It found that, overall, PPS had no negative effect on patient outcomes and did not alter an already existing trend toward improved processes of care. However, Medicare patients were more likely to be discharged in unstable condition, which was associated with a higher rate of mortality, even though overall mortality fell. RAND Study Approach
Does PPS affect the quality of care for Medicare patients?
However, because it contained incentives for hospitals to shorten stays and to choose the least expensive methods of care, PPS raised concerns about possible declines in the quality of care for hospitalized Medicare patients.
What is the Medicare PPS payment system?
Medicare's prospective payment system (PPS) for hospital inpatient care was implemented in October, 1983. Under this system, payment for care is made on a fixed price per case, based on the average cost for a patient in a given Diagnosis Related Group (DRG).
How does PPS affect outcomes in the United States?
In general, our results indicated that while changes in utilization of Medicare services occurred, system-wide effects of PPS on outcomes such as hospital readmissions and mortality were not evident. For example, we found reductions in hospital length of stay after PPS and increased use of HHA services.
When did Medicare change from fee for service to PPS?
Faced with sharply escalating Medicare costs in the early 1980s, the federal government completely revised the way Medicare pays hospitals for treating elderly patients. The governing agency, the Health Care Financing Administration, switched from a retrospective fee-for-service system to a prospective payment system (PPS).
How does the prospective payment systems impact operations?
Under PPS, a hospital may experience an increase or decrease in its overall operating ratio, depending on whether it incurs a Medicare gain or loss. The incentive to economize on inpatient care and substitute post-hospital services was reasoned to be negatively related to this financial impact.
Why is PPS important?
PPS is intended to motivate healthcare providers to structure cost-effective, efficient patient care that avoids unnecessary services. The goal is to provide quality patient care that engages patients, and strives for faster diagnosis and treatment, shorter hospital stays, and lower costs.
What are the disadvantages of a prospective payment system?
Prospective payment plans also come with drawbacks. Because providers only receive fixed rates, some might seek to employ cost-cutting measures to maximize profits while not necessarily keeping their patients' best interests in mind.
Is the prospective payment system good?
Key Findings. Medicare's prospective payment system (PPS) did not lead to significant declines in the quality of hospital care. Mortality rates declined for all patient groups examined, and other outcome measures also showed improvement.
What is meant by the prospective payment system and what part of Medicare does it affect?
A Prospective Payment System (PPS) is a method of reimbursement in which Medicare payment is made based on a predetermined, fixed amount. The payment amount for a particular service is derived based on the classification system of that service (for example, diagnosis-related groups for inpatient hospital services).
What is PPS support?
Programmable Power Supply (PPS) is a standard that refers to the advanced charging technology for USB-C® devices. It can modify in real time the voltage and current by feeding maximum power based on a device's charging status.
What are the implications for the delivery of healthcare when providers are reimbursed on a prospective payment system?
What are the implications for the delivery of health care when providers are reimbursed based on a fee-for-service system? There are few incentives to save money or be efficient; more services mean more income.
What role did the prospective payment system play in the downsizing of US hospitals?
What role did the prospective payment system play on the downsizing of U.S. hospitals? Many hospitals had to close because they could not cope with the new method of reimbursement. The hospitals that continued to operate had to take unused beds out of service.
How has the change from fee-for-service reimbursement to PPS influenced the average length of stay for patients receiving care in hospitals?
Average length of stay for PPS discharges only (in the original PPS States) has not changed much since the first year of prospective payment; data from the Medicare Provider Analysis and Review files used in the PPS evaluation show a decrease in average length of stay averaging only 0.6 percent per year, and other HCFA ...
Why was the prospective payment system established?
The PPS was established by the Centers for Medicare and Medicaid Services (CMS), as a result of the Social Security Amendments Act of 1983, specifically to address expensive hospital care. Regardless of services provided, payment was of an established fee.
What changes did Medicare DRGs cause in hospital behavior?
What changes did Medicare DRGs cause in hospital behavior? They became concerned with reducing lengths of stay for aged patients and became concerned with physicians practice behaviors.
How does Medicare reimburse physician services?
Traditional Medicare reimbursements Instead, the law states that providers must send the claim directly to Medicare. Medicare then reimburses the medical costs directly to the service provider. Usually, the insured person will not have to pay the bill for medical services upfront and then file for reimbursement.
How does PPS affect Medicare?
