Medicare Payment Policies

Publication Date: February 2005

Publisher: Library of Congress. Congressional Research Service

Author(s):

Research Area: Health

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Abstract:

Medicare is the nation's health insurance program for the aged and disabled. Part A of the program, the Hospital Insurance program, covers hospital services, post-hospital services provided in skilled nursing facilities and by home health care agencies, and hospice services. Part B, the Supplementary Medical Insurance program, covers a broad range of complementary medical services including physician, laboratory, and outpatient hospital services, and durable medical equipment. Part C provides managed care options for beneficiaries who are enrolled in both Parts A and B. The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) added Part D to Medicare, which is a new prescription drug benefit that begins January 1, 2006.

Medicare has established specific rules for payment of covered benefits under Parts A, B, and C. Some, such as physician services and durable medical equipment, are based on fee schedules. Most services, including those provided in inpatient hospitals, inpatient rehabilitation facilities, long-term care hospitals, psychiatric hospitals and skilled nursing facilities, 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.

Medicare payment policies and potential modifications to these policies are of continuing interest to Congress. The Medicare program has been a major focus of deficit reduction legislation since 1980. With a few exceptions, reductions in program spending have been achieved largely through reductions in payments to providers, primarily hospitals and physicians. The Balanced Budget Act of 1997 (P.L. 105-33, BBA 97) modified some payment policies in place at that time, including changing underlying payment methodologies and updates to payment amounts. Subsequently, Congress passed the Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of 1999 (P.L. 106-113, BBRA) and the Benefits Improvement and Protection Act of 2000 (P.L. 106-554, BIPA 2000), both of which contained funding increases to mitigate the impact of some BBA 97 provisions on providers. MMA, too, modified payment methods and established payment increases for some providers.

This report provides an overview of Medicare payment rules by type of service. It outlines current payment policies and provides a summary of the basic rules for updating the payment amounts. The report also includes the most recent update for each type of service. At the back of the report is a listing of CRS reports providing more in-depth discussions of provider payment issues. This report will be updated for any legislative activity.