Medicare 85% Rule and Incident-To Billing: How NPP Services Get Paid in 2026

When a Nurse Practitioner or physician assistant provides a Medicare service and bills under their own NPI, Medicare pays the practice at 85 percent of what it would pay a physician for the same service. 

This is the baseline rule for direct Billing. It applies across most settings and is the default reimbursement rate for independent NP and PA services.

However, this rate is not set in stone. There is a legal pathway to receive 100 percent reimbursement for the same NP-provided service. 

This happens through “incident-to” Billing. When an np’s services are billed under a supervising physician’s NPI and the care meets strict Medicare requirements, the practice can be reimbursed at the full physician rate.

This guide explains the 85% rule, when it applies, the incident-to exception that allows 100% Billing, and the specific requirements you must follow to stay compliant.

Also Read: Nurse Practitioner Credentialing Requirements

What is the Medicare 85 percent rule?

Medicare’s 85% rule is easy to understand. When a non-physician practitioner, such as a Nurse Practitioner, physician assistant, or Clinical Nurse Specialist, provides a service and bills Medicare directly under their own NPI, Medicare reimburses at 85% of the Medicare Physician Fee Schedule amount.

For example, for a service that pays a physician $100, the NPP Billing would receive $85 directly. This standard rate applies across most settings, including offices, hospitals, and nursing facilities.

Why the 85% rule exists (Balanced Budget Act of 1997)

The primary reason for this differential in reimbursement rates is based on legislation passed in the late 1990s. The Balanced Budget Act of 1997 established this differential for services provided by non-physicians.
The idea behind the lower reimbursement rate was to encourage practices to maintain a physician-led team approach versus operating a fully independent NPP practice. Training programs for NPPs are significantly shorter and less extensive than physician training.

When the 85% rule applies by default

The 85% rule is the default payment rate when:

• An NPP bills under their own NPI
• A patient is new to the practice
• A patient has a new problem and/or presents with a new complaint not previously evaluated by a physician
• The NPP alters the treatment plan created by a physician
• A service is delivered via telehealth

 The incident-to exception: how to bill at 100%

What is incident-to Billing? 

Incident-to Billing allows a practice to bill Medicare for services performed by an NPP under a physician’s NPI and receive 100% reimbursement. The theory behind this type of Billing is that the work done by an NPP represents an extension of the physician’s personal professional services. As long as the physician creates a treatment plan and remains actively engaged throughout the course of treatment, the subsequent care provided by an NPP is reimbursable at the same rate as if it were performed personally by the physician.

According to Medicare, incident-to services are defined as “those services which are provided as an integral, although incidental part of the physician’s or non-physician practitioner’s personal professional services”.

Incident-to applies to Medicare only, not commercial payers 

Financial impact of utilizing the incident-to

Incident-to Billing allows a compliant practice to receive 100% of the Medicare Physician Fee Schedule reimbursement rate for NPPs who are delivering follow-up care to eligible patients. Conversely, if a practice bills for the same service using an NPP’s NPI instead of their physician’s, they are limited to receiving only 85% reimbursement. Therefore, if appropriately utilized and compliant, your practice will be able to collect an additional 15% for each Medicare-eligible service billed as incident-to compared to a similar practice that does not utilize this Billing strategy.

5 key requirements to qualify for incident-to

To take advantage of incident-to Billing, all of the following five strict requirements must be met:

1. The patient has been previously seen by the same physician

The physician must have initially seen the patient and provided an initial service for the specific condition being treated. New patients or new complaints/problems do not meet this criterion. If a patient presents with a new complaint/problem, the physician must provide an initial e/m service (diagnosis), develop a care plan prior to allowing an NPP to provide incident-to follow-up care.

1. Treatment plan created by a physician

A written treatment plan created by the physician exists and outlines both diagnosis and treatment options. The NPP cannot deviate from this plan. Should an NPP identify a new issue/problem or alter/modify the physician-created treatment plan, the service(s) no longer qualify for incident-to Billing. The treatment plan serves as the foundation for incident-to.

1. Active participation/involvement of the supervising physician

The physician must remain actively involved in the treatment process for the patient. This is a continuous obligation of the physician-supervisor and not an isolated occurrence. Several Medicare contractors have suggested that there should be evidence (e.g., documentation) that shows the physician sees the patient at least every other/third visit to remain active/included in treating the patient.

1. Direct Supervision Required

The supervising physician must be physically present within the office suite during the time the NPP is performing services. The physician must be readily available to intervene if necessary. The term “incident-to” applies only within the context of an office setting (pos 11). Within hospital/facility settings, split/shared reimbursement rules apply.

