Prospective Reimbursement Details

A Prospective Reimbursement, more widely known as the Prospective Payment System (PPS), is a payment procedure installed in 1983 by the US government. Under PPS, healthcare agencies that are a part of Medicare and Medicaid are reimbursed. The payments are based on a previously established amount, and this settled reimbursement sum for a specific medical service is grounded on the operating expenses regarding a patient’s diagnosis.

The Centers for Medicare & Medicaid Services (CMS) have several Prospective Reimbursement (or Prospective Payment Systems) strategies to reimburse home health agencies, long-term care hospitals, outpatient hospitals, acute inpatient hospitals, hospice, inpatient rehabilitation facilities, skilled nursing facilities, and inpatient psychiatric facilities. Each of these providers and agencies has to follow its own set of rules to obtain reimbursement.

The prospective reimbursement, or prospective payment system (PPS), was created with the main goal of encouraging providers to institute excellent patient care without overcharging accessible resources. As the providers know how much money they will be reimbursed, they are aware if they will make or lose money with a patient. The PPS encourages quicker and higher quality patient care, diagnosis, and treatment—consequently saving costs by keeping a patient for a shorter period at the hospital.

Example of Prospective Reimbursement

As the Prospective Reimbursement or PPS involves multiple providers and agencies, each one has a list of rules it needs to follow to be reimbursed by the Prospective Payment System (PPS). Below are two examples of how these payments work:

Acute Inpatient Hospitals

In acute inpatient hospitals, the prospective payment system is the Diagnosis-Related Group (DRG). This patient categorization plan supplies a method of connecting the type of patient hospital care to the expenses acquired by the hospital. The DRG payment is per stay, and the total sum to be reimbursed is established on the respective weight of the Diagnosis-Related Group. If a patient stays longer than usual at the hospital, the latter can receive an additional sum.

Outpatient Hospitals

For the reimbursement of outpatient hospitals, its prospective payment system is the Ambulatory Payment Classification System (APC). Covered under this category are ER visits, ambulatory surgery, hospital-based clinics, and observation. The payment ratio is established by services categories that are comparable in expense and resource usage.

Prospective Reimbursement vs. Retrospective Reimbursement

As mentioned above, a prospective reimbursement is a type of payment based on an established, settled amount. This amount is decided according to the operating expenses of a patient’s diagnosis. Prospective reimbursement was created to stimulate providers and agencies to install excellent patient care without overcharging accessible assets.

On the other hand, a retrospective reimbursement, or retrospective payment plan, reimburses healthcare providers according to their current costs. In this kind of payment, the provider/agency takes care of the patient and submits a detailed expenses report with the total treatment bill to an insurance company. The company will then examine the documents, approving or rejecting its total payment or only a share of it. On most occasions, the healthcare providers receive the full amount of the costs they had regarding a patient.