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Wednesday, September 8, 2010

Medicare Payment Policies

Paulette C. Morgan, Coordinator
Specialist in Health Care Financing

Patricia A. Davis
Specialist in Health Care Financing

Barbara English
Information Research Specialist

Jim Hahn
Analyst in Health Care Financing

Mark Newsom
Analyst in Health Care Financing

Julie Stone
Specialist in Health Care Financing

Sibyl Tilson
Specialist in Health Care Financing

Medicare is a federal insurance program that pays for covered health services for most persons 65 years of age and older and for most permanently disabled individuals under the age of 65. Part A of the program, the Hospital Insurance program, covers hospital, post-hospital, and hospice services. Part B, the Supplementary Medical Insurance program, covers a broad range of complementary medical services including physician, laboratory, outpatient hospital services, and durable medical equipment. Part C provides private plan options for beneficiaries enrolled in both Parts A and B. Part D is an optional outpatient prescription drug program. 

Medicare has established specific rules for payment of covered benefits. Some, such as physician services and most durable medical equipment, are based on fee schedules. Some payments are based, in part, on a provider's bid (an estimate of the cost of providing a service) relative to a benchmark (the maximum amount Medicare will pay). Bids and benchmarks are used to determine payments in Medicare Parts C and D. Payments for some items of durable medical equipment in specified locations are to be based on competitive bidding, starting in 2011. Many services, however, including inpatient and outpatient hospital care, are paid under different prospective payment systems (PPSs). In general, the program provides for annual updates to these payment amounts. The program also has rules regarding the amount of cost sharing, if any, which beneficiaries can be billed in excess of Medicare's recognized payment levels. Unlike other services, Medicare's outpatient prescription drug benefit can be obtained only through private plans. Further, while all Part D plans must meet certain minimum requirements, they differ in terms of benefit design, formulary drugs, and cost-sharing amounts. 

Medicare payment policies and potential changes to these policies are of continuing interest to Congress. The Medicare program has been a major focus of deficit reduction legislation since 1980. With certain exceptions, reductions in program spending have been achieved largely through regulating payments to providers, primarily hospitals and physicians. The Balanced Budget Act of 1997 (P.L. 105-33, BBA) modified some existing payment policies, including changing underlying payment methodologies and updates to payment amounts. Subsequent legislation increased Medicare funding to mitigate the financial impact of some BBA provisions. The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (P.L. 108-173, MMA), too, modified payment methods and established payment increases for some providers. Most recently, the Tax Relief and Health Care Act of 2006 (P.L. 109-432, TRHCA); the Medicare, Medicaid, and SCHIP Extension Act of 2007 (P.L. 110-173, MMSEA); the Medicare Improvements for Patients and Providers Act of 2008 (P.L. 110-275, MIPPA); and the Patient Protection and Affordable Care Act of 2010 (P.L. 111-148), as modified by the Health Care and Education Reconciliation Act of 2010 (P.L. 111-152), have affected Medicare's payments. 

This report provides an overview of Medicare payment rules by type of service, outlines current payment policies, and summarizes the basic rules for program updates. This report will be updated at least annually.

Date of Report: June 23, 2010
Number of Pages: 66
Order Number: R41153
Price: $29.95

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