IPPs

IPPS stands for the Inpatient Prospective Payment System, a method used by Medicare to reimburse hospitals for inpatient stays. Implemented in the early 1980s as part of the move to prospective payment, IPPS uses fixed payments for each hospitalization based on a Diagnosis-Related Group (DRG).

Under IPPS, hospitals are paid a predetermined rate for each DRG, adjusted by several factors: the national base rate, the diagnosis and procedure codes, patient characteristics (comorbidity and complicating conditions), and hospital factors such as geographic wage index, teaching status, and disproportionate share hospital status. There are also additional payments for outliers and for new medical technologies (NTAP).

IPPS was introduced to shift from cost-based reimbursement toward per-case payments, with the goal of controlling Medicare costs and encouraging efficiency. It covers acute care inpatient hospital services reimbursed under Medicare Part A; outpatient services are paid under the Outpatient Prospective Payment System (OPPS).

Over time, DRG definitions and payment weights have been revised annually by CMS. Critics point to potential incentives to shorten length of stay or upcode diagnoses, while supporters emphasize cost containment and predictability.

Although primarily a U.S. program, some other countries have implemented DRG-based inpatient payment systems similar in concept.