In this article, the authors present a resident-based reimbursement system for intermediate care facilities for the mentally retarded (ICFs-MR), which represent a large and growing proportion of the Medicaid budget. The statistical relationship between resident disability level and the expected cost of caring for the individual is estimated, allowing for the prediction of expected resource use across the population of ICF-MR residents. The system incorporates an indirect cost rate, a base direct care rate (constant across all providers), and an individual-specific direct care rate, based on the expected cost of care
