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In the Balanced Budget Act of 1997, Congress mandated that Health CareFinancing Administration (HCFA) implement a Prospective Payment System (PPS)for inpatient rehabilitation. The Centers for Medicare and Medicaid Services(CMS, the successor agency to HCFA) issued the final rule governing such aPPS on August 7, 2001. This report summarizes the research that RANDperformed to support HCFA's efforts to design, develop, and implement thePPS. It describes RAND's research on new function-related groups,comorbidities, unusual cases, facility-level adjustments, outlier payments,facility-level adjustments, and assessment instruments. In addition, itpresents recommendations concerning the payment system and discusses theresearchers' plans for further research on the monitoring and refinement ofthe PPS.

The research described in this report was performed under the auspices of RAND Health.

This report is part of the RAND Corporation monograph report series. The monograph/report was a product of the RAND Corporation from 1993 to 2003. RAND monograph/reports presented major research findings that addressed the challenges facing the public and private sectors. They included executive summaries, technical documentation, and synthesis pieces.

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