Inpatient and Outpatient Prospective Payment Settlement
Prospective payment versus cost settlement
Under IPPS, the operating and capital base rates are set prospectively: payment equals the MS-DRG weight times the wage-adjusted base rate, plus adjustments for IME, DSH, outliers, transfers, and pass-through items. The cost report therefore does not cost out a routine Medicare inpatient stay. Worksheet E, Part A, reconciles the prospective adjustments and interim payments, and the resulting settlement is usually a true-up rather than a rebasing of DRG payments.
OPPS follows similar logic with different mechanics. Hospital outpatient services are grouped into APCs with prospectively set rates; packaging bundles many items into the primary service, and outliers are paid when estimated cost exceeds a threshold, with cost estimated using the departmental cost-to-charge ratio from Worksheet C. Pass-through drugs and devices, and certain hold-harmless or cancer hospital adjustments, are settled through the report.
Traps: treating the cost report as the source of DRG payment; using a global CCR when a departmental CCR applies; confusing outlier cost with billed charges; omitting charge detail that drives the CCRs; and forgetting that interim payments must be reconciled even when the DRG payment is correct. Rule of thumb: prospective payment determines the rate, and the cost report determines only the adjustments and the reconciliation. If a question asks what settles a routine DRG stay, the answer is nothing beyond the interim rate already paid.