Hospital bills for 100 most common diagnoses, 2011 and 2012, for US and each hospital.
Explanation of General Medicare Payment Formula for Hospitals
The explanation is based on information from
Many numbers change each year. There are links to Medicare's "home page" of each year at the bottom of the main CMS readmission page.
Hospital operating base or "Specific standardized amounts"
Hospital capital base
Both hospital bases are multiplied by the DRG weight (Table 5).
Readmission reduction for "excess" readmissions in past years, based on operating costs plus payments for new technology, but excluding capital, and adjusted for transfers.
DSH for poor people
IME for teaching
Outlier payments for very costly hospital stays cover 80% of hospital losses over $23,000 (90% for burns). These total about $16 billion per year and they average about 2.9% of payments for most procedures, including the procedures subject to readmission penalties. They are higher on a few other procedures.
Summary inpatient costs released by Medicare include DRG amount (operating + capital), disproportionate share, teaching, and outlier payments. Operating cost (the base for readmission penalties) is about 73% of these summary costs.
Transfers after short stay get lower payment
New technology add-on payment (NTAP) added if applicable
Large Urban Areas get extra factor, meaning Metro Statistical Areas over 1 million people and New England County Metro Areas over 970,000.
Organ acquisition is paid separately
Value-based purchasing VBP has adjustments, based on operating costs, not capital.
Sole community hospitals (SCH) are paid by other formulas if higher
Medicare dependent hospitals (MDH) are paid by another formula if higher
Low volume hospitals get more, by formula
Qualifying hospitals are in the bottom quartile of counties on Medicare spending per enrollee, and get more
Hospitals not reporting quality data get reduction
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