Inpatient PPS

One in every five Medicare beneficiaries is hospitalized one or more times each year.  There are almost 5,000 inpatient acute-care hospitals nationwide that treat these beneficiaries.  Of the approximately $300 billion dollars spent on the Medicare program each year, almost $100 billion is spent on inpatient services.

Over three-quarters of these hospitals are paid under the inpatient prospective payment system (IPPS), while nearly one quarter are paid based on costs and are called Critical Access Hospitals.  The IPPS pays a flat rate based on the average charges across all hospitals for a specific diagnosis regardless of whether that particular patient costs more or less. Everything from an aspirin to an artificial hip is included in the package price to the hospital.

Under the IPPS, each case is categorized into a diagnosis-related group (DRG) to determine the base rate.  Payment is also adjusted for differences in area wage costs -- and depending on the hospital and case -- teaching status, high percentage of low-income patients, the use of new technology and extremely costly cases.

This site contains member advisories, comment letters, and other educational tools to help you learn more about the IPPS.