In conclusion, our study on the effects of hospital PPS on the functionally impaired subgroup of Medicare beneficiaries found expected changes in service utilization and no system-wide adverse outcomes. The changes in service utilization patterns were expected as a consequence of financial incentives provided by PPS. Declines in hospital LOS was expected because of the PPS incentive to hospitals to become more efficient. It is important to note that for certain subgroups of the disabled elderly, hospital LOS actually remained the same before and after implementation of PPS. This finding suggests that in spite of the financial incentives, hospitals were unable to reduce LOS for certain types of patients. The absence of increased SNF use was surprising, but the increase in HHA use was expected. Our study also suggested that quality of care, in terms of hospital readmissions and mortality, were not systematically affected by PPS. Within the constraints of the data set that was assembled for this study, we could find only indications of hospital readmission increases for the severely disabled subgroup, but this change was only from 23.4 percent to 25.4 percent before and after PPS implementation. Overall mortality differences were not found between the two periods, although some differences were found in the patterns of mortality by service settings.
What is PPS in Medicare?
Medicare's prospective payment system (PPS) reimburses hospitals on a casemix adjusted, flat-rate basis. This method of payment provides incentives for hospitals to serve patients as efficiently as possible, possibly by reducing length of stay and increasing use of skilled nursing facility (SNF) and home health (HHA) care. While increased SNF and HHA use might be viewed as an intended consequence of PPS, there has been concern that PPS induced changes in the duration and location of care would affect quality of care received by Medicare beneficiaries. Moreover, a particular concern was that the frail and disabled elderly would be disproportionately affected by the utilization changes resulting from the introduction of PPS.
How much does HHA increase post acute?
In addition, HHA use without prior hospital stay increased from 13.6% to 21.5%.
What is the purpose of PPS study?
The purpose of this study was to examine the effects of PPS on the subgroup of Medicare beneficiaries who were functionally disabled. The specific aims of this study were to measure changes in Medicare service use and to evaluate the effects of these changes on quality of care in terms of hospital readmission and mortality.
How are readmission rates adjusted for differences in mortality?
We adjusted for differences in mortality as competing risks by employing cause elimination life table methodology. This methodology produces risks of hospital readmission net of mortality. Hence, the readmission rates for each period are not confounded by possible differences in exposure to readmission because of differences in mortality risks between the two periods. The characteristics of individuals entering hospitals differed between the pre- and post-PPS periods. This difference was identified in another analysis in our study (the comparison of case-mix by GOM g ik 's) and indicated an increase in the oldest-old and medical acute groups. As with the other analysis of episodes of Medicare service use, comparisons are made between the pre- and post-PPS periods using October 1 through September 30 windows for both 1982-83 and 1984-85.
Is PPS a system wide adverse outcome?
In conclusion, this study of the effects of hospital PPS on the functionally impaired subgroup of Medicare beneficiaries indicated no system-wide adverse outcomes. Further research on the community services, nursing home use and other types of care would be necessary to develop a complete picture of the effects of PPS on disabled Medicare beneficiaries.
Is Medicare a fixed rate payment system?
The implementation of a prospective, fixed rate payment system for hospitals under Medicare created both a perception that hospital efficiency could be improved and concern that incentives for efficiency could result in adverse consequences for Medicare beneficiaries. Because of the recent introduction of PPS, relatively few evaluation results have been available to study its effects on Medicare service use and patients.
How did PPS reform affect Medicare?
However, Medicare patients were more likely to be discharged in unstable condition, which was associated with a higher rate of mortality, even though overall mortality fell.
What is the negative effect of PPS?
The only negative post-PPS change was an increase in the number of patients discharged in unstable condition. As noted in the figure, the number of such patients increased by 3 percentage points (a 22-percent rise). This change is a consequence of shorter lengths of stay; in effect, some of the recovery period was transferred outside the hospital.
How effective is PPS?
PPS proved effective at curbing cost growth. However, because it contained incentives for hospitals to shorten stays and to choose the least expensive methods of care, PPS raised concerns about possible declines in the quality of care for hospitalized Medicare patients. A study conducted jointly by RAND and the University of California, ...
What are the recommendations of the PPS study?
First, to eliminate possible problems with patients discharged in unstable condition, a more systematic assessment should be made of patients’ readiness to leave the hospital and receive care in another setting. Second, to provide current information about the effects of Medicare’s payment methods on quality of care, clinically detailed data should be collected to monitor sickness at admission, processes of care, discharge status, and outcomes on a regular basis as long as PPS is in place .
What is PPS in healthcare?
The governing agency, the Health Care Financing Administration, switched from a retrospective fee-for-service system to a prospective payment system (PPS). Under PPS, hospitals receive a fixed amount for treating patients diagnosed with a given illness, regardless of the length of stay or type of care received.
Does mortality rate decline for all patient groups examined?
Mortality rates declined for all patient groups examined, and other outcome measures also showed improvement.
Does PPS improve quality of care?
