Inpatient payments include two methods of reimbursement: per diem and diagnosis related groups (DRGs). Per diem reimbursed hospitals include: University of Illinois at Chicago hospital, Cook County hospital, rehabilitation hospitals, psychiatric hospitals, children's hospitals, long-term stay hospitals and certain rural hospitals. Under per diem methodology, hospitals receive a flat rate for each day of inpatient services provided.

Under DRG, the department reimburses the hospital based on the diagnoses and procedures performed during the hospital stay. The diagnoses associated with the hospital stay are placed into groups requiring a similar intensity of services.

The DRG reimbursement, similar to the system used by the federal Medicare program, is based on the average cost of providing services for the specific diagnosis group, regardless of how long a specific client may have actually been in the hospital.

The department does adjust payments for exceptionally long stays or exceptionally high costs. The department also pays hospitals for the capital costs associated with the Medicaid inpatient stay.

Some procedures normally provided in the outpatient setting of a hospital will be reimbursed by the department in the inpatient setting in limited circumstances. Providing these services in an inpatient setting will also require a justification and reimbursement is subject to prepayment review.