks are developed using actual commercial claims data from one of the largest commercial data warehouses available and enhanced with insights from Milliman Health Cost Guidelines™ (HCG)² and Milliman Medicare Repricer™³ tools.

Milliman’s Consolidated HCG Sources Database (CHSD) contains a national group commercial health insurance claims experience database, representing approximately 62 million members and $276 billion in medical allowed charges in 2023. We reprice this experience data, along with the 2022 Merative MarketScan® data, to Medicare fee-for-service (FFS) payment rates using the Milliman Medicare Repricer. The Milliman Medicare Repricer contains a full Medicare FFS adjudication engine for all service types, including Medicare severity diagnosis-related group (MS-DRG) and ambulatory payment classification (APC), allowing for a full comparison of the commercial reimbursement to the Medicare-allowed amounts. We calculate a percentage of Medicare FFS rates as the commercial allowed divided by the repriced Medicare FFS allowed to provide a more consistent payment rate benchmark.

Percentage of Medicare FFS rates is one of the most widely accepted commercial reimbursement benchmarks when evaluating provider reimbursement and comparing contracts in the healthcare industry. It adjusts for the mix of services across providers⁴ and plans while removing impacts from billed charges, which can vary widely across providers and areas.

Nationally, we estimate 2025 commercial reimbursement for medical services to be approximately 196% of fully loaded Medicare FFS rates⁵, with a significant difference between facility reimbursement and professional reimbursement, as shown in Figure 1. Figure 1 also shows that the overall reimbursement as a percentage of Medicare FFS rates has slightly increased from 2024 to 2025. The observed changes are driven by updates to the underlying commercial claims data, refreshed Medicare fee schedules, and updated commercial unit price trends (discussed in the “Trending experience” section below).

“Percentage of Medicare FFS rates” and how it is calculated

Milliman’s 2025 commercial reimbursement benchmarks are based on nationwide commercial medical claims data aggregated from several sources, including Milliman’s CHSD, which reflects commercial claims incurred in 2023, and the Merative MarketScan® data, which reflects commercial claims incurred in 2022. The commercial allowed charges are trended to 2025.

The claims are repriced to the 2024 Medicare FFS fee schedule using the Milliman Medicare Repricer and trended to 2025. The percentage of Medicare FFS rates is the ratio of the total commercial allowed charges divided by the total Medicare-allowed charges. The data are summarized by MSA and major service types: inpatient hospital (IP), outpatient hospital (OP), and professional (Prof) services. Statewide and nationwide totals are determined by weighting the MSA-level results to reflect the distribution of the under-65 population.

The Medicare FFS allowed charges are assigned with the Milliman Medicare Repricer. The Milliman Medicare Repricer supports the major Medicare fee schedules, including the inpatient and outpatient prospective payment systems (IPPS and OPPS, respectively), and can be set to include or exclude payment components such as disproportionate share hospital (DSH) payments and indirect medical education (IME) payments.

Under Medicare, most acute care hospitals receive additional DSH and uncompensated care payments, and many receive IME payments for inpatient stays. In the repriced CHSD and MarketScan data, these additional payments make up approximately 22.3% of the total Medicare FFS payments under IPPS nationally. For this study, we include these payment components, except for inpatient pass-through payments, and we apply PPS rates to non-PPS facilities, including critical access hospitals, cancer and children’s hospitals, and Maryland waiver hospitals.

The professional Medicare reimbursement includes the standard adjudication adjustments but does not reflect any adjustments for Merit-based Incentive Payment System (MIPS), healthcare professional shortage area, or professional bills through critical access hospitals.

To help ensure consistency, we exclude skilled nursing facility (SNF) and home health claims, where the availability of the required coding for assigning Medicare FFS payment varies by geography.

The Milliman Medicare Repricer is validated against Medicare FFS claims to ensure consistency with the allowed payments under Medicare FFS.

Trending experience

The experience data reflect calendar year 2022 and 2023 incurred claims data, from MarketScan and CHSD, respectively, with Medicare FFS allowed amounts assigned through the Milliman Medicare Repricer software. The commercial allowed and Medicare allowed amounts are trended forward to 2025. These trends—approximate values shown in Figure 2—exclude service mix and intensity changes.

Variances in reimbursement rates across geographic areas and types of service

Provider reimbursement rates vary significantly by geography and type of service. Milliman reimbursement benchmarks are available by state and MSA to drill down to market-specific reimbursement. The interactive chart below shows a census division level view of total 2025 reimbursements as a percentage of Medicare FFS rates, excluding retail pharmacy claims, and can be toggled for inpatient, outpatient, professional, and total services. The chart also includes benchmarks from other studies for reference. See the detailed discussion in the “Comparison to other benchmarks” section.

