Inpatient Prospective Payment System: Case Study

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Medicare’s Inpatient Prospective Payment System (IPPS) is the means by which provider entities bill Medicare for services rendered on behalf of Medicare beneficiaries. A variation of the traditional fee for service model, it’s a combination of weighted sets of data, legislated percentages and the Diagnostic Related Group (DRG). It attempts to (as equitably as possible) control costs while providing suitable financial compensation for the providers involved. Medicare does not pay the exact dollar amount each provider bills for. It’s a retrospective payment system that reimburses a percentage of the claim billed by the provider. Calculating Medicare payments for the IPPS, using the DRG is a complex procedure. Correct billing is imperative because…show more content…
Hospitals are classified as urban, hospitals within a Metropolitan Statistical Area (MSA), or rural, hospitals located outside an MSA. I believe that local labor rates directly affect healthcare costs. With this in mind, the Health Care Financing Administration (HCFA) computes new wage averages each year from Medicare cost reports four years earlier. This is important because if hospitals wages in particular market are lower than the national average, payments will be reduced to reflect overpayment for a cycle. If the wages are above the national average, payments will be increased to reflect underpayments for a…show more content…
Its applied to the non labor relate amount when calculating IPPS payments. It is the same for all states except Hawaii and Alaska. With all this in mind, let’s look at the Case Assignment for this module. In looking at the case of Mrs. Smith we know that San Francisco General Hospital (SFGH) is entitled to operating and capital payments. Certain qualifiers would be used to determine if SFGH is eligible for an outlier payment. All of these payments combined would be the amount of retrospective payment SFGH is entitled to. Let’s begin with the Operating Payment (OP). The OP covers expenditures by the hospital for the treatment episode. It includes labor and nonlabor amounts, COLA CBSA wage index, medical education costs and DSH status. The formula is; DRG Relative Weight x ((Labor Related Large Urban Standardized Amount x Core-Based Statistical Area [CBSA] wage index) + (Nonlabor Related National Large Urban Standardized Amount x Cost of Living Adjustment)) x (1+ Indirect Medical Education + Disproportionate Share

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