Paying for Outpatient

Services: A Guide for

People with Medicare

This booklet explains

• how most hospital and community 

mental health center outpatient 

services are paid under the 

Original Medicare Plan.

• your rights and protections.

• where to call for help with 

your questions.
Section 1: Introduction..................................................... 1

Section 2: Outpatient Prospective Payment System...... 2–8

How this Payment System Works............................... 2

Services that are Paid for Under this System ........... 2–3

Services that aren’t Paid for Under this System ........... 3

Your Costs ............................................................. 4–8

Section 3: Your Medicare Rights....................................... 9

Section 4: Free Medicare Booklets .................................. 10

Section 5: Words to Know........................................ 11–12

(where words in green are defined)

Section 6: Index.............................................................. 13

(an alphabetical list of words in this booklet and where to find them)

Note: The information in this booklet was correct when it was printed.

Changes may occur after printing. For the most up-to-date version, look 

at www.medicare.gov on the web. Select “Publications.” Or, call 

1-800-MEDICARE (1-800-633-4227). A Customer Service

Representative can tell you if the information has been updated. 

TTY users should call 1-877-486-2048.

Paying for Outpatient Services: A Guide for People with Medicare explains

how Medicare will pay for most outpatient services. It isn’t a legal

document. The official Medicare provisions are contained in relevant laws,

regulations, and rulings.

Table of Contents
1

SECTION: 1 Introduction

Medicare uses the outpatient prospective payment system (OPPS) to pay

for most outpatient services covered by Medicare Part B in the Original

Medicare Plan. The outpatient prospective payment system

• is used for outpatient services you get in the hospital or a

community mental health center.

• sets how much you pay and Medicare pays for outpatient 

services. Depending on the type of service you get and where 

you get the service, your out-of-pocket costs may be different 

from what they were in previous years for the same service.

• lowers your out-of-pocket costs over time. This will save 

you money.

Under this payment system, you get outpatient services the same way you

get them now. You can go to any hospital or community mental health

center that participates in the Medicare program. The only thing that this

system affects is how much you pay, and how much Medicare pays for

hospital and community mental health center outpatient services.

The outpatient prospective payment system doesn’t apply to you if you

are in a Medicare Advantage Plan.

If you need more information on Medicare Advantage Plans, get a free copy

of the booklet Medicare & You (CMS Pub. No. 10050). To get a free copy,

see page 10.

Words in

green are

defined on

pages 11–12.
2

SECTION 2: Outpatient Prospective 

Payment System

How this Payment System Works

Under the outpatient prospective payment system, hospitals and

community mental health centers are paid a set amount of money (called the

payment rate) to give some outpatient services to people with Medicare. The

payment rate includes

• Medicare’s payment amount for the service you get.

• your yearly Medicare Part B deductible ($110 in 2005) 

(if you haven’t already paid it for the year). This amount 

can change each year.

• your copayment amount or coinsurance.

The payment rate isn’t the same for all hospitals and community mental

health centers. The payment rate for a hospital or community mental health

center is a national rate adjusted to reflect what people are paid to work in

hospitals in the area where you get services. Each January 1, Medicare updates

the payment rates to keep up with changes in the cost of providing services.

Services that are Paid for Under this System

Medicare pays for most Medicare Part B outpatient services you get at a

hospital or community mental health center under the outpatient prospective

payment system. An outpatient service is any service you get in one day 

(24 hours). This includes services such as

• x-rays (radiology),

• stitches for a cut,

• an emergency room visit, and

• getting a cast.

Medicare also uses the outpatient prospective payment system to pay for some

services you get from other facilities. These services include

• some Medicare Part B services for inpatient hospital care 

(like diagnostic x-rays). These services will be paid for if you don’t

have Medicare Part A or have used up all of your Medicare Part A

benefits.

• some preventive shots/vaccines (for example, a flu shot), antigens, 

casts, and splints you can get from a home health agency.

