According to the Medicare Payment Advisory Commission (2010), physicians are known to provide a wide range of services to both in- and outpatients. These services include consultation visits, services which require surgical procedures as well as therapeutic and diagnostic services. These services are further diversified to include the sum paid for the rented offices, ambulatory surgical centers as well as outpatient dialysis facilities. Physician’s services are catered for by Medicare which stipulates its mode of payment by listing the services provided by the physicians and making sure that these lists of services are paid for using a payment rate known as physician payment schedule.

There are various factors which Medicare takes into consideration before calculating a payment it makes to a physician. These factors include the amount of work performed by the physician at hand, the overall expenses incurred by the same physician which are related to the maintenance of the practice in relation to the liability of insurance costs. It should be noted that Medicare’s way of calculating payment for physician service may be adjusted accordingly as per the characteristics of the provider, the additional geographic designations as well as other factors which become available as the calculations for the payments commence. Medicare payment rate is upgraded every year in accordance with the formula provided in dealing with the matter. The formula and sustainable growth rate are formulated for the purpose of maintaining the spending growth rate of physicians, at par, with the developments experienced at the national level of economy.

 When payments are paid for the services provided by physicians, they are considered to be generally personal. For instance, patient as individual, will either be provided with consultation or diagnostic services which are further classified into narrow services or in some cases, broader services. In categorizing the service as narrow, it is indicated that the individual patient receives either the services offered at a time, that is, a single service at a time. When patient’s medical requirements are broad and necessitate consultation and diagnostic procedures, then, this type of service is classified as bundled service.

 Medicare, which refers to the body mandated to calculate physicians pay, may decide to adjust these fees either upwards or downwards depending on several factors which it stipulates in its policies. For instance, Medicare may decide to adjust the fee downwards for the reason that the service provided has been offered by a physician who has never participated in Medicare Physician and Supplier Program. On the other hand, the fee paid to the physician could be adjusted upwards in cases where the services are offered at undeserving areas by either physicians or other health personnel.

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 The global formula, Sustainable Growth Rate (SGR), binds the payment made to physicians according to several factors which include the growth recorded in the input costs, the growth associated with the fee-for-service enrollment as well as the subsequent quantity of the service provided by the physician according to the growth and development of the national economy. According to Centers for Medicare and Medic Aid (2010), the outpatient services are almost generalized to Ambulatory Payment Classifications which render services highly associated with surgical, diagnostic and nonsurgical procedures. For these services to be provided to a subscribed patient, part of their hospitalization bill is paid according to per diem basis. With this payment system, the payment rates are attributed to the amount of services offered to the patient within a stipulated period of one day. It should be noted that unlike the inpatient program service, the outpatient program encourages the payment for additional and supportive items in packaged forms. Most known examples of packaged services include routine supplies, operating and recovering room use as well as payments made to implantable medical devices such as pacemakers.

 In this global payment program, payment structures are set and established by the multiplication of the scaled relative weight for the clinical service by a conversion derivative in order to arrive at the stipulated national unadjusted payment rate. In cases where there are geographic differences in prices of the inputs, the resultant labor fraction of the entire national unadjusted payment rate is further adjusted to the hospital wage index according to the location of the hospital structure. The outpatient services are paid according to the specific drugs administered to the patient, personal services which cost more to the hospital, that is, in excess of the payment rates for services offered under the APC group as well as the intermediary payments made by outpatients in both cancer and children’s hospitals.

According to Wilensky (2009), the original payment structures offered to the physicians of the time were particularly charged to patients for specific health care services provided. Medicare then perceived the need to move away from per-diem rating basis to Medicare Economic Index approach of paying physicians. The Medicare Economic Index refers to the computation of costs incurred by physicians annually. Nowadays, the payment trend has been completely shifted to bundled way of payments. This mode of payment entirely depends on the compensations rates which are paid to the hosting hospital in accordance with the condition of the patient. With the introduction of the bundled approach, the payment structure for paying physicians has been diversified to include capital payments for both in- and outpatient care, renal care and nursing home care. The major difference which is attributed to bundle approach of paying physicians lies in its capacity to allow for accumulated payment as a single payment which in essence covers all of the Medicare services in hand. Bundled mode of payment is greatly used in paying physicians for their involvement in providing distinct services in accordance with the disaggregated fee schedule which uses more than seven thousand billing codes (Guterman, Stremikis, & Drake, 2010). The resultant difference between global payments for both in- and outpatient services and bundled payments lies in the way they are paid to the physicians in practice. While bundled payments are offered in terms of the overall services provided to the patient, global payment structure is determined by the local authority which decides on the criterion to use in paying physicians and the local state may mandate an agency to carry out the computations on the same.

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