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Under Medicare, hospitals generally receive fixed payments for inpatient stays based on diagnosis-related groups (DRG), a system that classifies stays by patient diagnoses and procedures. The Centers for Medicare & Medicaid Services (CMS) annually uses its own data to reclassify DRGs.
The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) revised the payment formula for most of the outpatient drugs, including inhalation therapy drugs, covered under Medicare part B.
The Medicare program's prospective payment system (PPS) for inpatient hospital services provides incentives for hospitals to operate efficiently by paying them a predetermined, fixed amount for each inpatient hospital stay regardless of the actual costs incurred in providing the care.
Although physicians and other health care providers acknowledge that they can buy drugs for prices lower than Medicare payments, they contend that they need drug payments in excess of their actual costs to compensate for inadequate or nonexistent Medicare payments for administrating the drugs.
To protect themselves against large out-of-pocket expenses and help fill gaps in Medicare coverage, most beneficiaries buy supplemental insurance, known as Medigap; contribute to employer-sponsored health benefits to supplement Medicare coverage; or enroll in private Medicare+Choice plans rather than...