This consumer education document is intended to provide a complete description of Medicare's Prospective Payment System (PPS) for hospitals from the consumer's point of view and to provide basic information on how consumers can protect their rights to appropriate hospital care under Medicare. The first section describes the PPS and also explains how the Federal Government knows what a hospital stay is worth. The second section explains how the PPS may affect hospital care, answering questions regarding whether PPS applies to doctors' fees, whether PPS changes the care from physicians, how PPS affects hospital costs and Medicare benefits, and whether Medicare covers prepaid health plans. The third section addresses how patients can protect their right to the kind of care they need and the insurance coverage they deserve. It explains where patients can get help if they feel they have been treated unfairly, the responsibilities of a PRO (Peer Review Organization), what can be done when patients are told that Medicare will not cover their stay, what patients can do to avoid being discharged too early, what can be done if a PRO's decision is not in the patient's favor, and the type of PRO reviews that can be conducted after the patient is discharged. The next section gives examples of beneficiary discharge appeal rights. The document concludes with the name, address, and phone number of the PRO in each state and a patient checklist regarding the rights of hospital patients under Medicare. (CML)