If the MS-DRG payment received by a hospital is lower than the actual charges for inpatient services, what happens next?

When a hospital receives a payment that is lower than the actual charges for inpatient services under the MS-DRG system, the hospital must absorb the loss. This is because the MS-DRG payment system is a bundled payment model, which means that the payment is set based on the diagnosis-related group assigned to the patient’s stay, rather than the actual charges incurred during that stay.

In this payment model, hospitals are incentivized to provide efficient care; any costs that exceed the established MS-DRG payment are the financial responsibility of the hospital. This places a financial burden on the hospital when actual costs are higher than what is reimbursed.

It is also important to note that hospitals cannot bill patients for the difference as this would conflict with the agreed-upon payments from insurers, including Medicare and other payers. Additionally, because MS-DRGs are predetermined and fixed rates, hospitals cannot bill Medicare for that difference. Therefore, absorbing the loss is the only option for the hospital when faced with such a financial discrepancy.