explain why the prospective payment system enacted by the institution of DRG pay

Question

explain why the prospective payment system enacted by the institution of DRG payments was intended to reduce cost escalation in hospitals. what system did it replace? explain why the prospective payment system enacted by the institution of DRG payments was intended to reduce cost escalation in hospitals. what system did it replace? explain why the prospective payment system enacted by the institution of DRG payments was intended to reduce cost escalation in hospitals. what system did it replace?

Explanation / Answer

Prior to the prospective payment system, a "retrospective costbased reimbursement system" existed. Under this sytem, the Medicare paid hospitals based on the intensity of the service provided. This system incentivized hospitals to provide unnecessary and wasteful services. This also led to rise in medicare cost. To solve this problem, the prospective payment system was enacted. Under the prospective payment system, a flat rate was decided to be paid for each service provided.

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