Healthcare Reimbursement Methodologies Flashcards

Under the Medicare Inpatient Prospective Payment System (IPPS), payment for most inpatient stays is determined by:

Answer: A fixed amount based on the patient's Medicare Severity Diagnosis-Related Group (MS-DRG), regardless of the actual cost of the stay

Under IPPS, Medicare pays a predetermined amount for each MS-DRG — a classification based on diagnoses, procedures, age, and other factors. If the hospital spends less than the DRG payment, it profits; if it spends more, it absorbs the loss. This incentivizes efficiency.

The Medicare Outpatient Prospective Payment System (OPPS) reimburses hospital outpatient services primarily through:

Answer: Ambulatory Payment Classifications (APCs), where groups of clinically similar outpatient services share a single payment rate

APCs are the outpatient equivalent of DRGs: each APC groups similar services with comparable resource costs into a single payment. Multiple APCs may apply to a single outpatient encounter. DRGs apply to inpatient stays; RVUs apply to physician services.

In a 'capitation' payment model, a provider or provider group receives:

Answer: A fixed monthly payment per enrolled member regardless of how many or how few services that member actually uses

Capitation is a prepayment model: the provider receives a set amount per member per month (PMPM) in exchange for agreeing to provide all covered services. The provider assumes financial risk — if utilization is high, the provider loses money; if low, the provider profits.

A hospital's 'case mix index' (CMI) is a measure of:

Answer: The average relative weight of all MS-DRGs billed during a period, reflecting the overall complexity and resource intensity of the patient population treated

CMI is calculated by averaging the DRG relative weights for all Medicare discharges. A higher CMI indicates a sicker, more resource-intensive patient population and results in higher average Medicare payment per case. CMI is used for financial benchmarking and staffing planning.

Under a 'bundled payment' (episode-of-care payment) model, which of the following best describes how providers are reimbursed?

Answer: A single payment is made for all services related to a defined clinical episode (e.g., hip replacement including surgery, hospital stay, and 90-day post-acute care), with providers sharing financial risk and reward

Bundled payments tie reimbursement to a defined care episode: one target price covers all services across providers and settings for that episode. If total costs fall below the target, providers share the savings; if costs exceed the target, they may share the loss — incentivizing care coordination.

A hospital's 'Medicare disproportionate share hospital (DSH) payment' is an add-on to the DRG rate intended to compensate for:

Answer: The higher costs incurred by hospitals that serve a disproportionately large share of low-income Medicare and Medicaid patients

DSH payments recognize that hospitals with a high proportion of Medicaid and low-income Medicare patients face higher uncompensated care costs and a more complex patient population. The DSH percentage is calculated based on the share of patient days attributable to these populations.