[Background Material and Data on Programs within the Jurisdiction of the Committee on Ways and Means (Green Book)]
[Appendix D. Medicare Payment Policies]
[From the U.S. Government Printing Office, www.gpo.gov]



	Medicare is the nationwide health insurance program for the 
aged and disabled. It consists of two parts.  Part A of the program, 
the Hospital Insurance program, covers inpatient hospital services, 
up to 100 days of post-hospital skilled nursing facility services 
and home health visits, and hospice services.  Part B, the 
Supplementary Medical Insurance program, covers a broad range of 
medical services including physician services, laboratory services, 
durable medical equipment, outpatient hospital services and home 
health visits.  Part C provides managed care options for 
beneficiaries who are enrolled in both Parts A and B.  

	Medicare has established specific rules governing payment 
for all covered services.  For example, the program pays for most 
acute inpatient and outpatient hospital services, skilled nursing 
facility services, and home health care under a prospective payment 
system (PPS); under PPS, a predetermined rate is paid for each unit
of service adjusted for diagnosis or patient care needs. Payment for 
physician services, clinical laboratory services, and durable 
medical equipment is made on the basis of fee schedules. Certain 
other services are paid on the basis of reasonable costs or 
reasonable charges.  In general, the program provides for annual 
updates of the payment amounts to reflect inflation and other 
factors.  In some cases, these updates are linked to the consumer 
price index for all urban consumers (CPI-U) or to a provider-
specific market basket (MB) index which measures the price of 
goods and services purchased by the provider. 

	There are also rules regarding the cost-sharing which must 
be borne by beneficiaries.  For Part A, these costs are coinsurance 
and deductibles which are established annually.  For Part B, 
beneficiaries are responsible for a  $100 deductible and a 
coinsurance payment of 20 percent of the established Medicare 
payment amounts.

	For most services there are also rules on amounts 
beneficiaries may be billed over and above Medicare's recognized 
payment amounts.  Under Part A, providers agree to accept Medicare's 
payment as payment in full and cannot bill beneficiary's amounts in 
excess of the coinsurance and deductibles.  Under Part B, most 
providers and practitioners are subject to limits on amounts they 
can bill beneficiaries for covered services.  For example, physicians 
and some other practitioners may choose whether or not to accept 
assignment on a claim. When a physician accepts assignment, Medicare 
pays the physician 80 percent of the approved fee schedule amount.  
The physician can only bill the beneficiary the 20 percent 
coinsurance plus any unmet deductible.  When a physician agrees to 
accept assignment of all Medicare claims in a given year, the 
physician is referred to as a participating physician.  Physicians 
who do not agree to accept assignment on all Medicare claims in a 
given year are referred to as nonparticipating physicians.  
Nonparticipating physicians may or may not accept assignment for a 
given service.  If they do not, they may charge beneficiaries more 
than the fee schedule amount on nonassigned claims; for physicians, 
these balance billing charges are subject to certain limits.  For 
some providers such as nurse practitioners, physician assistants, 
and clinical laboratories, assignment is mandatory; these providers 
can only bill the beneficiary the 20 percent coinsurance and any 
unmet deductible.  For other Part B services, such as durable 
medical equipment, assignment is optional; providers may bill 
beneficiaries for amounts above Medicare's recognized payment 
level and may do so without limit.

	Because of its rapid growth, both in terms of aggregate 
dollars and as a share of the U.S. budget, the Medicare program has 
been a major focus of deficit reduction legislation considered by 
Congress in recent years.  With a few exceptions, reductions in
program spending have been achieved largely through reductions in 
payments to providers, primarily hospitals and physicians that 
together represent about 63 percent of total program payments.  
These reductions stemmed, but did not eliminate, year-to-year 
payment increases or overall program growth.

	The Balanced Budget Act of 1997 (BBA 97, P.L. 105-33) 
achieved significant savings to the Medicare program by slowing the 
rate of growth in payments to providers and by enacting structural 
changes to the program.  A number of health care provider groups 
stated that actual Medicare benefit payment reductions resulting 
from BBA 97 were larger than were intended, leading to facility 
closings and other limits on beneficiary access to care.  In 
November 1999, Congress passed a package of funding increases to 
mitigate the impact of some BBA 97 provisions on providers.  This 
measure, the Medicare, Medicaid, and SCHIP Balanced Budget 
Refinement Act of 1999 (BBRA), is part of a larger measure known 
as the Consolidated Appropriations Act for 2000 (P.L. 106-113). 
Further adjustments were made by the Medicare, Medicaid, and SCHIP 
Benefits Improvement and Protection Act (BIPA), part of the larger 
Consolidated Appropriations Act, 2001 (P.L. 106-554).  In addition 
to increasing Medicare payment rates, the subsequent legislation 
mandated the development or refinement of PPSs for different Medicare 
covered services. This report provides a guide to Medicare payment 
rules by type of benefit. It includes a summary of current payment 
policies and basic rules for updating payment amounts. It also 
provides the most recent update information for each type of service.