Traditional Medicare Provider Payment—General


Traditional fee-for-service Medicare uses several payment systems to pay providers for services in the traditional program: prospective, episode-based, and fee-schedule payment systems. Congress defines the payment systems. The Centers for Medicare & Medicaid Services designs the payment mechanisms within the legal framework. Under a prospective payment system, providers get a predetermined amount based on the patient’s diagnosis and other factors that affect providers’ costs, such as local wage levels. The amount is intended to reflect the average cost of providing services to patients with a similar diagnosis. With episode-based payment, a single payment is made for all services provided during a specified episode. As with prospective payment, the amount depends on the patient’s diagnosis. With fee-schedule payment systems, providers are paid a set amount for each service they provide.



Adequate provider payment

Medicare payment rates should be fair and should provide incentives for providing preventive services, evidence-based practice, person- and family-centered care, provider efficiency, management of chronic conditions, and access to affordable, high-quality care.

The Centers for Medicare & Medicaid Services and the Medicare Payment Advisory Commission must monitor the effects of Medicare payment reforms. They must alert Congress if payments are inadequate. They should discourage providers from offering services to Medicare beneficiaries—such as those with complex conditions or beneficiaries in rural areas—or compromise the quality of care.