1. Correct business relationship between NPP & physician

The NPP must be employed or independently contracted by either the physician or the group practice. The service(s) provided must result in expenses incurred by the practice. If a group practice has multiple tax ID numbers for physicians vs. NPPs, this may lead to compliance issues when attempting to bill incident-to.

Virtual supervision update

What did change starting in 2026

As of January 1st, 2026, CMS formally adopted a definition of “direct supervision”, effective indefinitely, that permits practicing professionals (primarily telemedicine practitioners) to supervise remotely via real-time audio/video communication technology (RTAVC) for most Medicare Part B services with some limitations. 

Specifically excluded from remote supervision authority is RTAVC audio-only technology.

Some stakeholders were concerned about permanent changes regarding the remote supervision authority

While many supported expanded remote supervision authorities citing increased flexibility/access as major benefits, others raised significant concerns about how virtual direct supervision would obscure NPPs’ roles in providing services incident to a physician’s services.

CMS determined that despite these concerns regarding possible attribution issues related to remote direct supervision, “the advantages associated with greater accessibility outweigh possible implications on attributing services.”

Regardless of this expanded flexibility for supervisors regarding remote direct supervision, CMS emphasized that practicing professionals are expected to continue exercising clinical judgment on a case-by-case basis to choose whether remote direct supervision best fits their patient safety/procedural integrity/access objectives.

Exceptions to policy implementation

While this policy effectively covers most Medicare part b services as per above language regarding application of expanded flexibility regarding remote direct supervision authorities (except as noted below), there exist two notable exceptions:

Two notable exceptions to flexible use of remote direct supervision authorities

• Firstly, there exist certain types of surgical procedures (global surgery indicators 010 and 090) where CMS mandates in-person presence of the supervisor because of higher inherent risks associated with those surgeries.
• Secondly, CMS codified flexible supervision authorities applicable in rural health clinics (rhcs) and federally qualified health centers (fqhcs).

What does this mean for my clinic-based practice?

Remote supervision policies mean that clinic-based practices utilizing incident-to Billing do not require physical presence of supervising physicians within office suites.
However, physicians must still be accessible to assist in real-time av connections when an np requires assistance.
They cannot simply leave for another procedure/see another patient as they are required to be immediately available during av connection time.

Incident To vs. Split/Shared Billing

Split/Shares billing is separate from incident to billing; as split/shares billing is strictly based on location of service. Incident to billing is limited to private offices (pos 11); split/shares billing is limited to facility locations (e.g. hospital, emergency room, skilled nursing etc.) (pos 19, 21, 22, 23).
Incident to billing has the potential for 100% reimbursement only if there are two factors:

• Established patient status
• Existing problem(s)

Direct supervision by the physician. There does not need to be a direct hands-on service rendered by the physician. Direct supervision means the physician must be readily available and provide immediate supervision.

Split/Shares billing can involve either new or established patients and the determination of who gets reimbursed is based on who delivered the majority of the “substantive” part of the visit. 

Substantive refers to either:

More than 50 percent of the total time spent delivering the service,
CPT describes a substantial component of the medical decision-making process.

For Critical Care Services, CPT defines the “substantial” element as more than 50 percent of the total time spent by either the MD or NP.

Both clinicians involved in delivering a split/shared visit must document within the medical record. Documentation must identify both providers. The clinician responsible for billing for the visit must sign and date the medical record. In addition, according to CMS, at least one of the practitioners involved in the delivery of the service must have had some type of direct interaction with the patient. However, this is not true of the practitioner who delivers the majority of the service and receives reimbursement for it.

An FS Modifier is required to report split/shared visits.

Who can bill incident to?

Medicare reimburses eligible practitioners for services delivered incident to another physician’s practice. Eligible practitioners include Nurse Practitioners (NP), Clinical Nurse Specialists (CNS), Certified Registered Anesthetist (CRNA), Certified Nurse Midwife (CNM), Clinical Psychologist (CP), Clinical Social Worker (CSW), Marriage & Family Therapist (MAFT), Mental Health Counselor (MHC), Occupational Therapist (OT), and Physician Assistant (PA).

Exception for Mental Health Services

Billing and documentation for mental health services is a special case under incident-to. Check with each carrier as they may not recognize all certifications.

Documentation

Documentation must show which provider delivered the service and that a supervisory physician was present in the office suite during delivery. Claim Form Instructions indicate that Item 17 of the CMS-1500 should include the name of the physician/NP who initiated the service/orders the non-physician service.

Add the appropriate qualifier to the left of the vertical line separating items 1 and 2 on item 1 followed by the name:

• DN = Referring Provider
• DK = Ordering Provider
• DQ = Supervising Provider

Claims for therapy services (Physical Therapy, Occupational Therapy and Speech Language Pathology) requires certification provider name and NPI as the referral provider in Items 17 and 17b of the CMS-1500.