• some preventive shots/vaccines (like a pneumococcal shot) you get

from a comprehensive outpatient rehabilitation facility.
3

SECTION 2: Outpatient Prospective 

Payment System

Services that are Paid for Under this System (continued)

• splints, antigens, and casts you get as a hospice patient to treat a

non-terminal illness.

• some outpatient services you get at a skilled nursing facility.

• partial hospitalization services you get from a community mental 

health center. For more information on partial hospitalization, get 

a free copy of the booklet Medicare and Your Mental Health 

Benefits (CMS Pub. No. 10184). To get a free copy, see page 10.

Services that aren’t Paid for Under this System

Some outpatient services are covered by Medicare, but aren’t paid for

under the outpatient prospective payment system. Medicare pays for these

services under other Medicare payment systems. These services include

• clinical diagnostic laboratory services,

• screening mammograms,

• ambulance services,

• physical therapy, occupational therapy, or speech-language

therapy services,

• orthotics, non-implantable prosthetics, or durable medical

equipment,

• dialysis for End-Stage Renal Disease (permanent kidney failure

requiring dialysis or a kidney transplant),

• outpatient hospital services from critical access hospitals (small

hospitals that give limited outpatient and inpatient hospital

services to people in rural areas),

• outpatient services from an Indian Health Service hospital,

• outpatient services from any hospital in Maryland (Maryland

hospitals are paid under their state’s payment system.), and

• outpatient services from any hospital in Guam, Saipan, 

American Samoa, or the Virgin Islands.

Words in

green are

defined on

pages 11–12.
4

SECTION 2: Outpatient Prospective 

Payment System

Your Costs

You pay

• the yearly Medicare Part B deductible ($110 in 2005). This 

amount can change each year.

• a copayment or coinsurance amount for each service you get in an

outpatient visit. Each copayment or coinsurance amount can’t be 

more than the Medicare Part A inpatient hospital deductible 

($912 in 2005).

• all charges for items or services that Medicare doesn’t cover.

Example: Mr. Davis needs to have his cast removed. He goes to his local

hospital outpatient department. The hospital charges $150 for this procedure.

His copayment amount for this procedure, under the outpatient prospective

payment system, is $16. Mr. Davis has only paid $50 of his $110 Medicare 

Part B deductible. To have his cast removed, Mr. Davis must pay $76 

($60 deductible + $16 copayment).

Note: If you have a Medigap policy (Medicare Supplement Insurance), other

supplemental coverage, or employer or union coverage, it may pay for the 

Medicare Part B deductible, and copayment amount or coinsurance.

How is the amount I pay decided?

There are many factors that are used to figure out how much you pay for

outpatient services. These factors include

• the exact middle amount (national median charge) that all hospitals

have charged for the particular service in the past.

• the amount people are paid to work in hospitals in the area where 

you get services.

• whether the hospital chooses to lower the copayment amount for a 

particular service.

• whether you have more than one procedure at the same time. If you 

have more than one procedure at the same time, the payment rate 

may be lowered. This will lower the amount you must pay.

Words in

green are

defined on

pages 11–12.
5

SECTION 2: Outpatient Prospective 

Payment System

Your Costs (continued)

Will the amount I have to pay change each year?

Maybe. The amount you pay may change each year if the amount people

are paid to work in hospitals in your area changes. If the amount people are

paid to work in hospitals in your area doesn’t change, the amount you pay

for each service you get will be the same each year until it equals 20% of the

payment rate. Once it equals 20% of the payment rate, the amount you pay

may change each year if the payment rate or hospital wages in your area

change. The amount you pay can’t be more than a certain percentage of the

payment rate. That percentage goes down over time. In 2002 and 2003, the

maximum percentage you have to pay is 55%. In 2004, it goes down 

to 50%.

Example: Mr. Walters gets a hearing test every year at his local outpatient

hospital department. The amount he pays for this service is the same each

year until 2003 (see table below). In 2003, the amount he pays equals 20%

of the payment rate. Therefore, after 2003, the amount he pays increases as

the payment rate increases. However, his costs are still 20% of the payment

rate.

