The early effects of the prospective payment system on inpatient utilization and the quality of care

Concern is often expressed that hospitals may be making cost/quality trade-offs under Medicare's prospective payment system. To evaluate the early effects of PPS on inpatient utilization and quality of care, we studied a cohort of 729 U.S. short-term general hospitals from nonwaivered states. We used a linear forecasting model to project 1984 figures based on trends from 1980 to 1983. We found no evidence that the quality of care deteriorated in 1984 for Medicare patients. Consultation rates remained constant, and in-hospital deaths and readmission rates were consistent with previous trends for the Medicare population. Overall, it appears that PPS has reduced hospital utilization without producing deterioration in the quality of care.