What is the primary payment mechanism used by the Medicare Inpatient Prospective Payment System (IPPS) for hospitals?

• A. A per-day payment tied to hospital length of stay with a daily rate.
• B. A fixed payment per discharge based on DRGs, adjusted for severity, geography, and teaching status.
• C. A global capitation payment covering all inpatient services.
• D. A fee-for-service reimbursement for each individual service with no adjustment.

Answer: (B)

Medicare IPPS uses a fixed, pre-set payment for each inpatient hospitalization that is determined by the DRG category the patient’s case falls into. This DRG-based payment is a per-discharge amount, not a daily rate or payment for every individual service. The amount is adjusted for factors like illness severity, geographic wage differences, and whether the hospital provides teaching services. The aim is to estimate typical resource use for similar cases and pay in advance, which contrasts with paying per day or per service without adjustment.