The document discusses the Medicare Inpatient Prospective Payment System (IPPS) which determines payment to hospitals based on Diagnosis Related Groups (DRGs). The IPPS was implemented in 1983 based on a Yale study from the 1970s. DRGs classify patients into groups based on diagnoses, treatment, age, resource use, and length of stay. There are now over 750 Medicare Severity DRGs (MS-DRGs) used to more precisely classify hospital stays and facilitate payment. The IPPS system puts the cost risk on hospitals by setting prospective payment rates based on average costs rather than actual costs.