CRCR Healthcare Reimbursement Methodologies — Questions and Answers
Question 1: Under the Medicare Inpatient Prospective Payment System (IPPS), payment for most inpatient stays is determined by:
- A fixed amount based on the patient's Medicare Severity Diagnosis-Related Group (MS-DRG), regardless of the actual cost of the stay (Correct answer)
- The sum of itemized daily room-and-board charges plus all ancillary service charges billed
- A percentage of the hospital's actual costs as reported on the Medicare Cost Report
- The payer-specific fee schedule rate multiplied by the length of stay in days
Correct 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.
Question 2: The Medicare Outpatient Prospective Payment System (OPPS) reimburses hospital outpatient services primarily through:
- Ambulatory Payment Classifications (APCs), where groups of clinically similar outpatient services share a single payment rate (Correct answer)
- Relative Value Units (RVUs) multiplied by the Medicare Conversion Factor, as used in the Medicare Physician Fee Schedule
- Per diem rates negotiated annually between CMS and each hospital
- Diagnosis-Related Groups (DRGs) adjusted for the hospital's outpatient case mix index
Correct 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.
Question 3: In a 'capitation' payment model, a provider or provider group receives:
- A fixed monthly payment per enrolled member regardless of how many or how few services that member actually uses (Correct answer)
- Payment for each individual service rendered, based on a negotiated fee schedule
- A percentage of the premium the health plan collects from members who select the provider
- A lump-sum payment per episode of care, shared across all providers involved in that episode
Correct 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.
Question 4: A hospital's 'case mix index' (CMI) is a measure of:
- The average relative weight of all MS-DRGs billed during a period, reflecting the overall complexity and resource intensity of the patient population treated (Correct answer)
- The percentage of Medicare patients who required intensive care during their inpatient stay
- The ratio of inpatient admissions to outpatient visits for a given time period
- The proportion of high-deductible health plan members in the hospital's payer mix
Correct 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.
Question 5: Under a 'bundled payment' (episode-of-care payment) model, which of the following best describes how providers are reimbursed?
- 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 (Correct answer)
- Each provider bills separately under their own fee schedule, and the payer reconciles overpayment at year-end
- The hospital receives full DRG payment plus unlimited fee-for-service payments for all post-discharge services
- Physicians are paid a salary by the hospital, and the hospital receives cost-plus reimbursement from the payer
Correct 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.
Question 6: A hospital's 'Medicare disproportionate share hospital (DSH) payment' is an add-on to the DRG rate intended to compensate for:
- The higher costs incurred by hospitals that serve a disproportionately large share of low-income Medicare and Medicaid patients (Correct answer)
- The additional overhead costs at rural hospitals with fewer than 100 licensed beds
- Losses from treating uninsured patients who cannot pay any portion of their bill
- The cost of maintaining a 24/7 emergency department available to all patients regardless of insurance status
Correct 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.
CRCR Healthcare Reimbursement Methodologies
Under the Medicare Inpatient Prospective Payment System (IPPS), payment for most inpatient stays is determined by: