The mechanisms of payment for medical services are complicated and create predictable incentives. Physicians can benefit from understanding how hospitals, practices, employers, and payers understand payment, since this has a role in determining how certain patient care services are valued and prioritized. Type of hospital, location of service delivery, and a physician's relationship with the payer or provider entity can greatly impact the value of a physician's work. The landscape of payers is large, but Medicare payment has come to drive the behavior of many private payers. This article will outline the key components of Medicare and how they apply to physicians, hospitals, and ambulatory surgical centers to provide a basic structure for thinking about payment for medical services. This review of the fundamentals of Medicare payment will provide a framework for physicians to understand the financial incentives that underlie clinical and operational decisions in the healthcare system.