In January 2005, Medicare’s method of payment for inpatient psychiatric facilities (IPFs) changed from a cost-based system to a prospective payment system (PPS).  The final rule on Medicare’s move to an inpatient psychiatric prospective payment system was published in the November 15, 2004, Federal Register.

According to the Medicare Payment Advisory Commission (MedPAC), “Medicare beneficiaries with serious mental illnesses or alcohol- and drug-related problems may be treated in specialty inpatient psychiatric facilities (IPFs). Beneficiaries who use IPFs are among the most vulnerable in Medicare. A majority are disabled and low income. They tend to be heavy users of health care services, in part because their mental illnesses may undermine their willingness or ability to comply with recommended care. Often, they have additional medical needs that may complicate their treatment. The services furnished by IPFs are intended to meet the urgent needs of patients experiencing an acute mental health crisis. To qualify as an IPF for Medicare payment, a facility must meet Medicare’s general requirements for acute care hospitals and must be primarily engaged in providing psychiatric services for the diagnosis and treatment of mentally ill persons.”