ChatGPT is a remarkable tool, but it still has its flaws. We decided to ask it to explain Medicare’s Inpatient Prospective Payment System. Here’s some of what it told us:
The Medicare Inpatient Prospective Payment System (IPPS) is a method used by the Centers for Medicare & Medicaid Services (CMS) in the United States to reimburse acute care hospitals for inpatient services. IPPS was established as part of the Social Security Amendments of 1983 and went into effect in 1984. The main goal of IPPS is to control rising healthcare costs by setting predetermined rates for inpatient hospital services. Here is how IPPS works…
OK, but some quibbles. In theory, at least, IPPS is designed to reimburse hospitals for the national average cost of an admission. If a hospital can keep its cost under the national average, it makes money under IPPS. However, IPPS excludes some costs in its calculation making it difficult for some hospitals to beat the national average.
Given on-going increases in healthcare costs, based on ChatGPT’s description, it’s easy to conclude that IPPS has been a failure at controlling costs. IPPS comes with several goals; controlling cost is an important one, but there are other goals which ChatGPT ignores. The next paragraph is even worse.
Diagnosis-Related Groups (DRGs): IPPS uses a system of Diagnosis-Related Groups (DRGs) to classify patients into groups based on their diagnoses, procedures, age, sex, and other factors. Each DRG has a predetermined payment rate associated with it.
In 2007, Medicare adopted the MS-DRG system, replacing its previous DRG system. There are many differences between the two systems. While DRG is generically accurate as an overall term, there are other DRG systems besides Medicare’s such as 3M’s APR-DRG system.
Nor does each MS-DRG does have a “predetermined payment rate.” The distinction is important. Each MS-DRG has a predetermined relative weighr based on its nationally indexed cost. That relative weight is used in conjunction with hospital-specific payment rates to determine each hospital’s payment.
Furthermore, a hospital’s specific rate can change throughout the year depending on several factors. So instead of IPPS functioning like a fee schedule of predetermined rates, the process is a much more complex set of calculations based on a number of factors which are variable from hospital to hospital and each of which might change through the year.