The study found that quality of care actually improved after PPS for three of the patient groups (AMI, CVA, and CHF), and did not change significantly for the other two (pneumonia, hip fracture).
Why was PPS included in the PPS?
The inclusion of a hospital-specific portion in the calculation of the prospective payment rates was intended to allow hospitals sufficient time to adjust to the fiscal pressures that they are expected to face under PPS. The inclusion of a regional component allows for variations between areas in practice patterns and other factors that may determine per case costs, but may be beyond the control of the hospital in the short run. The additional payment for indirect medical education, based on the effect of teaching status on per case costs, was set at twice the empirically estimated rate to allow for possible imperfections in the patient classification system that might impose financial hardship on teaching hospitals. Several other allowances were made for types of hospitals that might be vulnerable under the new system.
What is PPS in healthcare?
This article describes some of the available evidence on the impact of the Medicare prospective payment system (PPS) for hospitals during its first year, on hospitals, other payers for inpatient hospital services, other providers of health care, and Medicare beneficiaries. In addition, because the impetus for the enactment of the new system stemmed from concern over the financial status of the Medicare program, the first-year impact of PPS on Medicare program expenditures is also described.
What was the primary motivation of Congress in enacting prospective payment for Medicare inpatient hospital services?
The principal motivation of Congress in enacting prospective payment for Medicare inpatient hospital services was to constrain the depletion of the Medicare Trust Funds, therefore, a primary indicator of the success or failure of PPS would be its effect on the volume and rate of growth in Medicare program expenditures.
How much did Medicare increase in the year 1984?
Inpatient hospital payments have risen from about $2.4 billion in fiscal year 1967 to more than $39 billion (estimated) in fiscal year 1984. The apparent effect of recent efforts to control the increase in Medicare hospital expenditures is shown in Table 10. From fiscal year 1974 (after temporary wage and price controls were removed) through fiscal year 1982 (the last year prior to the imposition of TEFRA restrictions), Medicare inpatient hospital benefit payments increased at an annual rate of 19.9 percent (10 percent in real terms), never falling below 14.3 percent in any given year. Under TEFRA (during fiscal year 1983), this rate of increase was only 10.2 percent (6.8 percent in real terms), lower than at any time in the previous 10 years. Furthermore, the estimated rate of increase under PPS (during fiscal year 1984) was lower still, at 8.2 percent (3.8 percent in real terms), among the smallest percent increases in the program's history.
What is standardized payment?
A standardized payment amount, which represents the average operating cost for a typical Medicare inpatient stay, exclusive of case-mix, area wages, and teaching costs.
What is the source of Medicare data?
SOURCES: Health Care Financing Administration, Bureau of Data Management and Strategy: Data from the Medicare Statistical System; Office of the Actuary: Data from the Division of Medicare Cost Estimates.
When was PPS implemented?
Implementation of PPS began on October 1, 1983. Objectives.
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Why did PPS 1 reduce?
Initial large cost reductions in PPS 1 because of reductions in length of stay, followed by a return to nearly double-digit inflation thereafter.
What is PPS policy?
As a policy for hospital cost containment, PPS represents a bundle of ratesetting principles that are fairly well understood but are certainly not universally admired. The components include administered prices rather than market forces, national base rates rather than hospital-specific rates (i.e., a policy of equalizing rates rather than equalizing pressure), and a per case payment unit rather than payment per day, per service, or per procedure.
What does PPS 1 mean?
NOTE: PPS followed by a number indicates a particular year under the system; e.g., PPS 1 is the first year of PPS.
What are the objectives of PPS?
The central objectives of PPS were to reduce rates of increase in Medicare inpatient payments and in overall hospital cost inflation. These aims were expected to be achieved through a combination of three key elements of the PPS program:
What would happen if hospitals were phased in to national rates?
If insufficient slack were available to these hospitals, they might either fail (which could reduce access) or cause quality of care to suffer.
Is the rate of increase restricted to the first year?
Reductions in the rate of increase are substantial and not restricted to the first year, or simply to the effects of admission declines, or to Medicare alone.
What happened after Medicare was introduced?
The period after Medicare's introduction, for example, was one of declining elderly mortality. However, using several different empirical strategies, the authors estimate that the introduction of Medicare had no discernible impact on elderly mortality in its first ten years in operation. They present evidence suggesting instead that, prior to Medicare, elderly individuals with life- threatening, treatable health conditions (such as pneumonia) sought care even if they lacked insurance, as long as they had legal access to hospitals.
How did Medicare benefit the elderly?
