Redesigning Medicare Inpatient PPS to Adjust Payment for Post-Admission Complications

Abstract

Under the Medicare diagnosis-related group (DRG) based inpatient prospective payment system (IPPS), payments to hospitals can increase when a post-admission complication occurs. This article proposes a redesign of IPPS that reduces, but does not eliminate, the increase in payment due to post-admission complications. Using California data that contained a specification of whether each diagnosis was present at admission, and applying a conservative approach to identifying potentially preventable complications, the impact of post-admission complications on DRG assignment was determined. Based on the redesigned IPPS, the increase in Medicare payments due to post-admission complications was reduced by more than one billion dollars annually.