CMS Pub. 100-04, ch. 10, § 10.1.7

There are multiple prospective payment systems (PPS) for Medicare for different

provider types. Before 1997, prospective payment was a term specifically applied to

inpatient hospital services. In 1997, with passage of the Balanced Budget Act,

prospective payment systems were mandated for other provider groups/bill types:

• Skilled nursing facilities;

• Outpatient hospital services;

• Home health agencies;

• Rehabilitation hospitals; and

• Others.

While there are commonalities among these systems, there are also variations in how

each system operates and in the payment units for these systems.

Case-mix is an underlying concept in prospective payment. With the creation of inpatient

hospital PPS, the first Medicare PPS, there was a recognition that the differing

characteristics of hospitals, such as teaching status or number of beds, contributed to

substantial cost differences, but that even more cost impact was linked to the

characteristics of the patient populations of the hospitals. Other Medicare PPS systems,

where research is applied to adjust payments for patients requiring more complex or

costly care, use this concept of case-mix complexity, meaning that patient characteristics

affect the complexity, and therefore, cost of care. HH PPS considers a patient’s clinical

and functional condition in determining case-mix for home health care.

For individual Medicare inpatient acute care hospital bills, diagnosis related groups

(DRGs) are produced by claim information, which includes data elements such as

procedure and diagnoses, through Grouper software that reads these pertinent elements

on the claim and groups services into appropriate DRGs. DRGs are then priced by a

separate Pricer software module at the A/B MAC (A). Processing for HH PPS is built on

this model, using home health resources groups (HHRGs), instead of DRGs. In HH PPS,

payments are case-mix adjusted using claim information and elements of the patient

assessment.

Since 1999, HHAs have been required by Medicare to assess potential patients, and

reassess existing patients, incorporating the OASIS (Outcome and Assessment

Information Set) tool as part of the assessment process. The total case-mix adjusted

payment is based on elements of the OASIS data set and other information provided on

the claim. Payments made for the period are case-mix adjusted based on Grouper run in

Medicare systems. Pricer software run by the A/B MAC (HHH) processing home health

claims performs pricing including wage index adjustment and other factors.