Even absent measurable health benefits, Medicare's introduction of Medicare may still may have benefited the elderly by reducing their risk of large out-of-pocket medical expenditures. The authors document that prior to the introduction of Medicare, the elderly faced a risk of very large out- of- pocket medical expenditures. Tthe introduction of Medicare was associated with a substantial (about 40 percent) reduction in out-of-pocket spending for those who had been in the top quarter of the out- of- pocket spending distribution, the authors estimate.
What is the evidence that the introduction of Medicare was associated with faster adoption of then-new cardiac technologies?
Consistent with this, Finkelstein presents suggestive evidence that the introduction of Medicare was associated with faster adoption of then-new cardiac technologies. Such evidence of the considerable impact of Medicare on the health care sector naturally raises the question of what benefits Medicare produced for health care consumers.
Why is there a discrepancy in health insurance?
Finkelstein suggests that the reason for the apparent discrepancy is that market-wide changes in health insurance - such as the introduction of Medicare - may alter the nature and practice of medical care in ways that experiments affecting the health insurance of isolated individuals will not. As a result, the impact on health spending ...
How much does Medicare cost?
At an annual cost of $260 billion, Medicare is one of the largest health insurance programs in the world. Providing nearly universal health insurance to the elderly as well as many disabled, Medicare accounts for about 17 percent of U.S. health expenditures, one-eighth of the federal budget, and 2 percent of gross domestic production.
What was the spread of health insurance between 1950 and 1990?
Extrapolating from these estimates, Finkelstein speculates that the overall spread of health insurance between 1950 and 1990 may be able to explain at least 40 percent of that period's dramatic rise in real per capita health spending. This conclusion differs markedly from the conventional thinking among economists that the spread ...
When did Medicare start?
Medicare's introduction in 1965 was, and remains to date, the single largest change in health insurance coverage in U.S. history. Finkelstein estimates that the introduction of Medicare was associated with a 23 percent increase in total hospital expenditures (for all ages) between 1965 and 1970, with even larger effects if her analysis is extended ...
Acknowledgments
Executive Summary
- Medicare's prospective payment system (PPS) reimburses hospitals on a casemix adjusted, flat-rate basis. This method of payment provides incentives for hospitals to serve patients as efficiently as possible, possibly by reducing length of stay and increasing use of skilled nursing facility (SNF) and home health (HHA) care. While increased SNF and H...
I. Introduction
- This report describes a study to measure changes in the pattern of Medicare service use resulting from the implementation of the prospective payment system (PPS) for Medicare hospital reimbursement. Distinct from prior studies which addressed the general Medicare population, our analysis focused on PPS effects on disabled elderly Medicare beneficiaries. Our specific aims w…
II. Background
- Medicare's prospective payment system (PPS) for hospital inpatient care was implemented in October, 1983. Under this system, payment for care is made on a fixed price per case, based on the average cost for a patient in a given Diagnosis Related Group (DRG). This system of payment provides incentives for hospitals to use resources efficiently, but it contains incentives to avoid …
III. Methods
- In the following sections, we describe the data source, the analysis plan and the statistical methods employed in this study.
IV. Results
- This section presents the results of the analyses of the pre- and post-PPS utilization of Medicare services experienced by the noninstitutionalized disabled elderly beneficiaries. The results are presented in five parts. The first part presents a general context of mortality and Medicare service use of the various subgroups of the total Medicare beneficiary population based on the total pop…
v. Discussion
- This report presented results from a study to examine the patterns of Medicare hospital, skilled nursing facility and home health agency services before and after the implementation of the hospital prospective payment system. Unlike other studies assessing PPS effects, our study population focused on disabled, noninstitutionalized. Medicare beneficiaries, and subgroups am…
VI. Conclusions
- The implementation of a prospective, fixed rate payment system for hospitals under Medicare created both a perception that hospital efficiency could be improved and concern that incentives for efficiency could result in adverse consequences for Medicare beneficiaries. Because of the recent introduction of PPS, relatively few evaluation results have been available to study its effe…
References
- Conklin, J.E. and R.L. Houchens. 1987. "PPS Impact on Mortality Rates: Adjustments for Case-Mix Severity." Final Report. HCFA Contract No. 500-85-0015, October 6. DesHarnais, S., E. Kobrinski, J. Chesney, et al. 1987. "The Early Effects of the Prospective Payment System on Inpatient Utilization and the Quality of Care," Inquiry, 24:7-16. Fitzgerald, J.F., L.F. Fagan, W.M. Tierney an…
Appendix A
- In the GOM procedure, a person may be described by more than one continuously varying case-mix dimension. Because of this, GOM is distinct from the classification methodology used to identify the DRG categories or hospital reimbursement by which homogeneous discrete groups are defined in terms of the variation of a single criterion (i.e., charges or length of stay) except w…