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, and CMS 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

In this policy: Federal

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

CMS and the Medicare Payment Advisory Commission (MedPAC) must monitor the effects of Medicare payment reforms, and alert Congress if payments are inadequate and therefore discourage providers from offering services to Medicare beneficiariessuch as those with complex conditions or beneficiaries in rural areasor compromise the quality of care.