Year

Payment rate

Amount Mr. 

Walters pays

Percent of 

payment rate

2001

$73

$22

30%

2002

$90

$22

24%

2003

$110

$22

20%

2004

$130

$26

20%
6

Your Costs (continued)

How will I know what I have to pay for outpatient services I get?

After you get an outpatient service, your provider will send a bill to the

Medicare Administrative Contractor (MAC). The MAC is the private

company that handles outpatient bills for Medicare. After the MAC

processes the bill, you will get a Medicare Summary Notice. This notice will

show how much you have to pay for the services you got. The notice will

also show how much Medicare paid your provider for the services.

Check the Medicare Summary Notice carefully. Make sure Medicare wasn’t

billed for services, medical supplies, or equipment you didn’t get.

If you have any questions about your bill or services listed on the notice, call

the health care provider or MAC in your state. The telephone number for

the MAC is at the top of the Medicare Summary Notice. You can also call

1-800-MEDICARE (1-800-633-4227) to get the telephone number. 

TTY users should call 1-877-486-2048. If you disagree with what is covered

or paid, you have the right to file an appeal (see page 9).

Will I pay more or less for outpatient services under this payment system?

Ultimately, you will pay less for outpatient services. In the meantime, whether

you pay more or less than in previous years will depend on which hospital or

community mental health center you go to in your area and what they charged

in the past for the service you need. If the hospital or community mental health

center you go to had high charges for a service, under this system your costs for

this service will be lower. If the hospital or community mental health center

had low charges, your costs might be higher for the first few years.

I got my bill for an outpatient service I get on a regular basis. The amount

I must pay is more than what I have paid before. Why is it higher?

Before the outpatient prospective payment system was used, you paid 20%

of the amount your hospital charged for the service. People with Medicare who

got the same service at different hospitals paid different amounts because

hospitals charged different amounts for the same service.

SECTION 2: Outpatient Prospective 

Payment System
7

SECTION 2: Outpatient Prospective 

Payment System

Your Costs (continued)

I got my bill for an outpatient service I get on a regular basis. The amount I

must pay is more than what I have paid before. Why is it higher? (continued)

Now, Medicare sets the amount you will pay for outpatient services. Medicare

decides this amount by looking at how much all hospitals across the country

have charged for a service (national median charge). You pay a percentage of

this amount adjusted for wages in your area. This change means that people

with Medicare will pay similar amounts for the same service no matter which

hospital they go to. If the amount you pay for your service is higher than in the

past, your hospital may have charged less for this service than other hospitals in

the country.

Example: Mrs. Smith goes to the hospital to get a chest x-ray. Her hospital

used to charge $80 for this service. The national median charge for a chest 

x-ray for all hospitals across the country is $110. The amount Mrs. Smith 

pays for this service is higher than before.

Amount Mrs. Smith paid before Amount Mrs. Smith pays now

$16 (20% of $80) $22 (20% of the national 

median charge of $110)

Important: Sometimes hospitals provide outpatient services at locations off

of their main campus. If you get medical care at a hospital outpatient

department that isn’t located on the hospital’s main campus, the hospital

must tell you, in writing, that

• you are getting care in a hospital setting.

• you may have to pay more for your care.

The hospital must tell you how much more you will have to pay. If your

doctor isn’t sure which services you may need, the hospital may estimate

how much you will have to pay. You must be given this information before

you get the service, except in emergencies. The information must be written

in a way that you can read and understand. If someone else makes medical

decisions for you, the hospital must give them this information before you

get medical care.

Words in

green are

defined on

pages 11–12.
8

SECTION 2: Outpatient Prospective 

Payment System

Your Costs (continued)

Who pays if I have the Original Medicare Plan and other insurance

or coverage?

If you have other insurance or coverage, like an employer or union plan,

or Medigap policy, it may pay for costs that the Original Medicare Plan

doesn’t cover. Your other insurance or coverage may also pay for some

services before the Original Medicare Plan pays for the same service. If you

have questions about who pays first, or how your other insurance or

coverage pays for your outpatient services, call your insurance company or

the benefits administrator. You can also get a free copy of the booklet

Medicare and Other Health Benefits: Your Guide to Who Pays First (CMS

Pub. No. 02179). To get a free copy, see page 10.

