For better or for worse, third-party payers are the major drivers of rehabilitation care, and the largest payer for inpatient rehabilitation care in the United States remains the Medicare program. Reimbursement for inpatient rehabilitation facilities (IRF) remained unchanged for many years after the establishment of the program. With the transition of the program to a Prospective Payment System (IRF-PPS), Medicare intermediaries have begun to strictly enforce the new regulations they developed. This paper chronicled and described IRF-PPS history and impact methodology on inpatient rehabilitation facilities. The IRF-PPS resulted in the decrease in Medicare costs and operating expenses. Lengths of rehabilitation stay significantly declined, but the case-mix index significantly increased. Many facilities have shifted to treating high-cost, complex patients. Because of the IRF-PPS, IRFs have learned to how to maximize their profits. However, they need to learn strategies that truly reflect the complexity of their patients. They need to identify and document appropriate rehabilitation diagnoses and comorbidities that will produce the greatest reimbursement. They need to document accurately the admission functional status based upon a 72-hour observation period. Most of all, research needs to demonstrate the types of patients who benefit from IRF admissions.