The Medicare Social Security Amendment of 1983 established which payment system?

The Medicare Social Security Amendment of 1983 established which payment system?

• A. Capitation payments
• B. Fee-for-service model
• C. Prospective payment system based on DRGs
• D. Bundled payments

Answer: (C)

Prospective payment system based on diagnosis-related groups. The 1983 Medicare amendments changed how inpatient hospital care was paid by giving hospitals a fixed, pre-determined payment for each admission, with the amount set by the diagnosis-related group category rather than the actual services billed. DRGs group similar clinical conditions and expected resource use, so each group has a standard payment. This creates an incentive for efficiency, since costs above the fixed payment reduce the hospital’s margin and cost savings come from reducing unnecessary services or length of stay. Before this, reimbursement was retrospective and tied to the services provided (fee-for-service). Capitation and bundled payments are different concepts that were developed in other contexts or later reforms.

Prospective payment system based on diagnosis-related groups. The 1983 Medicare amendments changed how inpatient hospital care was paid by giving hospitals a fixed, pre-determined payment for each admission, with the amount set by the diagnosis-related group category rather than the actual services billed. DRGs group similar clinical conditions and expected resource use, so each group has a standard payment. This creates an incentive for efficiency, since costs above the fixed payment reduce the hospital’s margin and cost savings come from reducing unnecessary services or length of stay. Before this, reimbursement was retrospective and tied to the services provided (fee-for-service). Capitation and bundled payments are different concepts that were developed in other contexts or later reforms.