Every new practice owner hears it within the first week. A senior partner, a hospital administrator, some guy on a physician forum: "Don't take Medicaid. Limit Medicare. Government payers will bleed you dry." It gets repeated so often it sounds like physics.
It isn't physics. It's folklore, half-remembered numbers from a different era, passed down without anyone checking whether the math still works. Here's what the data actually shows: the belief that Medicare and Medicaid patients automatically destroy a new practice's finances is mostly wrong, occasionally right, and almost always repeated by people who've never run a cost-per-encounter calculation in their lives.
This article is for educational purposes only and is not financial advice, not legal advice, and not tax advice. Reimbursement figures vary by specialty, state, contract, and year, consult a qualified professional before making payer decisions for your practice.
The Myth at a Glance
The conventional wisdom goes like this: government payers reimburse less than commercial insurance, therefore every Medicare or Medicaid patient who walks through your door costs you money. New physicians absorb this fear at the worst possible moment, right when they've signed a lease, taken on a loan, and committed to payroll. The anxiety is real and rational. The conclusion is not.
Where does the myth come from? Three places. Attendings who trained in the 1990s, when the gap between commercial and Medicare rates was genuinely brutal in some markets. Procedural specialists whose economics legitimately don't translate to primary care. And a kernel of truth, yes, the raw fee schedules are lower, that got inflated into a universal law.
I've watched new owners turn away entire patient populations based on this advice, then struggle to fill their panels for eighteen months. Empty exam rooms lose money too. Nobody mentions that part.
What the Reimbursement Data Actually Shows
Let's start with real numbers. Medicare's physician fee schedule runs on a conversion factor, roughly $32-33 per RVU in recent years, and for most office-based cognitive care, commercial insurance pays somewhere between 110% and 140% of Medicare depending on your market and negotiating leverage. That puts Medicare at roughly 65-80% of private rates for many common services, and it varies sharply by specialty.
Notice psychiatry up near 78%. That's not a typo. Commercial mental health rates are so historically lousy that Medicare is genuinely competitive in behavioral health, which is why plenty of thriving psychiatry practices run Medicare-heavy panels without blinking.
Medicaid is a different animal entirely. The Medicaid-to-Medicare fee index averages around 0.72 nationally, but the spread is enormous. States like Alaska and Montana pay at or above Medicare rates for many services. States like New Jersey, Florida, and Rhode Island pay half of Medicare or less for the same visit. Saying "Medicaid doesn't pay" without naming your state is like saying "housing is expensive" without naming your city. Meaningless.
And here's the part nobody quotes: the raw rate isn't what you actually collect. Medicare pays clean electronic claims in about 14 days, almost never denies without cause, and requires zero contract negotiation. Commercial payers deny, delay, downcode, and demand prior authorizations that consume staff hours. When you net out the administrative cost of collecting a commercial dollar versus a Medicare dollar, the gap shrinks. Sometimes considerably.
The Profitability Equation: It's More Nuanced Than You Think
Profitability isn't a fee schedule. It's arithmetic: revenue per encounter minus cost per encounter, times volume.
Run it. If your fully loaded cost per visit, rent, staff, supplies, your salary, everything, lands around $90, and Medicare pays roughly $110-130 for an established-patient visit of moderate complexity, you're profitable on every Medicare encounter. Not wildly. But profitable. The practices that lose money on Medicare are usually the ones whose overhead is bloated, not the ones whose payer is cheap.
Then there's volume, which the myth conveniently ignores. Medicare patients show up. They have chronic conditions requiring regular management, they keep appointments at higher rates than younger commercial populations, and they stay loyal for decades. A reliable, dense schedule of slightly-lower-paying visits beats a half-empty schedule of higher-paying ones. Every time. I've seen a two-physician geriatrics practice in the Midwest run margins that would embarrass most concierge shops, 70% Medicare, tightly managed, zero drama.
Payer mix optimization is just weighted averaging. If 60% of your panel pays 130% of Medicare and 40% pays Medicare rates, your blended rate is fine. The question was never "does Medicare pay less?" It's "does my blended rate clear my break-even?"
When the Myth Is Actually True
I'm a myth buster, not a cheerleader. Sometimes the conventional wisdom is right, and pretending otherwise would be malpractice.
Procedural specialties face real exposure. When your revenue depends on global surgical fees and Medicare has spent years compressing those fees, ophthalmology and cataract surgery being the textbook case, a Medicare-heavy panel genuinely squeezes margins, especially if you're paying facility overhead that an ASC model was designed to escape. Dermatology practices built on high-margin cosmetic work can't replace that revenue with Medicare medical visits and expect the same P&L.
High-overhead practice models fail here too. If you built a spa-like clinic with a 1:1 staff-to-provider ratio and marble in the waiting room, your cost per encounter may exceed what any government payer will cover. That's not Medicare's fault. That's a design choice.
And in genuinely low-fee Medicaid states, the math can be unworkable. When a state pays rates that sit below the cost of the exam room's overhead for the visit, volume doesn't save you, it just scales the loss. Federally Qualified Health Centers solve this with cost-based reimbursement; a small private practice doesn't have that lever.
Strategic Approaches That Work
If you're going to accept government payers, and in most markets, you should, do it like an operator, not an optimist.
Build efficiency first. Team-based care where MAs handle intake, protocols, and documentation prep. Templates that cut charting time in half. Same-day access scheduling that kills no-shows. Every dollar you strip from cost-per-encounter is a dollar of margin on every payer, including the low ones.
Mine the value-based codes. Medicare will pay you for work you're already doing: chronic care management (roughly $60+ per patient per month for non-face-to-face coordination), transitional care management after discharge, annual wellness visits, remote patient monitoring. A panel of 300 Medicare patients with even 40% enrolled in CCM transforms the economics of that panel. Most new practices never bill these codes. That's leaving money on the table because a forum post scared you.
Structure deliberately. Understand your Medicare participation choices, participating, non-participating, opt-out, before you enroll, not after. Read Medicaid managed care contracts line by line; some pay meaningfully above fee-for-service, others bury you in prior auth for less money. Cap your Medicaid panel if your state's rates demand it. You control the intake valve.
Bottom Line: Separating Fact from Fiction
The myth is partially true and vastly overstated. Government payers do reimburse less. "Less" is not "loss." Whether Medicare and Medicaid patients make or lose you money depends on three things you can actually measure: your specialty's rate ratio, your state's Medicaid fee schedule, and your cost per encounter.
So before you turn anyone away, do the boring work:
- Calculate your true cost per encounter
- Pull your specialty's actual Medicare rates and your state's Medicaid schedule
- Compute the blended payer mix that clears your break-even
- Add CCM, TCM, and wellness visits to the model
- Cap whatever genuinely doesn't pencil
Key takeaways: reimbursement gaps are real but frequently offset by lower collection costs, reliable volume, and value-based revenue. Specialty, geography, and operational discipline decide the outcome, not the payer's logo. And the practices that thrive on government-heavy panels aren't lucky. They're just better run.