As shown, most census divisions are within a narrow range; however, some census divisions have a very high or low overall reimbursement relative to Medicare. For example, we estimate that the Pacific census division has a total commercial reimbursement of 213% of Medicare FFS while the East South Central census division has lower commercial reimbursement relative to Medicare FFS at 163%. We also observe significant variations by state and market (defined as MSA) (not shown in the interactive chart). For example, Alaska has a total commercial reimbursement of 294% of Medicare FFS while Alabama has a commercial reimbursement relative to Medicare FFS at 143%. The MSA-level results in California range from 166% of Medicare in Visalia to 277% in Salinas. There are several reasons why reimbursement can vary widely across markets, including the relative negotiating power of providers or payers and the variation in regional Medicare FFS rates.

Commercial reimbursement also varies by type of service. The nationwide reimbursement by this measure is lowest for professional services, at 148% of Medicare FFS, and highest for outpatient services, at 263% of Medicare FFS. Commercial inpatient reimbursement averages 209% of Medicare FFS nationwide.

Milliman reimbursement benchmarks are also available at more granular service levels, such as inpatient maternity, outpatient emergency, anesthesia, and professional surgical procedures. The additional service category detail allows for a more detailed review of specific elements of provider reimbursements and a better understanding of where reimbursement contracts are relative to the market. As an example, Wisconsin’s overall professional services are approximately 4% lower than the nationwide Medicare FFS fee schedule when applying the geographic practice cost index (GPCI), but the overall commercial reimbursement is 255% of Medicare (compared to 148% nationwide). This is driven by the average commercial reimbursement for professional surgical services (approximately 431% of Medicare). Additional granularity (e.g., procedure code level benchmarks) is also possible via ad-hoc reporting.

Comparison to other benchmarks

We compared Milliman’s results to other publicly available data. Specifically, the Health Care Cost Institute (HCCI) study⁶ on 2017 professional reimbursements and the 2024 RAND study⁷ “Nationwide Evaluation of Health Care Prices Paid by Private Health Plans”, as mentioned above.

The HCCI study is limited to professional claims and is based on 2017 commercial and Medicare fee schedule levels. The Milliman benchmarks are based on 2022 and 2023 incurred data, trended forward to 2025 charge levels. While the HCCI is relatively old, the availability of physician price benchmarks is limited so we continue to use HCCI as a point of comparison.

Figure 3 compares the Milliman results to the HCCI results. The Milliman results are consistently higher than the HCCI results; however, both studies show similar variation among the states measured, and the relativity between states is consistent. For example, Wisconsin has the highest reimbursement, and Alabama and Kentucky are among the states with the lowest reimbursement. The HCCI study includes approximately 12% of the allowed claims volume included in the Milliman study and focuses on metropolitan areas. In contrast, the Milliman benchmarks are inclusive of urban and rural areas. Urban and rural areas can have very different reimbursements as a percentage of Medicare FFS rates due to differences in Medicare reimbursement rates, as well as commercial market dynamics that can impact provider contracts (e.g., there are typically fewer provider competitors in rural areas). The Milliman benchmarks can be evaluated for urban and rural areas separately since they are benchmarks available at the MSA level.

Figures 4 and 5 compare the Milliman benchmark results to those of the RAND study for inpatient and outpatient services, respectively. The RAND study estimates are slightly higher than Milliman’s results for inpatient reimbursement rates and slightly lower than Milliman’s results for both outpatient reimbursement rates. The RAND study is an estimate of the average commercial reimbursement rates for 2020 through 2022, whereas Milliman’s results are for 2025 estimates.

We excluded professional results from our comparison as Milliman’s professional reimbursement benchmarks include all professional settings and the RAND study focuses on services provided in a hospital setting.

Benchmarking commercial reimbursement

Commercial provider reimbursement arrangements can take many forms, ranging from discounts from billed charges and fee schedules to complex calculation methodologies and risk-sharing arrangements. Many commercial fee schedules utilize Medicare-like reimbursement structures based on MS-DRGs, APCs, and the resource-based relative value system (RBRVS). Commercial FFS payment contracts often use a combination of fee schedules and a percentage of billed charges.

Recently, payers and providers have recognized the predictability and administrative simplicity of utilizing Medicare fee schedules as the basis for commercial reimbursement arrangements.

