Exploring Episode-Based Approaches for Medicare Performance Measurement, Accountability and Payment Final Report. Separate Payment Mechanisms Do not Foster Coordination and Shared Accountabilities

02/01/2009

Medicare uses separate payment mechanisms for each of its FFS provider settings and Medicare Advantage plans, and these payments are currently not aligned in ways that foster coordination, shared accountabilities, and delivery of high quality care. For the FFS program, Medicare predominantly uses prospective rate systems to pay providers, through which providers agree to accept as payment in full a predetermined amount for each separate billable Medicare covered product, service, admission or set of services.  The amount of the base payment to a provider is based on a unit of service, which varies by type of provider. Typically, base payments are adjusted for patient characteristics, geographic factors, and in the case of physician payments, for practice expenses and professional liability costs.  Payment rates for most settings are updated annually to account for changes in market conditions, technology or practice patterns. 

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