DRGs and Prospective Payment Under Medicare

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Abstract
In moving from cost-based reimbursement to a DRG-based prospective system, the Medicare Prospective Payment System (PPS) has radically restructured the financial incentives for the care of patients. The incentives potentially may lead to increased hospital admissions, decreased lengths of stay, decreased volume of services to some individuals, service shifts outside the hospital, and increased selectivity/specialization by hospitals in limited DRGs. The Prospective Payment Assessment Commission (ProPAC) is charged with evaluating important issues and factors affecting the implementation of the PPS and with making recommendations for improving system performance.

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