Inpatient rehabilitation facilities are now paid prospective rates.

On January 1, 2002, Medicare began to replace its cost-related inpatient reimbursement method for rehabilitation hospitals and rehabilitation units in hospitals with a prospective payment system. Under the new system, Medicare pays a predetermined, fixed amount per discharge, depending on the patient's impairment level, functional status, comorbid conditions, and age. Reduced or additional amounts are paid for early transfers, short-stay outliers, patients who expire before transfer, and cost outliers. The overall objective of the new case-based system is to provide incentives for rehabilitation facilities to furnish intensive inpatient services efficiently without tarnishing the quality of care or constraining access to care. Federal actuaries estimate that the new system will cost Medicare an additional $70 million between January 1, 2002, and September 30, 2003. The actual increase may be larger.