CMS Reimbursement Methodologies

Various healthcare reimbursement methodologies exist. In a prospective payment system (PPS) for example, payment rates for healthcare services are established in advance for a specific time period. The predetermined rates are based on average levels of resource use for certain types of healthcare. In contrast, the retrospective payment method is a type of fee-for-service (FFS) reimbursement where providers receive payment, after health services have been rendered, based on either billed charges for services provided or on annually updated fee schedules. Capitation is a method of reimbursement for health services in which an individual or institutional provider is paid a fixed, per capita amount for each person enrolled, without regard to the actual number of services provided or actual costs incurred.

The Centers for Medicare and Medicaid Services (CMS) has implemented different payment methodologies for specific types of healthcare services. This page provides a brief description and links for more information on the various CMS payment systems.

CMS Acute Inpatient PPS (IPPS)

IPPS is the Medicare PPS used for acute care hospital inpatient stays. Under the IPPS, each case is categorized into a diagnosis-related group (DRG) with a payment weight assigned to it based on the average resources used to treat patients in that particular DRG. Annually, Medicare publishes a final rule with revisions to the IPPS for the upcoming fiscal year which goes into effect on October 1st. IPPS on the CMS Web site.

CMS Outpatient PPS (OPPS)

OPPS is the Medicare PPS used for hospital-based outpatient services and procedures. Under the OPPS, payment is predicated on the assignment of ambulatory payment classifications (APCs). Annually, Medicare publishes revisions to the OPPS for the upcoming fiscal year which goes into effect on January 1st. Read more about OPPS on the CMS Web site.

CMS Skilled Nursing Facility PPS (SNF PPS)

The SNF PPS is a per diem reimbursement system for all costs (routine, ancillary, and capital) associated with covered skilled nursing facility services furnished to Medicare beneficiaries. Read more about SNF PPS on the CMS Web site.

CMS Home Health PPS (HH PPS)

HH PPS is the reimbursement system developed by CMS to cover home health services provided to Medicare beneficiaries. Read more about HH PPS on the CMS Web site.

CMS Inpatient Rehabilitation Facility PPS (IRF PPS)

The IRF PPS is the reimbursement system developed by CMS to cover inpatient rehabilitation services provided to Medicare beneficiaries. The IRF PPS utilizes the patient assessment instrument (PAI) to assign patients to case-mix groups according to their clinical status and resource requirements. Read more about IRF PPS on the CMS Web site.

CMS Inpatient Psychiatric Facility PPS (IPFPPS)

The inpatient psychiatric facility PPS is a per diem PPS based on 15 diagnosis-related groups. Read more about IPF PPS on the CMS Web site.

CMS Long-term Care Hospital PPS (LTCH PPS)

The LTCH PPS is a reimbursement system developed by CMS to provide payment for both operating and capital-related cost of hospital inpatient stays in a long term acute-care hospital (defined as a hospital with an average inpatient length of stay greater than 25 days). Read more about LTCH PPS on the CMS Web site.

Medicare Advantage (MA) Program (CMS HCC)

The Medicare Advantage (MA) program employs a CMS-Hierarchical Condition Category Risk Assessment (CMS-HCC RA) payment model. This payment model is a capitation payment methodology used to provide payment to managed care organizations (for example HMOs and PPOs) on behalf of Medicare beneficiaries. The CMS-HCC RA adjusts per-beneficiary capitation payments with a risk adjustment methodology using diagnoses to measure relative risk due to health status. Select ICD-9-CM diagnostic codes are used to define disease groups, referred to as hierarchical condition categories, or HCCs. Read more about the MA program on the CMS Web site.

CMS Fee Schedules

CMS develops fee schedules for specific providers and services such as physicians, ambulance services, clinical laboratory services, durable medical equipment, and supplies. Read more about specific fee schedules on the CMS Web site.