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National Information Center on Health Services Research and Health Care Technology (NICHSR)

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Introduction to Health Services Research : A Self-Study Course

Case 3. Medicare Reimbursement Reforms (Page 2 of 37)

Overview and Background

Medicare reimbursement continues to be a big ticket government spending item. When the fee-for-service method of payment changed in the early 1980s to a Prospective Payment System (PPS) in an attempt to minimize the rising costs of health care, the health care system adjusted in several ways.

Length of stay was reduced; more health care was provided by nurse practitioners and physician assistants and related allied health care providers; costs were cut in a number of ways including reducing management, moving certain kinds of care to the ambulatory care setting, and by forcing health care providers to become more efficient through physician credentialing. In addition, costs were shifted from those who could not pay to those who could (cost shifting). Services such as Emergency Departments might be closed. Ambulances might be rerouted to other hospitals or care denied to walk-ins.

We might be concerned and want to ask if DRGs and the Prospective Payment System are working as it should; i.e., to be cost effective and yet providing quality services.

In 1995, Iglehart wrote an article in the New England Journal of Medicine titled, "Health policy report: Medicaid and managed care," that described the problems mentioned above in more detail (Iglehart, 1995).

More on PPS in Module 2.

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