Hospital Inpatient

ACUTE CARE HOSPITAL INPATIENT PROSPECTIVE PAYMENT SYSTEM (CMS MLN Booklet, March 2020)

BACKGROUND: Hospitals contract with Medicare to furnish acute inpatient hospital care and agree to accept pre-determined acute IPPS rates as payment in full. The inpatient hospital benefit covers 90 days of care per episode of illness with an additional 60-day lifetime reserve. Patient illness episodes begin on admission and end after 60 days posthospitalization or after Skilled Nursing Facility (SNF) discharge.

IPPS PAYMENT BASIS: Generally, Medicare pays acute care hospitals an IPPS payment on a per inpatient case or per inpatient discharge basis. The claim for the inpatient stay must include all outpatient diagnostic services and admission-related outpatient non-diagnostic services the admitting hospital, or an entity wholly owned or operated by the admitting hospital, furnished to the patient during the 3 days preceding the date of the patient’s hospital admission. Acute care hospitals cannot separately bill these services to Medicare Part B. The Centers for Medicare & Medicaid Services (CMS) assigns discharges to diagnosis-related groups (DRGs). A DRG is a grouping of similar clinical conditions (diagnoses) and the service procedures furnished during the inpatient hospital stay. The patient’s principal diagnosis and up to 24 secondary diagnoses, including any comorbidities or complications, determine the DRG assignment. Up to 25 procedures furnished during the stay can affect the DRG. Other factors influencing DRG assignment include a patient’s gender, age, or discharge status disposition. CMS annually reviews the DRG definitions to ensure each group continues to include cases with clinically similar conditions that require similar amounts of inpatient resources. If reviews show subsets of clinically similar cases within a DRG use significantly different amounts of resources, CMS may reassign them to a different DRG with similar resource use or create a new DRG. To better account for Medicare patients’ severity of illness and resource consumption, CMS uses the DRG system called Medicare Severity DRGs (MS-DRGs).

The above information pertains to Medicare, but many State Medicaid Programs and Third-Party Payers follow similar methodologies.