Prospective payment systems and rules for reimbursement

As stated on other pages CCMC has created the test, so I look to them first to determine how they define terms related to test content. The second resource used was Medicare’s website as they are the perspective payment system listed in CCMC’s glossary of terms.

CCMC Definitions Related to Perspective Payment Systems

Prospective Payment System: A healthcare payment system used by the federal government since 1983 for reimbursing healthcare providers/agencies for medical care provided to Medicare and Medicaid participants. The payment is fixed and based on the operating costs of the patient’s diagnosis.

Peer Review Organization (PRO): A federal program established by the Tax Equity and Fiscal Responsibility Act of 1982 that monitors the medical necessity and quality of services provided to Medicare and Medicaid beneficiaries under the prospective payment system. 

Diagnosis-Related Group (DRG): A patient classification scheme that provides a means of relating the type of patient a hospital treats to the costs incurred by the hospital. DRGs demonstrate groups of patients using similar resource consumption and length of stay. It also is known as a statistical system of classifying any inpatient stay into groups for the purposes of payment. DRGs may be primary or secondary; an outlier classification also exists. This is the form of reimbursement that the CMS uses to pay hospitals for Medicare and Medicaid recipients. Also used by a few states for all payers and by many private health plans (usually non-HMO) for contracting purposes.

Medicare: A nationwide, federally administered health insurance program that covers the cost of hospitalization, medical care, and some related services for eligible persons. Medicare has two parts. Part A covers inpatient hospital costs (currently reimbursed prospectively using the DRG system). Medicare pays for the pharmaceuticals provided in the hospitals but not for those provided in outpatient settings. Also called Supplementary Medical Insurance Program, Part B covers outpatient costs for Medicare patients (currently reimbursed retrospectively).

Relative Weight: An assigned weight that is intended to reflect the relative resource consumption associated with each DRG. The higher the relative weight, the greater the payment/reimbursement to the hospital.  

Outlier: Something that is significantly well above or below an expected range or level. 

Outleir Threshold: The upper range (threshold) in length of stay before a patient’s stay in a hospital becomes an outlier. It is the maximum number of days a patient may stay in the hospital for the same fixed reimbursement rate. The outlier threshold is determined by the Centers for Medicare and Medicaid Services (CMS), formerly known as the Health Care Financing Administration (HCFA)

Outcome and Assessment Information Set (OASIS): A prospective nursing assessment instrument completed by home health agencies at the time the patient is entered for home health services. Scoring determines the Home Health Resource Group (HHRG)

Home Health Resource Group (HHRG): Is based on the OASIS score. Reimbursement rates correspond to the level of home health provided. 

Ambulatory Payment Classification (APC) System: An encounter-based classification system for outpatient reimbursement, including hospital-based clinics, emergency departments, observation, and ambulatory surgery. Payment rates are based on categories of services that are similar in cost and resource utilization. 

Inpatient Rehabilitation Facilities Patient Assessment Instrument (IRF-PAI): The Inpatient Rehabilitation Facilities Patient Assessment Instrument, used to classify patients into distinct groups based on clinical characteristics and expected resource needs. The PIA determines the Case Mix Group (CMG) classification. 

Case Mix Group (CMG): Each CMG has a relative weight that determines the base payment rate for inpatient rehabilitation facilities under the Medicare system.

Resource Utilization Group (RUG): Classifies skilled nursing facility patients into 7 major hierarchies and 44 groups. Based on the MDS, the patient is classified into the most appropriate group, and with the highest reimbursement.

Minimum Data Sets (MDS): The assessment tool used in skilled nursing facility settings to place patients into Resource Utilization Groups (RUGs), which determines the facilities reimbursement rate.

Why a Prospective Payment System (PPS)?

The PPS was created to motivate providers to deliver patient care in a cost effective, efficient manor without over utilization of services. Providers know the dollar amount they will be reimbursed in advance, and can either make money or lose money. Where the traditional fee-for-service payment system can create an incentive to add unnecessary services, the PPS system discourages this. 

The PPS also encourages efficiency. Where a hospital may have kept a patient over the weekend to perform a test or procedure on Monday, this system will encourage it to be done over the weekend, even if it means calling in staff. This can lead to faster diagnosis and treatment, shorter hospital stay, and ultimately lower cost. 

Medicare’s Prospective Payment System

Medicare’s PPS is based on a predetermined, fixed amount for a particular service. This amount is based on the classification system of that service (for example, diagnosis related groups for inpatient hospital services). Medicare uses separate PPSs for reimbursement to:
Acute Inpatient Hospitals

  • The PPS is the DRG.
  • The DRG is based on the patient diagnosis.
  • The DRG payment is per stay.
  • The amount of reimbursement is based on the relative weight of the DRG.
  • The hospital may receive additional monies if the patient remains hospitalized significantly longer than average (an outlier).

Home Health Agencies

  • The PPS is the Home Health Resource Groups (HHRGs)
  • The OASIS is the assessment tool used to determine the HHRG
  • A predetermined base payment for each 60 day episode of care is based on the HHRG
  • Payment is adjusted if: 

       1)  there is a significant change in the patients condition resulting in a change to the medical orders and                 course of treatment and OASIS score or HHRG assignment
       2)   the patient requests a transfer to another home-care agency before the episode is complete. This                      results in a partial episode payment
       3)  the patient is discharged from home care and then readmitted to the same agency within the 60 day                 period
       4)  the patient requires 5 visits or fewer during the 60 day period. In this case a low utilization payment is               made based on the national standard per visit rate per discipline. 
       5)  there is an unusual variation in the amount of home health services needed. In this case an outlier                     payment is paid.

  • A daily rate paid based on level of care:
  1. Routine home care
  2. Continuous home care
  3. Inpatient respite care
  4. General inpatient care

Inpatient Rehabilitation Facilities

  • The PPS is the Case Mix Group (CMG)
  • The patient is assessed using the Inpatient Rehabilitation Facilities Patient Assessment Instrument (IRF-PIA)
  • IRF-PAI classifies patients into groups based on clinical characteristics and expected resource needs.
  • Patient Assessment Instrument (PAI) determines the patients CMG.
  • CMG determines the payment rate per stay.

Skilled Nursing Facilities

  • The PPS is the Resource Utilization Groups (RUG)
  • The patient is assessed using the Minimum Data Sets (MDS) assessment tool.
  • Based on the MDS, the patient is placed into a RUG.
  • The RUG determines the facilities reimbursement rate.

Outpatient Hospital

  • The PPS is the Ambulatory Payment Classification System (APC)
  • Included in this payment category are; hospital based clinics, ER’s, observation and ambulatory surgery.
  • Encounter bases classification system.
  • Payment rates are based on categories of services that are similar in cost and resource utilization.

Long-Term Care Hospitals
Inpatient Psychiatric Facilities