Inpatient Prospective Payment System (IPPS)

What Is the Inpatient Prospective Payment System (IPPS)?

One in every five Medicare beneficiaries is hospitalized one or more times each year. Of the approximately $300 billion dollars spent on the Medicare program each year, almost $100 billion is spent on inpatient services.

More than three-quarters of the nation's inpatient acute-care hospitals are paid under the inpatient prospective payment system, while nearly a 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 to determine the base rate. Payment also is 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.

Read on to explore resources and other educational tools to learn more about the IPPS.