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DRG-based prospective payment: what does the future hold?

The Journal of Medical Practice Management : MPM

|February 4, 1987

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The current Medicare prospective payment system faces challenges. Extending Diagnosis-Related Group payments beyond hospitals is unlikely; capitation offers a more popular alternative for healthcare reimbursement.

Area of Science:

Health economics
Healthcare policy
Medical economics

Background:

The Health Care Financing Administration utilizes a Diagnosis-Related Group (DRG)-based prospective payment system for Medicare hospital services.
This system influences provider behavior and healthcare quality.
Existing criticisms focus on the classification system's quality and rate-setting processes.

Purpose of the Study:

To evaluate the future viability of the DRG-based prospective payment system for Medicare.
To analyze the limitations of extending case-mix based payment models.
To explore alternative healthcare reimbursement strategies.

Main Methods:

Critical analysis of the existing Diagnosis-Related Group (DRG) payment system.
Evaluation of criticisms regarding classification, rate-setting, and provider behavior.

Related Experiment Videos

Assessment of the feasibility of extending case-mix based payments to non-hospital services.

Main Results:

Significant criticisms exist regarding the quality and application of the DRG classification system.
The current system's structure presents challenges for equitable rate-setting.
Provider behavior is demonstrably influenced by the prospective payment system.

Conclusions:

Extending Diagnosis-Related Group (DRG)-based prospective payment to physicians and non-hospital services is deemed unlikely to be feasible.
Capitation emerges as a viable and increasingly popular alternative payment mechanism in healthcare.
The future of healthcare reimbursement may shift away from strict case-mix adjustments towards alternative models like capitation.