Case Study: Medicare Inpatient Prospective Payment System

In 1974, the federal government adopted the Uniform Hospital Discharge Data Set (UHDDS) as the standard to help improve the uniformity and comparability of hospital discharge data, the principal diagnosis, and other diagnoses for hospital procedures; including comparable data that could help to determine which hospitals were best at treating patients and for reporting inpatient data in acute care, short-term care, and long-term care hospitals. This dataset works towards a standardized system of reimbursement for the federal government nationwide which in turn could lower costs, UHDDS helps in collecting general information pertaining the patient and the specific care including the age, sex, and race of the patient. The data elements are collected

The reimbursement method used at St. Anthony’s hospital is quite distinct depending on the party doing the payments. Payments are received from Medicare, Medicaid, private insurers and also directly from patients. The party responsible for Medicare payment is the Federal government and it offers payment mainly for the elderly. With the Medicare payment, hospitals receive a flat fee depending on the case. According to Gee (2006), most hospital revenue has declined because of the revised payment set by the Diagnosis-Related Groupings. The fee for most cases varies according to the Diagnosis-Related Group (DRG) it can be classified under. For example, Medicare pays only a fixed amount for an elderly patient suffering from pneumonia regardless

Since 1984, Medicare patients have been serviced under the prospective payment system of the Medicare program. Under this system, primary care providers are reimbursed for their services using a fixed payment for each patient that is determined by the patient’s diagnosis-related group at the time of the admission. Therefore, under the prospective payment system a hospital’s reimbursement is unaffected by the actual expenditures that are required to care for a patient.

| Prospective Payment System (PPS) first began in 1980 with a small number of hospitals partitioned into three groups according to their budget positions---breakeven, surplus, and deficit--- prior to the imposition of DRG payment (Diagnosis- related group). The PPS as DRG’s had been designed to limit the share of hospital revenues derived from the Medicare program budget, and in spite of doubtful results in New Jersey, it was decided in 1983 to impose DRG’s on hospitals nationwide.

Quality physician documentation is not only essential to providing superior clinical communication, but also allows for the delivery of useful data that “supports quality metrics, acuity of care, billing, and accurate representation of medical conditions” (Rosenbaum et al., 2014). The Centers for Medicare and Medicaid Services (CMS) uses a system to classify Medicare patient’s hospital stays into various groups in order to facilitate payment of services called Medicare Severity-Diagnosis Related Group (MS-DRG). Some payers also use all patient refined (APR)-DRG reimbursement systems. MS-DRG groups are outlined by a specific collection of patient characteristics which include areas specific to the “principle diagnosis, specific secondary diagnoses,

The Inpatient Prospective Payment System is based on CMS (Medicare) standards because it is the largest reimburser. It was created to control rising healthcare costs by determining reimbursement prospectively. The costs of inpatient acute hospitals stays under Medicare Part A are fixed so that each patient case aligns with a Diagnosis Related Group (DRG).

Medicare payments to hospitals grew annually by 19 percent; the Medicare hospital deductible had expanded, placing a burden on beneficiaries; the solvency of the Medicare Trust Fund was endangered by escalating costs; expenditures for hospital inpatient care jeopardized Medicare's ability to fund other necessary health programs; Medicare's payments for comparable services were vastly different across hospitals nationwide; and the cost-based system imposed burdensome reporting requirements.

According to CMS, “Medicare created analytic files that exclude certain categories of Medicare beneficiaries to make those comparisons as meaningful as possible (CMS, 2016). Medicare also has a way to track variations in spending and use of services in different regions called Hospital Referral Region (HRR). HRR looks at where the beneficiary lives not where they go to get care. As stated by McCurdy “HRR’s generally have populations that are large enough to generate stable averages for comparisons of cost and utilization, even for narrowly defined combinations of conditions and services”. The information that Medicare collects on its beneficiaries is broad, comprehensive and from a wide-range of sources, hence, providing insight into the utilization of resources and cost differences in healthcare. Therefore, I believe it to be a reliable and valid tool to detect small variations.

Payment-determination bases are composed of three factors: cost, fee schedule, and price related. In a cost-payment basis the provider’s cost is the main method for payment (Cleverley, 2010). It is essentially a way to formulate fees for medical services. Prior to this practice, medical cost for medical services differ from state to state, which led to a variety of fee schedules. According to Brumley (2015), the varying fee schedules were inefficient for Medicare; therefore, to solve this issue Medicare linked fees to the actual cost of providing specific services. This became a component of the Section O of Title 42 in the code of Federal regulations; which sought to describe the different costs that can be included when it comes to calculating medical fees. The goal was to structure medical fees on a more cost-reasonable basis.

In 1983, the Medicare prospective payment program was implemented which allowed hospitals to be reimbursed a set payment based on the patient’s diagnosis, or Diagnosis Related Groups (DRG), regardless of what treatment was provided or how long the patient was hospitalized (Jacob & Cherry, 2007). To keep the costs below the diagnosis related payment, hospitals had to manage efficiently the treatment provided to a client and reduce the client’s length of stay (Jacob & Cherry, 2007). Case management, or internal case management “within the walls” of the health care facilities was created to streamline costs while maintaining quality care (Jacob & Cherry, 2007).

In 1998, CMS implemented a prospective payment system (PPS) for Medicare SNFs, replacing the prior fee-for-service reimbursement system.Under PPS, the Medicare program pays SNFs per day rates, which cover all routine services, ancillary services, and capital-related costs for a beneficiary's Part A stay. The program pays different rates for residents according to case-mix adjustments, which are based on residents' assessments (looking at the severity of residents' medical conditions and skilled care needs). The payment categories are called Resource Utilization Groups, or RUGs. Medicare pays

The payment rate for inpatient stay is determined by a system called inpatient prospective payment system (IPPS). This system was created by Center for Medicare & Medicaid Services (CMS) to pair up the extent of the patient’s health position in line with the payment received for those inpatient services. This system organizes the severity of the patient’s visit in the hospital along with a method called “medical severity-diagnosis related group” and is used for the basis for that payment. The basis for the rate of payment is determined by the resources used during the patient’s hospital visit and is assigned one diagnosis-related group. To come up with this payment rate a set dollar amount is used with this calculation. This plan is performed

In this framework, critical patients treated in ICU then to intermediate care and finally home care. At that time, first 2 segments were well received, but home care did not until 40 years later, then become an essential part of the long term care. She was one of the first people who formulated classification system for patient case and patient-oriented which is widely use in 21th century form: Diagnostic related groups of DRGs, which became the standard coding for

(Elhauge, 2010). Fragmentation leads to duplication of tests and effort. Often, physicians do not have test results and notes from prior treatments. This results in wasteful duplication of efforts. Fragmentation leads to unplanned hospitalizations. Approximately 20% of discharged Medicare patients are re-hospitalized within thirty days. (Jencks, Williams, Coleman, 2009) It is estimated that only 10% of those readmissions are planned. (Jencks, Williams, Coleman, 2009) Patients can receive better continuation of care if their doctors coordinated better, if there was better discharge planning and incentives for providers to control costs after the patient has been discharged.

Once data is collected it can be used by numerous health care providers and decision makers to monitor the health and needs of individuals and populations, as well as contribute to the analysis of the health system. Users including hospitals, health care practitioners, government, professional associations, researchers, media, students, and the general public. Having the correct and up-to-date coded data is critical, not only for the delivery of high-quality clinical care, but also for continuing health care, maintaining health care at an optimum level, for clinical and health service research, and planning and management of