What if I paid more than the amount listed on the Medicare Summary

Notice?

If the amount you paid the hospital or community mental health center at

the time of service is more than what was listed on the Medicare Summary

Notice, call the provider and ask for a refund. They must give you the

difference between what you paid and the amount listed under the

deductible and coinsurance section on the Medicare Summary Notice.

What if I paid less than the amount listed on the Medicare Summary

Notice?

If you paid less than the amount listed under the deductible or coinsurance

section on the Medicare Summary Notice, the hospital or community

mental health center may bill you for the difference.

If you have other insurance or coverage, it may pay some of these costs.

Check with your insurance company or benefits administrator to see how

your insurance or coverage works with the Original Medicare Plan.

Words in

green are

defined on

pages 11–12.
9

SECTION 3: Your Medicare Rights

If you have Medicare, you have certain guaranteed rights to help protect you.

One of these is the right to a fair, efficient, and timely process for appealing

decisions about health care payment or services. Some of the reasons you may

appeal are when

• you don’t agree with the amount that is paid.

• a service or item isn’t covered and you think it should be covered.

• a service or item is denied and you think it should be paid.

You must be given instructions for filing an appeal. These instructions are on the

Medicare Summary Notice. If you decide to file an appeal, ask your doctor or

provider for any information that may help your case. You can also call the State

Health Insurance Assistance Program in your state for help filing an appeal. 

To get the telephone number, call 1-800-MEDICARE (1-800-633-4227). 

TTY users should call 1-877-486-2048.

In addition, you have rights to

• receive information,

• receive emergency room services,

• see doctors; specialists, including women’s health specialists; and go 

to Medicare-certified hospitals,

• participate in treatment decisions,

• know your treatment choices,

• get information in a culturally competent manner in certain 

circumstances (for example, get information in languages other than 

English from Medicare, and its providers and contractors),

• file complaints,

• nondiscrimination, and

• have your personal and health information kept private.

For more detailed information about your rights and protections, you can get a

free copy of the booklet Your Medicare Rights and Protections (CMS Pub. No.

10112). To get a free copy, see page 10. 

What can I do if I am concerned about the quality of my care?

If you think the hospital or community mental health center isn’t giving you

good quality care, call the Quality Improvement Organization in your state. 

To get the telephone number, call 1-800-MEDICARE (1-800-633-4227).

Words in

green are

defined on

pages 11–12.
10

SECTION 4: Free Medicare Booklets

Health care decisions are important. Medicare tries to give you information

to help you make good decisions. You can order free booklets from Medicare

to learn more about the topics that are of interest to you. We are always

adding new booklets with detailed information about important subjects.

How do I get these booklets?

You can

1. look at www.medicare.gov on the web and select “Publications.” 

You can read, print, or order some booklets. This is the fastest way to get

a copy.

2. call 1-800-MEDICARE (1-800-633-4227). Follow the instructions to 

get a publication. TTY users should call 1-877-486-2048. You will get 

your copy within three weeks.

3. put your name on the web mailing list to get an e-mail message every 

time a new booklet is available. To sign up, go to www.medicare.gov and

select “Mailing List” at the top of the page.

Many booklets are available in English, Spanish, Audiotape (English and

Spanish), Braille, and Large Print (English and Spanish).
11

SECTION 5: Words to Know

Coinsurance—The percentage of the

Medicare payment rate or a hospital’s

billed charge that you have to pay after

you pay the deductible for Medicare 

Part B services.

Community Mental Health

Center—A place where Medicare

patients can go to receive partial

hospitalization services (see Partial

Hospitalization).

Comprehensive Outpatient

Rehabilitation Facility—A facility

that provides a variety of services

including physicians’ services, physical

therapy, social or psychological services,

and outpatient rehabilitation.

