Question

1. How many different prospective payment systems are there in the U.S.? Name at least three and the type of patient encounters to which they apply.

Answer 1

Ans) Prospective Payment System: A healthcare payment system used by the federal government since 1983 for reimbursing healthcare providers/agencies for medical care provided to Medicare and Medicaid participants. The payment is fixed and based on the operating costs of the patient’s diagnosis.

Peer Review Organization (PRO): A federal program established by the Tax Equity and Fiscal Responsibility Act of 1982 that monitors the medical necessity and quality of services provided to Medicare and Medicaid beneficiaries under the prospective payment system.

Diagnosis-Related Group (DRG): A patient classification scheme that provides a means of relating the type of patient a hospital treats to the costs incurred by the hospital. DRGs demonstrate groups of patients using similar resource consumption and length of stay. It also is known as a statistical system of classifying any inpatient stay into groups for the purposes of payment. DRGs may be primary or secondary; an outlier classification also exists. This is the form of reimbursement that the CMS uses to pay hospitals for Medicare and Medicaid recipients. Also used by a few states for all payers and by many private health plans (usually non-HMO) for contracting purposes.

Medicare: A nationwide, federally administered health insurance program that covers the cost of hospitalization, medical care, and some related services for eligible persons. Medicare has two parts. Part A covers inpatient hospital costs (currently reimbursed prospectively using the DRG system). Medicare pays for the pharmaceuticals provided in the hospitals but not for those provided in outpatient settings. Also called Supplementary Medical Insurance Program, Part B covers outpatient costs for Medicare patients (currently reimbursed retrospectively).

Relative Weight: An assigned weight that is intended to reflect the relative resource consumption associated with each DRG. The higher the relative weight, the greater the payment/reimbursement to the hospital.