Prospective Payment System Flashcards, test questions and answers

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What is Prospective Payment System?

The Prospective Payment System (PPS) is a key component of the Medicare program, which determines how much hospitals are reimbursed for providing health care services to Medicare beneficiaries. PPS was implemented in 1983 and is used by the Centers for Medicare & Medicaid Services (CMS) to reimburse hospitals on a fixed-price basis rather than cost-based reimbursement. The purpose of this system is to control healthcare costs while preserving access to quality care.Under PPS, CMS establishes payment rates based on diagnosis related groups (DRGs). This means that each hospital receives the same amount regardless of the actual cost incurred in treating a patient with that particular DRG. In addition, there are other factors taken into consideration when determining payment rates such as location, teaching status and whether or not the hospital is part of an integrated delivery system. Furthermore, different adjustments can be made for certain cases including those involving outlier cases or high-cost patients who require more intense treatments than normal. One advantage of using PPS is its potential to reduce overall health care costs by giving incentives for increased efficiency and improved outcomes in hospitals since they will receive less money if their costs exceed what has been predetermined for their DRG-specific rate under PPS. However, one disadvantage may be that it could lead to decreased quality of care due to lack of incentive from providers which have no financial gain from providing additional services beyond what’s necessary and/or beneficial for patients’ health. Additionally, some research suggests that rural areas may experience greater reductions in Medicare payments under PPS due to lower rates being established through DRG calculations compared with urban areas as well as fewer resources available per capita in rural settings making it difficult for them deliver higher quality care at competitive prices.