Copayment—Under the outpatient

prospective payment system, the fixed

amount you pay for each outpatient

service you get. 

Critical Access Hospital—A

hospital facility to which Medicare has

given a specific status, to provide

outpatient and certain inpatient services

to people in rural areas.

Deductible—The amount you must

pay for health care before Medicare

begins to pay, either each benefit period

for Part A, or each year for Part B. These

amounts can change every year.

End-Stage Renal Disease

(ESRD)—Permanent kidney failure that

requires dialysis or a kidney transplant.

Home Health Agency—An

organization that gives home care

services, like skilled nursing care, physical

therapy, occupational therapy, speech

therapy, and care by home health aides.

Hospice Care—A special way of

caring for people who are terminally ill,

and for their family. This care includes

physical care and counseling. Hospice

care is covered under Medicare Part A 

(Hospital Insurance).

Medicare Administrative

Contractor—A private company that

has a contract with Medicare to pay 

Part A and Part B bills.

Medicare Advantage Plan—A

Medicare program that gives you more

choices among health plans. Everyone

who has Medicare Parts A and B is

eligible, except those who have 

End-Stage Renal Disease unless certain

exceptions apply.

Medicare Part A (Hospital

Insurance)—Hospital insurance that

pays for inpatient hospital stays, care in a

skilled nursing facility, hospice care, and

some home health care.

Medicare Part B (Medical

Insurance)—Medical insurance that

helps pay for doctors’ services, outpatient

hospital care, and other medical services

that aren’t covered by Part A. 
12

SECTION 5: Words to Know

Medigap Policy—A Medicare

supplement insurance policy sold by private

insurance companies to fill “gaps” in

Original Medicare Plan coverage. Except in

Massachusetts, Minnesota, and Wisconsin,

there are 10 standardized policies labeled

Plan A through Plan J. Medigap policies

only work with the Original Medicare Plan.

National Median Charge—The

national median charge is the exact middle

amount of the amounts charged for the

same service. This means that half of the

hospitals and community mental health

centers charged more than this amount

and the other half charged less than this

amount for the same service.

Original Medicare Plan—A payper-visit health plan that lets you go to any

doctor, hospital, or other health care

supplier who accepts Medicare and is

accepting new Medicare patients. You

must pay the deductible. Medicare pays its

share of the Medicare-approved amount,

and you pay your share (coinsurance). The

Original Medicare Plan has two parts: 

Part A (Hospital Insurance) and Part B

(Medical Insurance).

Outpatient Prospective

Payment System—The way that

Medicare pays for most outpatient services

at hospitals or community mental health

centers under Medicare Part B. 

Outpatient Services—Services you

get in one day (24 hours) at a hospital

outpatient department or community

mental health center.

Partial Hospitalization—A

structured program of active treatment for

psychiatric care that is more intense than

the care you get in your doctor’s or

therapist’s office.

Payment Rate—The total payment

that a hospital or community mental

health center gets when they give

outpatient services to Medicare patients.

Quality Improvement

Organization—Groups of practicing

doctors and other health care experts.

They are paid by the Federal Government

to check and improve the care given to

Medicare patients. They must review your

complaints about the quality of care given

by inpatient hospitals, hospital outpatient

departments, hospital emergency rooms,

skilled nursing facilities, home health

agencies, Private Fee-for-Service plans, and

ambulatory surgical centers.

Skilled Nursing Facility—A

nursing facility with the staff and

equipment to give skilled nursing care

and/or skilled rehabilitation services and

other related health services.