Additionally, shared risk models, including bundled payments and shared savings arrangements, have become more prevalent. The Health Care Payment Learning and Action Network (HCPLAN) estimates that alternative payment models increased from 34.5% of commercial payments in 2021⁸ to 39.2% in 2023⁹.

Comparing provider contracts is difficult without a standardized benchmark. Differences in billed charge levels limit the value of comparing relative percentages of charges, and differences in membership and service mix complicate the results when comparing different providers, such as a large urban hospital and a critical access hospital.

Comparing the total commercial reimbursement to the Medicare FFS rates is a widely used method for evaluating provider reimbursement and has several benefits when compared to other comparison methods:

• Percentage of Medicare FFS rate comparisons do not rely on billed charges, which can vary widely between providers and areas
• Medicare payment rates are well understood by payers and providers, making comparisons acceptable to all parties
• The repriced Medicare allowed rate reflects the actual mix of services provided, which eliminates the need for a market basket and reflects the actual care provided

The primary drawbacks of this method are:

• The requirement of the expertise and/or software to price claims to the Medicare fee schedule
• The Medicare definition should be precise and, for reimbursement rate contracts, specify how to account for updates to the Medicare fee schedules

In addition to enabling an apples-to-apples comparison between specific provider or payer contracts, comparing contracts as a percentage of Medicare FFS rates also eases comparison of aggregate reimbursement rates across geographic regions or to area reimbursement benchmarks.

An additional comparison point, the Milliman Price Transparency Solutions for Payers and Providers¹⁰, is now available, and with it, prices for services from individual hospitals and networks. This data can be coupled with market data to understand market price position by network, hospital, or physician group.

In addition to the reimbursement benchmarks captured here, provider and payer contracts may have additional shared savings or pay-for-performance provisions that are not presented here. These contract features often result in additional payments between providers and payers. When benchmarking those types of arrangements, the payment transfers outside of the claims experience should also be taken into consideration.

Conclusion

Comparing commercial-allowed amounts to Medicare FFS rates requires either specialized expertise, including an understanding of the complex Medicare FFS reimbursement rules, or software to assign the Medicare-allowed amounts.

Provider reimbursement as a percentage of Medicare FFS rates provides a consistent and well-understood basis for comparing reimbursement rates. Using this common basis enables comparison to reimbursement benchmarks. Provider contracts can also be compared to Milliman’s commercial reimbursement benchmarks to provide a better understanding of their position to the market average reimbursement.

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¹ See Milliman commercial reimbursement benchmarks at https://www.milliman.com/en/products/milliman-commercial-reimbursement-benchmarks.

² See Health cost guidelines suite at https://www.milliman.com/en/products/health-cost-guidelines-suite.

³ See Milliman Medicare repricer at https://www.milliman.com/en/products/medicare-repricer.

⁴ For considerations regarding using Medicare to adjust for service mix, see Percent of Medicare comparisons: A primer on using Medicare payment rates as a benchmark at https://www.milliman.com/en/insight/percent-of-medicare-comparisons-payment-rates-as-benchmark.

⁵ We define the fully loaded Medicare FFS rate as the Medicare prospective payment rates, including add-on payments for outliers, disproportionate share, IME, uncompensated care, sole community hospitals, and Medicare-dependent hospitals. Pass-through payments are excluded. For non-PPS providers (e.g., critical access hospitals, Maryland waiver hospitals), we develop PPS rates using the market PPS pricing factors published by the Centers for Medicare and Medicaid Services (CMS).

⁶ Johnson, B., et al. (2020, August 13). Comparing commercial and Medicare Professional Service prices. HCCI. https://healthcostinstitute.org/hcci-research/comparing-commercial-and-medicare-professional-service-prices.

⁷ Whaley, C.M., et al. (2024, December 10). Prices paid to hospitals by private health plans. RAND. https://www.rand.org/pubs/research_reports/RRA1144-2.html.

⁸ Health Care Payment Learning & Action Network. (2022, November 9). Measuring progress: Adoption of alternative payment models in commercial, Medicaid, Medicare Advantage, and traditional Medicare programs. https://hcp-lan.org/apm-measurement-effort/2022-apm/2022-infographic/.

⁹ Health Care Payment Learning & Action Network. (2024, November 14). APM measurement: Progress of alternative payment models, 2024 methodology and results report. https://hcp-lan.org/apm-measurement-effort/2024-apm/2024-infographic/.

¹⁰ See Milliman Price Transparency Solutions for Payers and Providers at https://www.milliman.com/en/products/milliman-price-transparency-solutions-for-payers-and-providers.