In 2005, CMS implemented a prospective payment system (PPS) to pay for Medicare services provided by inpatient psychiatric facilities (IPFs). Using FY 2003 administrative data, this study independently replicates the analyses used in developing the IPF PPS. It considers alternative comorbidity classifiers and conducts the first facility-level analyses of the IPF-PPS. Payments are found to vary less than proportionately with costs at the facility level, suggesting payments may not fully reflect the higher costs of facilities that treat sicker patients.It also demonstrates how an expansion of the current set of comorbidities would more closely match payments to patient costs.
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