State Health Insurance

Assistance Program (SHIP)—A

State program that gets money from the

Federal Government to give free local

health insurance counseling to people with

Medicare.
13

SECTION: 6 Index

1-800-MEDICARE . . . . . . . . . . . . . 10

Ambulance Services . . . . . . . . . . . . . . 3

Appeal Rights . . . . . . . . . . . . . . . . 6, 9

Benefits Administrator . . . . . . . . . . . . 8

Coinsurance . . . . . . . . . . . . . 2, 4, 8, 11

Community Mental Health 

Center . . . . . . . . . . . . . 1–3, 6, 8, 11

Comprehensive Outpatient 

Rehabilitation Facility . . . . . . . 2, 11

Copayment . . . . . . . . . . . . . . . 2, 4, 11

Costs . . . . . . . . . . . . . . . . . . . . . . . 4–8

Critical Access Hospital . . . . . . . . 3, 11

Deductible . . . . . . . . . . . . . . . . 2, 4, 11

Dialysis . . . . . . . . . . . . . . . . . . . . . . . 3

Emergency Care . . . . . . . . . . . . 2, 7, 9

Employer Coverage . . . . . . . . . . . . 4, 8

End-Stage Renal Disease . . . . . . . 3, 11

Guaranteed Rights . . . . . . . . . . . . . . . 9

Home Health Agency . . . . . . . . . 2, 11

Hospice . . . . . . . . . . . . . . . . . . . . 3, 11

Hospital . . . . . . . . . . . . . . . . 1, 2, 4–8

Indian Health Service . . . . . . . . . . . . 3

Laboratory Services . . . . . . . . . . . . . . 3

Mammograms . . . . . . . . . . . . . . . . . . 3

Medicare . . . . . . . . . . . . . . 1, 2, 4–6, 9

Medicare Administrative 

Contractor . . . . . . . . . . . . . . . . 6, 11

Medicare Advantage Plan . . . . . . 1, 11

Medicare Part A (Hospital

Insurance) . . . . . . . . . . . . . . . . 4, 11

Medicare Part B (Medical 

Insurance) . . . . . . . . . . . . 1, 2, 4, 11

Medicare Summary Notice . . . . . . 6, 8

Medigap . . . . . . . . . . . . . . . . . 4, 8, 12

National Median Charge . . . . . 4, 7, 12

Occupational Therapy . . . . . . . . . . . . 3

Original Medicare 

Plan . . . . . . . . . . . . . . . . . . . 1, 8, 12

Orthotics . . . . . . . . . . . . . . . . . . . . . . 3

Out-of-Pocket Costs . . . . . . . . . . . 1, 4

Outpatient Prospective Payment

System . . . . . . . . . . . . . . . 1–3, 6, 12

Outpatient Services . . . . . 1–3, 5–7, 12

Partial Hospitalization . . . . . . . . . 3, 12

Patient Rights . . . . . . . . . . . . . . . . . . 9

Payment Rate . . . . . . . . . . . . . 2, 5, 12

Physical Therapy . . . . . . . . . . . . . . . . 3

Preventive Services . . . . . . . . . . . . . . . 2

Prosthetics . . . . . . . . . . . . . . . . . . . . . 3

Protections . . . . . . . . . . . . . . . . . . . . 9

Quality Improvement 

Organization . . . . . . . . . . . . . . 9, 12

Shots . . . . . . . . . . . . . . . . . . . . . . . . . 2

Skilled Nursing Facility . . . . . . . . 3, 12

Speech-language Therapy . . . . . . . . . 3

State Health Insurance Assistance

Program . . . . . . . . . . . . . . . . . . 9, 12

Supplemental Coverage . . . . . . . . . . . 4

Union Coverage . . . . . . . . . . . . . . 4, 8

Vaccines . . . . . . . . . . . . . . . . . . . . . . 2

Web . . . . . . . . . . . . . . . . . . . . . . . . . 10

www.medicare.gov . . . . . . . . . . . . . . 10
U.S. Department of Health and Human Services

Centers for Medicare & Medicaid Services

7500 Security Boulevard

Baltimore, MD 21244-1850

Official Business

Penalty for Private Use, $300

Publication No. CMS-02118

Revised January 2005

• To get this publication in Spanish, call 1-800-MEDICARE (1-800-633-4227). 

TTY users should call 1-877-486-2048.

• ¿Necesita usted una copia en Español? Llame gratis al 1-800-MEDICARE 

(1-800-633-4227). Usuarios de TTY deben llamar al 1-877-486-2048.