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Inpatient Psychiatric Facility PPS

What’s the IPF PPS?

In 1999, section 124 of the Balanced Budget Refinement Act or BBRA required that a per diem (daily) PPS be developed for payment to be made for inpatient psychiatric services furnished in psychiatric hospitals and psychiatric units of acute care hospitals and critical access hospitals. Section 124 of the BBRA required the IPF PPS be implemented for cost reporting periods beginning on or after October 1, 2002. The law also required:

  • 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.

An adequate classification system resulted in paying larger prospective payments to providers who treat more costly, resource intensive patients. The IPF 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 IPPS 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. When IPFs were paid by Medicare under TEFRA, payments were based on reasonable costs. Payment included a target amount to limit payment, bonus payments where costs were less than the target amount, and exceptions for large increases in patients with severe illnesses. As a result of the implementation of the IPF PPS, IPFs are no longer paid under TEFRA.

How does the IPF PPS work?

The IPF PPS calculates a standardized federal per diem payment rate to be paid to all IPFs based on the sum of the national average routine operating, ancillary, and capital costs for each patient day of psychiatric care in an IPF, adjusted for budget neutrality. The federal per diem payment rate is adjusted to reflect certain patient and facility characteristics that were associated with statistically significant cost differences.

The IPF PPS provides patient-level adjustments for age, specified medical severity diagnosis-related groups (MS-DRGs), and selected comorbidity categories. It also provides facility adjustments that include a wage index adjustment, rural location adjustment, a teaching status adjustment, an adjustment for the presence of a qualifying emergency department, and a Cost-of-Living Adjustment for IPFs in Alaska or Hawaii.

The IPF PPS includes payment for extraordinarily high cost patients through an outlier policy. It also includes an interrupted stay policy and an additional payment for each electroconvulsive therapy (ECT) treatment.

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

All IPFs that are eligible to bill CMS under the IPF PPS are eligible to participate in the IPF Quality Reporting (IPFQR) Program. IPFs must meet all of the requirements of the IPFQR Program in order to receive a full Annual Payment Update each year. IPFs that fail to report required quality data will have their annual payment update reduced by 2.0 percentage points. This may result in an annual update being less than zero for a given fiscal year. That may result in the federal per diem payment rate and the ECT payment per treatment for the upcoming fiscal year being less than the federal per diem payment rate and the ECT payment per treatment for the current fiscal year. Any reduction for failure to report required quality data only applies to the fiscal year involved; such a reduction is not accounted for when calculating the payment amount for a subsequent fiscal 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

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