Impact Of The Medicare Hospital Prospective Payment System

To control rising health care costs, the federal government, in 1983, established a prospective payment system (PPS) to reimburse hospitals for inhospital care of Medicare patients. PPS changed the way Medicare reimbursed hospitals from a cost or charge basis to a prospectively determined fixed-price system in which hospitals are paid according to the diagnosis-related group (DRG) into which a patient is classified. This report constitutes the executive summary of an evaluation of the impact of the DRG-based PPS system. Six conditions were selected for the evaluation: congestive heart failure, acute myocardial infarction, hip fracture, pneumonia, cerebrovascular accident, and depression. The authors used both explicit and implicit measures to assess quality of care. Two key policy conclusions emerge from the findings: (1) at least through the middle of 1986, PPS did not interrupt a long-term trend toward better hospital care; and (2) PPS has had a detrimental effect on patients' stability at discharge. The authors recommend that physicians, hospitals, and professional review organizations undertake a more systematic assessment of a patient's readiness to leave the hospital, and that clinically detailed data on sickness at admission, processes, discharge status, and outcomes continue to be collected regularly as long as PPS is in place.

In 1983, in an effort to control rising health care costs, the federal government established a prospective payment system (PPS) to reimburse hospitals for inhospital care of Medicare patients. Under PPS, hospitals are paid an amount based largely on flat rates per admission calculated for each of approximately 470 diagnosis-related groups (DRGs). This new payment system has been somewhat successful at slowing the upward spiral of Medicare costs. However, because PPS presents incentives to decrease lengths of stay and to substitute lower-cost services and procedures, patients, physicians, and policymakers are concerned that, despite the introduction of monitoring by professional review organizations, the quality of health care given Medicare patients may have declined under PPS. This report assesses the quality of inhospital care for Medicare patients age 65 and over, before and after the implementation of PPS, and estimates the effects of the PPS intervention on quality of care, by comparing quality of care now with the best estimate of what it would have been without PPS. Specifically, the authors describe the study's design, sampling, and fieldwork; discuss changes in sickness at admission following the introduction of PPS; consider measurements of the quality of care using explicit criteria before and after implementation of the PPS; compare changes in quality of care between 1981 and 1986 for five diseases as measured by implicit review; and discuss PPS and impairment at discharge.