Inpatient Prospective Payment System (IPPS)
The IPPS is Medicare’s system for paying hospitals for inpatient acute care services. It was introduced by the federal government in October 1983, as a way to change hospital behavior through financial incentives that encourage more cost-efficient management of medical care. Under the IPPS, hospitals receive a set payment amount based on the patient’s diagnosis-related group (DRG). Information used to determine the classification include:
- Principal diagnosis (why the patient was admitted)
- Complications and comorbidities (secondary diagnosis)
- Surgical procedures
- Age and gender
- Discharge destination
There are over 740 DRG categories CMS. Each category is designed to be “clinically coherent.” In other words, all patients assigned to a DRG are deemed to have a similar clinical condition. DRGs are determined by the principal procedure, or the principal diagnosis if no procedure exists, and the presence of other conditions.
The payment covers all inpatient services during a hospital stay, including room and board, nursing care, medications, and other hospital services. The rate is adjusted for factors like geographic location, teaching status, and treating a high percentage of low-income patients.
Hospital Outpatient Prospective Payment System (HOPPS)
HOPPS is Medicare’s system for outpatient services provided by hospitals, established in August 2000 by government legislation. HOPPS payments are based on Ambulatory Payment Classifications (APCs), which are clinically similar and use similar resources. Each APS has a relative weight that reflects the typical resources used, and there is a single payment rate to each APC, regardless of specific services provided within that group. Additionally, the payment rate is adjusted for geographic differences in labor and non-labor costs.
HOPPS covers services like outpatient surgeries, emergency department visits, clinic visits, and diagnostic tests. The payment typically includes facility costs, supplies, equipment, and non-physician labor.
Annually, ASE reviews the proposed rules released in July and submits comments on provisions within the proposed rules that impact echocardiography.
Physician Fee Schedule (PFS)
The PFS is Medicare’s payment system for professional medical services provided by physicians and other healthcare practitioners. The fee schedule covers:
- Office visits
- Surgical procedures
- Diagnostic tests
- Preventive services
- Other medical services provided in various setting
Payment for providers is determined through a formula that includes RVUs, geographic variation, and the conversation factor.
- Relative Value Units (RVUs) which consist of three components:
- Work RVUs: Physician time and effort
- Practice Expense RVUs: Overhead costs like staff, equipment, supplies
- MP RVUs: Malpractice insurance costs
- Geographic Practice Cost Indices (GPCIs):
- Adjusts payments based on local cost differences across geographic areas
- Different regions have different adjustment factors for work, practice expense, and liability
- Conversion Factor: A dollar amount that converts the total RVUs into a payment amount
- Updated annually by CMS
- Affected by various factors including budget neutrality, legislative adjustments, updates required by the Medicare Access and CHIP Reauthorization Act (MACRA)
The PFS is updated annually with new / revised codes, RVU changes, policy updates, and payment rate adjustments.
Annually, ASE reviews the proposed rules released in July and submits comments on provisions within the proposed rules that impact echocardiography.