A prospective payment system (PPS) is a term used to refer to several payment methodologies for which means of determining insurance reimbursement is based on a predetermined payment regardless of the intensity of the actual service provided.
It includes a system for paying hospitals based on predetermined prices, from
Medicare. Payments are typically based on codes provided on the insurance claim such as these:
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Diagnosis-related group
Diagnosis-related group (DRG) is a system to classify hospital cases into one of originally 467 groups, with the last group (coded as 470 through v24, 999 thereafter) being "Ungroupable". This system of classification was developed as a collaborat ...
s for hospital inpatient claims
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Ambulatory Payment Classification for hospital outpatient claims
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Current Procedural Terminology for other outpatient claims
The PPS was established by the
Centers for Medicare and Medicaid Services
The Centers for Medicare & Medicaid Services (CMS), is a federal agency within the United States Department of Health and Human Services (HHS) that administers the Medicare program and works in partnership with state governments to administer M ...
(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. The idea was to encourage hospitals to lower their prices for expensive hospital care.
In 2000, CMS changed the reimbursement system for outpatient care at
Federally Qualified Health Centers (FQHCs) to include a prospective payment system for
Medicaid
Medicaid in the United States is a federal and state program that helps with healthcare costs for some people with limited income and resources. Medicaid also offers benefits not normally covered by Medicare, including nursing home care and pers ...
and Medicare.
Under this system, health centers receive a fixed, per-visit payment for any visit by a patient with Medicaid, regardless of the length or intensity of the visit. The per-visit rate for the Medicaid PPS is specific to the individual health center location. The rate is determined and updated by a financial accounting process conducted by State Medicaid agencies. The FQHC PPS rate for Medicare (previously called the All Inclusive Reimbursement Rate), in contrast, is fixed at the same level across different health centers.
Aside from FQHCs, other entities that provide outpatient services to Medicaid patients, that are also paid by a PPS methodology include:
*FQHC look-alikes (
health centers
A healthcare center, health center, or community health center is one of a network of clinics staffed by a group of general practitioners and nurses providing healthcare services to people in a certain area. Typical services covered are family pr ...
not receiving a federal grant under section 330 of the
Public Health Service Act, but that otherwise meet the criteria for FQHC status.)
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Indian Health Service
The Indian Health Service (IHS) is an operating division (OPDIV) within the U.S. Department of Health and Human Services (HHS). IHS is responsible for providing direct medical and public health services to members of federally-recognized Nativ ...
Health Centers
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Rural Health Centers (in some states, like California)
See also
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Medicare Payment Advisory Commission
The Medicare Payment Advisory Commission (MedPAC) is an independent, non-partisan legislative branch agency headquartered in Washington, D.C. MedPAC was established by the Balanced Budget Act of 1997 (P.L. 105–33). The BBA formed MedPAC by merg ...
(MedPAC)
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Accountable care organization
An accountable care organization (ACO) is a healthcare organization that ties provider reimbursements to quality metrics and reductions in the cost of care. ACOs in the United States are formed from a group of coordinated health-care practitione ...
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Medical classification
A medical classification is used to transform descriptions of medical diagnoses or procedures into standardized statistical code in a process known as clinical coding. Diagnosis classifications list diagnosis codes, which are used to track diseas ...
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Community health centers in the United States
The community health center (CHC) in the United States is the dominant model for providing integrated primary care and public health services for the low-income and uninsured, and represents one use of federal grant funding as part of the country ...
References
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Medicare and Medicaid (United States)
Healthcare in the United States