Basis of Medicare Prospective Payment Systems and Case-Mix

10.1.7 - Basis of Medicare Prospective Payment Systems and Case-Mix (Rev. 10758; Issued: 05-11-21; Effective: 01-01-22; Implementation: 08-11-21) There are multiple prospective payment systems (PPS) for Medicare for different provider types. Before 1997, prospective payment was a term specifically applied to inpatient hospital services. In 1997, with passage of the Balanced Budget Act, prospective payment systems were mandated for other provider groups/bill types: • Skilled nursing facilities; • Outpatient hospital services; • Home health agencies; • Rehabilitation hospitals; and • Others. While there are commonalities among these systems, there are also variations in how each system operates and in the payment units for these systems. Case-mix is an underlying concept in prospective payment. With the creation of inpatient hospital PPS, the first Medicare PPS, there was a recognition that the differing characteristics of hospitals, such as teaching status or number of beds, contributed to substantial cost differences, but that even more cost impact was linked to the characteristics of the patient populations of the hospitals. Other Medicare PPS systems, where research is applied to adjust payments for patients requiring more complex or costly care, use this concept of case-mix complexity, meaning that patient characteristics affect the complexity, and therefore, cost of care. HH PPS considers a patient’s clinical and functional condition in determining case-mix for home health care. For individual Medicare inpatient acute care hospital bills, diagnosis related groups (DRGs) are produced by claim information, which includes data elements such as procedure and diagnoses, through Grouper software that reads these pertinent elements on the claim and groups services into appropriate DRGs. DRGs are then priced by a separate Pricer software module at the A/B MAC (A). Processing for HH PPS is built on this model, using home health resources groups (HHRGs), instead of DRGs. In HH PPS, payments are case-mix adjusted using claim information and elements of the patient assessment. Since 1999, HHAs have been required by Medicare to assess potential patients, and reassess existing patients, incorporating the OASIS (Outcome and Assessment Information Set) tool as part of the assessment process. The total case-mix adjusted payment is based on elements of the OASIS data set and other information provided on the claim. Payments made for the period are case-mix adjusted based on Grouper run in Medicare systems. Pricer software run by the A/B MAC (HHH) processing home health claims performs pricing including wage index adjustment and other factors.