Challenges and opportunities for Medicare's original prospective payment system

The Medicare program initiated prospective payment for inpatient hospital services in 1983. Although the payment system has achieved many of its goals, changes in the health care market and the public nature of the program will continue to present both challenges and opportunities for improvement. Looking forward, policymakers must consider how to balance paying accurately for services with using Medicare to achieve broader policy objectives. Paying for new technologies, responding to market segmentation and specialization, and encouraging quality improvement must also be addressed. To successfully navigate these issues, policymakers and program administrators need accurate and timely information.