Medicare IPPS Overview

MEDICARE/MEDICAID – BACKGROUND

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Medicare/Medicaid - Background• Medicare = Federal Program• Medicare regulations apply to all applicable health care

entities/practitioners across the country• Main governing agency for Medicare:

The Centers for Medicare and Medicaid Services (CMS)• Medicaid = State Program• Medicaid regulations vary by State

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MEDICARE INPATIENT – ACUTE CARE

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Medicare – Inpatient Prospective Payment System (IPPS) Defined• IPPS system was effective October 1983

• Applies to acute care hospitals

• What does IPPS mean?• A fixed, prospectively determined amount for each inpatient hospitalization based on

Medicare severity diagnosis-related groups (MS-DRGs);• One of the purposes of the IPPS system was to encourage hospitals to operate more

efficiently;• However, hospitals also run the risk for higher costs under IPPS as well

• IPPS is based on the law of averages – cost of some inpatient stays under IPPS may be greater or less than the IPPS payment

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Medicare – Inpatient Prospective Payment System (IPPS) - Exemptions• Certain types of hospitals may not automatically receive the IPPS rates:

• Sole Community Hospitals (SCH)• Medicare Dependent Hospitals (MDH)

• Currently MDH Status is set to expire March 31, 2014. Beginning April 1, all hospitals that previously qualified for MDH status will no longer have MDH status.

• These types of hospitals are afforded special payment protection and payments may be based upon hospital specific rates from a certain base year

• Congress established prospective payment systems (PPS) for other healthcare facilities separate from IPPS:

• Rehab, Psych, long-term care hospitals (LTACs), SNF, HHA and Hospice

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Medicare – Inpatient Prospective Payment System (IPPS) - Exemptions• Certain types of hospitals still receive cost-based reimbursement:

• Children’s hospitals• Cancer hospitals• RNHCIs (Religious Nonmedical Health Care Institution)• Critical Access Hospitals

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Medicare – Inpatient Prospective Payment System (IPPS) – Prospective vs. Hospital Specific Components• Technically – only operating and capital portion of IPPS is truly “prospective”

• These prospective items are NOT reconciled at any point in the future

• These prospective items are the same for each MS-DRG based upon a similar category of hospitals (some variations with prospective components as well)

• Other components of IPPS are hospital specific (will vary by hospital):• Indirect Graduate Medical Education (IME)• Disproportionate Share (DSH)

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Medicare – Other Inpatient Payments • Some areas of inpatient acute care Medicare reimbursement fall outside of IPPS

(but are reported and settled on a cost report each fiscal period):• Direct Graduate Medical Education (DGME) (note that the Indirect Medical Education

component for teaching hospitals is included in IPPS)• School of Nursing• Transplants • High percentage of ESRD add-on• Medicare bad debts

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Medicare – Other Inpatient Payments • Each respective methodology of Medicare reimbursement is as follows:

• DGME – Per Resident amount (caps apply and three year rolling average) • School of Nursing, Transplants – cost-based reimbursement• High percentage of ESRD add-on – fixed amount based upon ratio of chronic ESRD patients to total Medicare specified DRGs• Medicare bad debts – submitted and audited logs

• Each of these categories are reimbursed through interim “pass-through” payments

• Pass through payments are made bi-weekly and are not processed through any claims payment mechanism

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Medicare – Other Inpatient Payments • The pass through payments are estimates until compared to final audited cost

report data

• Monies will be exchanged for these categories of reimbursement between hospitals and the Medicare program for each cost reporting period

• IPPS also includes an add-on to IPPS for outlier cases

• Outlier cases are unusually expensive cases and this reimbursement can mitigate large financial losses

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