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A Prospective Payment System (PPS) is a method of reimbursement in which Medicare payment is made based on a predetermined, fixed amount. The payment amount for a particular service is derived based on the classification system of that service (for example, diagnosis-related groups for inpatient hospital services).

A Prospective Payment System (PPS) is a method of reimbursement in which Medicare payment is made based on a predetermined, fixed amount. The payment amount for a particular service is derived based on the classification system of that service (for example, diagnosis-related groups for inpatient hospital services).   
 
Cost Reimbursement system is where a contractor is paid for all of its allowed expenses to a set limit plus additional payment to allow for a profit. It means that an agency has to apply a specific percentage to the actual labor and materials cost to be paid to the contractor. Consequently, such contracts usually involve some financial and technical uncertainty. Though they allow more flexibility in the project execution, some percentage of risk on the project is laid on the agency when a cost plus contract is used. In addition, such a contract requires the agency's constant monitoring of contractor's spending in order to ensure that the funding is being spent adequately and appropriately. 
 
Discounted charge systems are predetermined by the doctor or office staff normally and sometimes done on a sliding scale. The advantage would be that it would attract more patients who do not have insurance and are cash paying only as there is a definite market for this, especially with those who are self-employed. 
 
Flat-rate reimbursement pays a flat rate regardless of the patient's diagnosis and type of treatment that would be most effective.  Companies like United Healthcare, Cigna, and Humana a flat-rate reimbursement of around $45-50 per visit, even though therapy may necessitate 2-3x that per visit (in accordance to the charges of CPT codes).  Some hospitals allow for this type of payment for certain surgeries. For example, a knee replacement may be charged at a flat rate of $4000 per knee. This is assessed from an average of all knee replacements but the patient in the end may be discharged early, for example, because then the hospital makes more profit. Also, if the patient requires an extended length of stay or develops some sort of complication, the hospital and providers will lose money on that particular surgery. 
 


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Unit 2 Individual Project

Deliverable Length: 34 pages

Details: In health care, services are most likely to be provided before a payment has been received, so it is imperative for health care providers to establish a reimbursement system that fits their individualized operational needs.


In a 34-page paper, identify the pros and cons of the following reimbursement methods:


Prospective-payment systems

Cost-reimbursement systems

Discounted-charge systems

Flat-rate reimbursement system

You should consider the following questions in your comparison analysis:


When is each reimbursement system considered the preferred method? What types of providers use each system?

When would be a time or situation when each would be used?

How does each reimbursement system affect the various departments of health care companies and providers?

Will choosing one system over another affect available funding sources?

What other areas/people may be affected by the decision? 



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