Medicaid Rates as a Foundational Driver of Physical Therapy Payment

Medicaid payment policy is frequently discussed in the context of access for low-income populations. While that framing is appropriate, it is incomplete. Medicaid rates do not operate in isolation. They serve as a foundational benchmark that shapes payment dynamics across the broader healthcare market, including in commercial contracts on which private practice physical therapy depends.

In many states, Medicaid reimburses services at levels well below Medicare. Multiple national analyses have documented that Medicaid physician fee schedules—often used as a proxy for outpatient therapy services—average substantially below Medicare, typically in the range of 55% to 75%, depending on the state and service category.¹^,² While physical therapy-specific comparisons are less consistently published across all states, available data and state-level fee schedule reviews demonstrate a similar pattern for therapy services, with Medicaid rates commonly falling well below Medicare benchmarks.³

Although Medicaid may represent a smaller share of total revenue for many practices, its influence extends beyond its proportional contribution. Commercial payers routinely reference “market rates” in contract negotiations, but those rates are not independently derived. They are informed by the prevailing reimbursement environment, which includes Medicaid. As a result, persistently low Medicaid payment contributes to downward pressure on commercial reimbursement, particularly in markets characterized by high payer concentration. The American Medical Association has documented increasing consolidation in commercial insurance markets, which further amplifies payer leverage in establishing these benchmarks.⁴

For private practice physical therapy, this dynamic creates a structural imbalance. Practices are expected to deliver high-value care—improving functional outcomes, reducing the need for more invasive interventions, and lowering total cost of care—yet payment levels do not consistently reflect that value. Over time, this misalignment strains practice sustainability and limits providers’ ability to maintain or expand access, especially in communities where Medicaid represents a significant portion of covered lives.

This is not only an issue of provider reimbursement. It is a question of system design and patient access. Federal Medicaid law requires that payment rates be sufficient to ensure adequate access to care (the “equal access” provision), yet numerous analyses have demonstrated that low payment levels are associated with reduced provider participation and longer wait times for Medicaid beneficiaries.⁵

A more stable and sustainable approach is to align Medicaid payment more closely with Medicare. While Medicare is not without its own limitations, it remains the most consistent national benchmark for valuing healthcare services. Increasingly, policymakers and stakeholders are evaluating Medicaid rates in relation to Medicare, with MedPAC and MACPAC analyses frequently using Medicare as the comparison standard when assessing adequacy of Medicaid payment.¹^,² A threshold of approximately 90% of Medicare has emerged in policy discussions as a reasonable benchmark to better support provider participation and access, particularly in outpatient and specialty services.

Advancing this alignment requires coordinated, data-driven advocacy. Individual practices play an important role in documenting the relationship between payment, access, and outcomes, but meaningful change is most effectively achieved through collective efforts. State chapters, national organizations, and initiatives such as the State Payment Advocacy Resource Consortium (SPARC) provide critical infrastructure for aligning stakeholders, engaging policymakers, and presenting a unified message to both legislators and Medicaid managed care organizations.

In many states, Medicaid managed care plans retain flexibility in establishing provider payment methodologies. This is an opportunity for targeted engagement, particularly when supported by credible data and a clearly defined policy objective. Engagement at the plan level should emphasize the connection between adequate reimbursement, network adequacy, and improved patient outcomes.

For private practice physical therapy, the strategic implications are clear. Efforts to improve commercial reimbursement cannot be fully effective if Medicaid payment remains significantly undervalued. Payment policy is interconnected, and addressing foundational reimbursement levels is essential to achieving broader system stability.

Ensuring that Medicaid payment appropriately reflects the value of physical therapy services is not only a matter of equity. It is a necessary step toward strengthening access, supporting providers, and creating a more rational and sustainable payment environment across all payer types.

References

1. Medicaid and CHIP Payment and Access Commission (MACPAC). Medicaid Payment for Physician Services: Comparisons to Medicare. Washington, DC.
2. Medicare Payment Advisory Commission (MedPAC). Report to the Congress: Medicare and the Health Care Delivery System.
3. Urban Institute. Medicaid-to-Medicare Fee Index.
4. American Medical Association. Competition in Health Insurance: A Comprehensive Study of U.S. Markets.
5. Kaiser Family Foundation. Medicaid Payment Rates and Access to Care.

Approximate Medicaid vs. Medicare Payment for Common PT Codes (2025)

To illustrate the relationship between Medicaid and Medicare payment, a review by AI of publicly available fee schedules across several large states shows a consistent pattern. For commonly billed outpatient physical therapy codes such as 97110 (therapeutic exercise), 97112 (neuromuscular re-education), and 97530 (therapeutic activities), Medicaid reimbursement typically falls between approximately 55% and 70% of Medicare rates. While exact figures vary by state and managed care arrangement, the directional consistency is notable: Medicaid payment is systematically lower than Medicare, reinforcing its role as a de facto baseline in the broader payment environment.

Sources for Table

• Centers for Medicare & Medicaid Services. Medicare Physician Fee Schedule (2025 Proposed/Final Rule data files)
• Florida Medicaid Therapy Fee Schedule (AHCA)
• Texas Medicaid Fee Schedule (TMHP)
• California Medicaid (Medi-Cal) Physician/Allied Health Fee Schedule