The way in which Medicare repays a hospital for the services it provides to inpatient recipients can depend on several factors.

What is the Difference Between Inpatient and Outpatient Stays?

Knowing the difference between what counts as an outpatient or inpatient stay in a hospital can help you prepare for any cost-sharing obligations that may apply to your situation. Medicare coverage defines inpatient versus outpatient hospital visits according to a few key stipulations. Simply staying overnight in a hospital is not enough to satisfy Medicare Part A’s requirements for inpatient coverage.

In order to be considered an inpatient stay, a recipient must be admitted for care by a doctor’s orders and that care must last longer than 24 hours. Some patients may be admitted for observation-only services on an overnight basis, but this is classified as outpatient care rather than inpatient care. In those situations, Medicare Part B payment terms apply, which means recipients are accountable for their Part B deductible and corresponding copayment or coinsurance amounts.

As an inpatient, you will pay 20% of the hospital bill once you have met the deductible for Medicare Part A. Medicare insurance sets the rates for services received as an inpatient in a hospital by diagnostic categories and conditional circumstances of the hospital itself. Understanding how these factors are determined can give you an idea of what you may be paying for your portion of the bill in certain cases.

What is the Inpatient Prospective Payment System (IPPS)?

The IPPS uses diagnoses-related groups (DRGs) to categorize each inpatient stay into classifications that relate to the average cost of resources required to treat that diagnosis. The cost associated with a DRG is multiplied by the base payment rate set by Medicare each year. This base rate reflects both labor and non-labor-related costs, which are determined according to the wages in that area as well as the general cost of living.

Although complex, this system allows for Medicare to scale reimbursement rates to match the area-specific market value of hospital services as closely as possible.

Other Conditions That Impact Medicare’s Reimbursement Amount

Aside from location-based rate adjustments, Medicare also pays hospitals according to a variety of performance-based metrics. Hospitals that treat a large volume of low-income patients are classified as disproportionate share hospitals (DSH) and qualify for a higher percentage payment than hospitals without this classification. Teaching hospitals and hospitals in rural areas can also receive add-ons that increase the rate Medicare pays them.

There are penalties that can lower rates for certain hospitals, too. These are usually related to issues that arise when a high number of Medicare coverage recipients must be readmitted for care that follows recent hospitalization of the same condition, or must remain hospitalized due to acquiring an additional illness or injury during their inpatient stay.

If you’re curious to know how Medicare insurance reimburses a hospital during your inpatient stay, a hospital representative can provide you with more information about how Medicare determines their rates according to your DRG and their status as a Medicare-certified provider.

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