Medicare Payment

Medicare is the single largest payer for health care services in the United States. In FY2021, Medicare processed more than 1.1 billion fee-for-service (FFS) claims from over 1.5 million health care providers, making over $424 billion in Medicare payments.

New technologies are used in a variety of health care settings. In this section, we provide an overview of some of the settings where the introduction of new technology is particularly prevalent. These settings include inpatient acute care hospitals, hospital outpatient departments, physician offices, and End-Stage Renal Disease (ESRD) facilities paid under the ESRD prospective payment system. Payment mechanisms for drugs and biologicals paid under Medicare Part B, clinical diagnostic laboratory tests, and durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS) are also described here. Medicare has other payment systems for other health care settings, but for simplicity, this page focuses on the payment systems and care settings that generate the most public inquiries related to the use of new technologies.

In bringing new health care technologies to market, it can be useful for the product manufacturer to know the likely setting(s) of use, since the Medicare payment systems that apply to different health care setting(s) have different Medicare statutory and regulatory requirements, payment constructs (such as bundled versus separate payment), and availability of temporary new technology payments in some cases.

Overview

Medicare pays for most items and services on a prospective rather than cost-based reimbursement basis. As such, we typically refer to setting payment rates rather than reimbursement. Methodologies for determining payment rates vary by setting. In most cases the payments are based on a statutory formula that calculates the relative average cost for performing a service in a given setting. For example, the relative cost of a surgical procedure in a hospital outpatient department is typically a multiple of the relative cost of an office visit in the hospital.

Each Medicare payment system is usually updated annually. Refer to Medicare Fee-for-Service Payment Regulations for additional detail about the regulations associated with each payment system. When CMS proposes payment changes through rulemaking, CMS solicits public comment and considers the public comments received prior to finalizing changes. For more information on the rulemaking process refer to CMS Rulemaking and the included charts outlining general timing of the rules.