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| Why was the
system developed?
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In the 1970s, government
leaders recognized the growing financial impact of providing healthcare
services to the Medicare and Medicaid populations. Many
persons were predicting that the fee-for-service system would
actually bankrupt the U.S. government within 30 years. In this
fee-for-service system, billing related directly to number of days a
patient was hospitalized and number of tests and special services
that were performed on the patient. More and more was
considered better and better throughout the industry. The
increasing impact of malpractice claims also affected the patterns
of service utilization. Dramatic change was necessary to save
the viability of the healthcare system.
The Tax Equity and Fiscal Responsibility Act (TEFRA)
was passed by Congress in 1982. The retrospective, fee-based
payment system was replaced with a prospective payment system (PPS).
Initially only Medicare patients were included in the system.
Later Medicaid patients were added on a state to state basis.
In the prospective payment system, a predetermined payment level is
established based primarily upon the patient's diagnoses and
services performed. The hospital then receives a set payment.
If dollars spent to care for a patient are less than the PPS payment, the healthcare
organization gets to keep the extra money and makes a profit on the
care provided. If, however, the dollars spent to care for a
patient are more than the PPS payment, the healthcare organization
may not look elsewhere (bill someone else) for the additional
dollars not covered by the PPS payment. In this case, the
healthcare organization loses money in caring for the patient.
As projected, the new system caused a number of particularly smaller
organizations to face bankruptcy and close their doors. The
cost cutting goals of the government have been partially realized.
Healthcare organizations now adopt business approaches to management
of the services they provide.
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| Acute Care
Prospective Payment
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Researchers at Yale University
developed the prospective payment system for acute care hospitals.
The system is based upon Diagnosis Related Groups (DRGs). A
patient's DRG categorization is dependent upon the coding and
classification of the patient's key medical information using the
ICD-9-CM coding system. The key piece of information is the
patient's principal diagnosis (basically the reason for admission to
acute care). In addition to the coding of the patient's
principal diagnosis, the healthcare organization also codes and
submits information about other diagnoses treated (called
comorbidities and complications) and also the patient's principal
procedure and additional operations/procedures done during the time
spent in the hospital. The DRG grouper (a computer software
program that takes the coded information and identifies the
patient's DRG category) also considers the patient's age, gender and
discharge status. With all this information, the DRG category
is determined and this sets the payment dollar amount for the acute
inpatient hospital visit. Does this sound complicated to you?
Many persons have spent years trying to understand the system and
determine methods to optimize payment for care provided.
The Centers for Medicare and Medicaid Services
(CMS) reviews and adjusts the Medicare DRG list and reimbursement rates
every year. We currently have 511 DRG groupings. This
payment system has now been in place for over 20 years. |
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| Nonacute care
prospective payment for nursing homes |
When the government realized
tremendous savings with the DRG system, leaders decided to expand
the prospective payment strategy to nonacute care settings.
Researchers have designed payment systems specific to different
levels of healthcare. The skilled
nursing facility prospective payment system was implemented in 1998.
The tool used to gather patient specific information and thus
determine payment category is called Resident Assessment Instrument
(RAI). With all the data provided (including diagnoses,
services provided and patient's functional level of abilities), the
patient (nursing home resident) is categorized into one Resource
Utilization Group (RUG-III) for resident classification. With
the RUG-III payment, the skilled nursing facility now either makes
or loses money for the services they provide. We are seeing
changes in management of nursing homes based upon this new payment
strategy. |
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| Outpatient
prospective payment |
In 2001 the government
implemented outpatient prospective payment system. The payment
categories here are called Ambulatory Payment Classification (APCs).
There are about 450 APCs recognizing significant outpatient surgical
procedures, radiology and other diagnostic services, medical visits
and partial hospitalizations. The key data in determining this
fixed payment rate is the coding and classification of services
provided the patient based on the CPT coding system. |
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| Home health
prospective payment system
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In 2000 the government began
phasing in fixed payment for home health services. It is
called home health prospective payment system (HH PPS).
Determination of payment category is dependent on the Outcome and
Assessment Information Set (OASIS). This dataset includes
coded information about the patient's diagnoses and functional
status and also includes information about the patient's outcome
from services provided. The computer system developed for
OASIS data-entry is called Home Assessment Validation and Entry
(HAVEN). There are currently 80 home health resource groups (HHRGs)
and the home health agency gets a payment for each 60 day block of
service. |
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| Inpatient
rehabilitation facility prospective payment system |
The newest method of fixed
payment involves patients served in inpatient rehabilitation
settings. This system is called IRF PPS (Can you figure this
one out? Look to your left). CMS activated the system in
2001. The computerized data entry is called Inpatient
Rehabilitation Validation and Entry system (IRVEN). Currently
there are 97 function-related groups. |
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| Impact of
prospective payment
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As a healthcare consumer, what
are the key changes you are seeing in the delivery of healthcare
services? How do you think these are related to the new
prospective payment systems? Is this good medicine or bad
medicine? Is this good business or bad business strategy for
controlling healthcare costs? Certainly the "do more and more"
philosophy no longer exists in the minds of the persons delivering
healthcare services. Payers, including the government, are
looking for ways to control healthcare costs. But what about
the consumer of healthcare services (the patient)? Is he or
she tuned in to this fairly new strategy for management of
healthcare services? |
