Inpatient Prospective Payment System and Reimbursement Process

Inpatient Prospective Payment System and Reimbursement Process
Facilities contract with Medicare to furnish acute hospital inpatient care and agree to accept predetermined acute Inpatient Prospective Payment System (IPPS) rates as payment in full. The inpatient hospital benefit covers beneficiaries for 90 days of care per episode of illness with an additional 60 day lifetime reserve. Illness episodes begin when beneficiaries are admitted and end after they have been out of the hospital or Skilled Nursing Facility (SNF) for 60 consecutive days.
Generally, hospitals receive Medicare IPPS payment on a per discharge or per case basis for Medicare beneficiaries with inpatient stays. Related therapeutic outpatient department services provided within three days prior to admission are included in the payment for the inpatient stay and may not be separately billed. Discharges are assigned to diagnosis-related groups (DRG), a classification system that groups similar clinical conditions (diagnoses) and the procedures furnished by the hospital during the stay.

The IPPS per-discharge payment is based on two national base payment rates or standardized amounts:
1. One that provides for operating expenses and another for capital expenses. The payment rates are adjusted to account for. The costs associated with the beneficiary's clinical condition and related treatment relative to the costs of the average Medicare case (i.e., the DRG relative weight, as described in the How Payment Rates n a per discharge or per
2. Market conditions in the facility's location relative to national conditions (i.e., the wage index, as outpatient department.

In addition to these adjusted per discharge base payment, hospitals can qualify for outlier payments for cases that are extremely costly and receive additional payments per discharge for the indirect costs of graduate medical education (IME) if they train residents in approved graduate medical education (GME) programs, treating a disproportionate share of low-income patients, and the use of certain new technologies. Hospitals that train residents in approved GME programs receive a payment separate from the IPPS for the direct costs of GME, while the operating and capital payment rates for these hospitals are increased to reflect the higher indirect patient care costs of teaching hospitals relative to non-teaching hospitals or IME. Operating and capital payment rates are also increased for facilities that treat a disproportionate share of low-income patients. In addition, hospitals may be paid an additional amount for treating patients with certain approved technologies that are new and costly and offer a substantial clinical improvement over existing treatments available to Medicare beneficiaries. Finally, payment is reduced when a beneficiary has a short length of stay (LOS) and is transferred to another acute care hospital or in some circumstances, to a post-acute care setting.

Inpatient Prospective Payment System and Reimbursement Process