IPPS
also known as: Inpatient Prospective Payment System
Medicare's method of paying acute-care hospitals — a fixed payment per stay based on MS-DRG.
The Inpatient Prospective Payment System (IPPS) is how Medicare pays roughly 3,300 U.S. acute-care hospitals for inpatient stays. Established in 1983, it replaced the prior cost-based reimbursement model.
Under IPPS, each discharge gets assigned an MS-DRG. Medicare multiplies the DRG's relative weight by a national standardized base rate, then adjusts for:
- Wage index (geographic labor-cost differences)
- Disproportionate share (DSH) adjustment for hospitals serving high Medicaid/SSI populations
- Indirect Medical Education (IME) adjustment for teaching hospitals
- Outlier payments for unusually expensive cases
Hospitals exempt from IPPS include Critical Access Hospitals (paid on cost basis), psychiatric hospitals (IPF-PPS), rehabilitation facilities (IRF-PPS), long-term care hospitals (LTCH-PPS), and children's hospitals (state-specific arrangements).
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