When directly supervising an incident-to service, enter the ordering physician’s or NPP’s signature in item 31. When not directly supervising an incident-to service, enter signature of physician or NPP providing direct supervision in item 31.

What does NOT qualify for Incident-to?

Diagnostic Tests/Vaccines

Incident-to provisions do not apply to those services whose statutory benefit category stands alone. For instance, diagnostic testing has its own statutory benefit categories and therefore are subject to their own specific coverage requirements. Those services cannot be considered incident-to services nor can the incident-to provisions be applied. Pneumococcal, influenza and hepatitis B vaccines are specifically excluded from being incident-to services.

Telehealth Services

When an NPP provides telehealth services, claims must be submitted using his/her own NPI and paid at 85% of allowed amounts. The incident-to provisions cannot be utilized to submit those services at a 100% physician rate.

Surgical Assistance

Physician Assistants who assist surgeons are paid 85% of what a PA would get for a surgical procedure. A modifier AS must be added to the procedure code to signify NPP assistance.

Common Pitfalls/Audit Risks

Incorrect Use of Incident-To

Incorrect use of incident-to is probably one of the most frequent errors made. Incorrectly applying incident-to billing is typically to either see new patients or to address new issues/problems. Both situations preclude the utilization of incident-to billing and must be submitted utilizing the NPP’s own NPI. Also, failure to adequately document that a physician provided direct supervision or was present in the same office suite where the service was provided can cause major problems.

Treatment Plans Must Stay Intact

As long as changes occur to the treatment plan so that it ceases to remain consistent with the original treatment plan, it is no longer an incident-to. Return to the treatment plan, because that is essentially what forms the foundation of incident-to.

Risk of Upcoding

There is potential for significant upcoding risk here, especially as it relates to violations of the False Claims Act. One way to minimize this risk is through educating coders/billers regarding CY 2026 Physician Fee Schedule and ensuring that software does not default into certain codes.

Scope of State Practice

Also important is knowledge of how your state’s scope of practice may impact your billing methodologies. While it is not generally considered the responsibility of coders or auditors to understand licensure laws or the scope of practice in their respective states, it frequently arises in audits. Therefore, I suggest you save your state’s licensure website URL so you can quickly reference what your NPPs and other employees, such as lab technicians or registered nurses, are authorized to perform.

Direct Billing vs. Incident-To: A Quick Comparison

Conclusion

The Medicare 85% rule is a fundamental payment policy that governs NPPs’ ability to bill directly for services they deliver. It sets a base rate of reimbursement at 85% of the physician fee schedule. 

However, incident-to billing creates a legal framework to allow 100% reimbursement when several requirements are satisfied, including:

• Patient is an established patient,
• Existing problems/treatment plans exist,
• The physician provides direct supervision,
• A proper employment relationship exists between NPP and Physician.

In general, virtual direct supervision via audio/video technology will be permissible for virtually all services for the remainder of 2026, allowing practices increased flexibility. Again, remember that incident-to is not a coding rule but rather a reimbursement policy. Many payers will not reimburse incident-to at all.

Capture the full 100% without inviting an audit

The difference between 85% and 100% on every eligible NPP encounter is real money, and the difference between a clean incident-to claim and a False Claims Act exposure is documentation. UControl Billing manages NPP and incident-to billing for practices in all 50 states, from supervising-physician credentialing through claim submission and denial recovery. Our coders apply the CY2026 virtual supervision rules, confirm established-patient and plan-of-care status before each claim, and flag any service that should drop to 85% direct billing before it reaches the payer.

If your practice bills NP, PA, or CNS services under Medicare, [request a billing and compliance review] and we will tell you exactly where you are leaving the 15% on the table and where you are exposed.

Frequently asked questions

What is the 85% rule in Medicare? 

It is the policy that pays NPP services at 85% of the MPFS amount when billed directly under the NPP’s own NPI.

Can a nurse practitioner bill incident-to for a new patient? 

No. Incident-to requires an established patient with a plan of care already set by a physician. New patients are billed directly at 85%.

Does incident-to apply to commercial insurance? 

Incident-to is a Medicare concept. Commercial payers set their own rules, and many do not recognize incident-to at all. Confirm each payer’s policy.

What place of service is incident-to? 

Office, place of service 11. Incident-to does not apply in facility settings; those follow split/shared rules.

Does the supervising physician have to be in the office in 2026? 

No. As of January 1, 2026, virtual direct supervision over real-time audio and video is permanent, except for services with a 010 or 090 global surgery indicator. Audio-only does not qualify.

Can an incident be billed for telehealth? 

No. When an NPP furnishes a telehealth service, it is billed under the NPP’s NPI at 85%.