Prospective payment system

Prospective payment system (PPS) is a method of reimbursement in which Medicare payment is made based on a predetermined, fixed amount. The payment amount for a particular service is derived based on the classification system of that service (for example, diagnosis-related groups for inpatient hospital services).

Overview

PPS is the primary method of payment for all acute care inpatient services for Medicare beneficiaries. Under PPS, hospitals are paid a set fee for treating patients in a single DRG category, no matter what the actual costs for the care turn out to be.

History

The prospective payment system was introduced by the U.S. Congress in 1983 as part of the Social Security Amendments, in an effort to change the incentives for healthcare providers and to control the rapidly escalating costs of healthcare.

Methodology

The PPS uses a classification system called diagnosis-related groups (DRGs). Under the DRG system, each patient is categorized into a group based on their diagnosis, surgical procedures, age, sex, and other factors. Each DRG has a payment weight assigned to it, based on the average resources used to treat Medicare patients in that DRG.

Impact

The introduction of the PPS has led to significant changes in the hospital industry and in the way patient care is delivered. It has been associated with a decrease in inpatient hospital stays and an increase in outpatient surgery.

Criticism

Critics of the PPS argue that it incentivizes hospitals to discharge patients as soon as possible in order to maximize profits. This can lead to inadequate care and higher readmission rates.

See also

• Diagnosis-related group
• Medicare (United States)
• Healthcare reform in the United States
• Healthcare in the United States

References

Prospective payment system Resources
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