Capital payment under PPS: can hospitals still bloom?

Area of Science:

• Healthcare finance
• Hospital administration
• Health economics

Background:

• Current prospective payment system (PPS) treats capital costs as pass-through payments.
• A deadline of October 1, 1986, mandates HCFA's adoption of a new capital cost payment proposal within PPS.
• Several methods for incorporating capital costs into PPS have been proposed.

Purpose of the Study:

• To evaluate different methods for incorporating capital costs into the prospective payment system (PPS).
• To determine the most financially advantageous approach for hospitals, particularly large urban teaching centers.

Main Methods:

• Analysis of proposed methods for capital cost reimbursement under PPS.
• Case study of a large urban teaching hospital to assess financial impact.
• Comparison of cash flow outcomes for different capital cost incorporation strategies.

Main Results:

• The modified pass-through approach demonstrated the most favorable financial results.
• This approach yielded the largest positive cash flow for the case study hospital.
• Results suggest significant financial benefits from the modified pass-through method.

Conclusions:

• The modified pass-through approach is recommended for integrating capital costs into PPS.
• This method provides superior financial advantages for urban teaching hospitals.
• Timely implementation of revised capital cost policies is crucial for healthcare providers.