Which statements about the Medicare IPPS (hospital inpatient payment system) are most correct?

• A. The basis for payment is DRG.
• B. The DRG payment is adjusted for severity.
• C. Payments are increased for very high costs (outliers).
• D. All of the above are correct.

Answer: (D)

In Medicare’s inpatient prospective payment system, payments are built around DRGs. Each hospital admission is classified into a DRG that groups patients with similar diagnoses and expected resource use, and the payment is set by applying a DRG weight to a base payment rate. Over time, these DRGs have been refined to reflect severity of illness and comorbidity—so weights are adjusted for how sick the patient is, using severity-adjusted DRGs (MS-DRGs) to better align payment with actual resource use. There is also an outlier mechanism: when a case incurs exceptionally high costs beyond a threshold, the hospital receives additional outlier payments to help cover those extraordinary expenses. Taken together, these features describe the Medicare IPPS approach, making all of the statements correct.