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Inpatient Psychiatric Facility PPS

What’s the IPF PPS?

A 1999 law required that a per diem (daily) PPS be made for inpatient psychiatric services given in hospitals and exempt units. The law also required:

  • A per diem payment amount
  • An "adequate patient classification system that reflects the differences in patient resource use and costs among such hospitals"
  • The first year be budget neutral (have no effect on the budget)
  • The Secretary to report to Congress describing the system, and the inpatient psychiatric PPS cost reporting periods beginning on or after October 1, 2002

An adequate classification system resulted in paying bigger prospective payments to providers who treat costlier, resource intensive patients. The Inpatient Psychiatric Facilities (IPF) Prospective Payment System (PPS) Regulations and Notices are available through the "IPF PPS Regulations and Notices" link on the left side of this page.

Why did the IPF PPS start?

Since October 1, 1983, most hospitals have been paid under the hospital Inpatient Prospective Payment System (PPS). This program did not include some specialty hospitals and units because the PPS diagnosis related groups did not accurately account for the costs of the patients treated in those facilities.

The PPS originally excluded these kinds of hospitals:

  • Rehabilitation
  • Psychiatric
  • Children's
  • Cancer
  • Long term care
  • Rehabilitation and psychiatric hospital distinct part units
  • Hospitals located outside the 50 states and Puerto Rico.

These providers are often known as Tax Equity and Fiscal Responsibility Act (TEFRA) facilities. TEFRA is a 1982 law that amended Section 1886(b) of the Social Security Act to explain how the TEFRA facilities should be paid.

How does the IPF PPS work?

TEFRA facilities are paid by Medicare reasonable costs per case, but limited by a hospital specific target amount per discharge. Each hospital has a separate payment limit or target amount that is figured on the hospital's cost per discharge in a base year. The base year target amount is adjusted by an update factor each year.

For hospitals with costs above their target amount, the target acts as a payment limit. Hospitals whose costs are less than their target amount get bonus payments. These bonus payments are:

  • Equal to half of the difference between costs and the target amount
  • Go up to a maximum of 5% of the target amount

Medicare also gives extra payments to hospitals whose costs exceed their target amounts. For these hospitals, the bonus payments are:

  • Equal to half of the amount that the hospitals’ costs exceed the target amount
  • Up to 10 % of the target amount.

Hospitals that have a big increase in patients with severe illness can also apply for additional Medicare exceptions payments.

How does the IPF PPS relate to the IPF Quality Reporting Program?

All facilities that are eligible to bill CMS under the IPF PPS are eligible to participate in the IPF Quality Reporting (IPFQR) Program. Facilities must meet all of the requirements of the IPFQR Program in order to receive a full Annual Payment Update each year. The IPFQR Program collects quality measure data from participating facilities and publically reports the data to assist consumers.

Where can I find out more about the IPFQR Program?

To learn more about the IPFQR Program’s requirements click on the “IPFQR Program” button in the menu on the left side of this page.