Prospective payment systems are seen as an alternative to retrospective payment systems. Retrospective payment systems suppose that insurance companies pay healthcare providers based on their actual charges (Harrington, 2020). The most common type of retrospective payment systems is fee-for-service plans, in which the hospital provided a detailed bill based on the actual treatment and diagnostic procedures provided to patients. The central problem with the retrospective payment system is that all stakeholders cannot predict how much money will be spent or reimbursed. Prospective payment systems provide an opportunity for insurance companies to have control over how much money care providers receive. At the same time, hospitals and other healthcare facilities can receive money in advance and plan their budgets accordingly.
There are two basic types of prospective payment systems: capitation and diagnostic-related groups (DRGs). Capitation is the most straightforward reimbursement system, as hospitals receive fixed reimbursement per patient associated with the hospital. For operations, this method means easier book-keeping and increased attention to preventive care, as it is of best interest to care providers to reduce the number of visits to the hospital (Harrington, 2020). However, the utilization of the method often leads to decreased quality and access to care. DRGs classify cases according to principle diagnosis, secondary diagnoses, surgical procedures performed, comorbidities and complications, age and sex of the patient, and discharge status (Harrington, 2020). After classifying each case, insurance companies reimburse a fixed amount of money based on the classification. DRGs make operations management complicated, as hospitals need to provide optimal care with minimal readmission and hospital-acquired diseases. Thus, even though DRGs make book-keeping complicated, it helps to make operations more cost-efficient.
References
Harrington, M. K. (2020). Health care finance and the mechanics of insurance and reimbursement. Jones & Bartlett Learning.