March 19, 2023

How Was the Medicare Payment System Designed to Curb Escalating Health Care Costs?

how was the medicare pps system designed to curb escalating health care costs

How was the medicare pps system designed to curb escalating health care costs?

Promoters of the program envisioned that payment reductions would be matched by lower levels of spending, through reduced lengths of stay (LOS), lower intensity of care during hospital stays, and more efficient hospital operations. Skeptics of the policy feared that hospitals might not be able to withstand the financial risks of reducing LOS and intensity, and that such reductions might compromise patient care.

Compared with historical norms, the introduction of PPS is associated with a brief, but large, decline in average LOS for Medicare patients; it then stabilizes or increases slightly. Moreover, readmission statistics have generally not increased under PPS (Prospective Payment Assessment Commission, 1990a; DesHarnais and Chesney, 1988; Guterman et al., 1988).

There are a number of ways in which hospitals can reduce their expenditures on each individual admission under PPS, including lowering the length of stay and increasing the intensity of care. These reductions can be achieved through fewer laboratory and other tests, therapeutic procedures, medications, days of intensive care unit (ICU) and coronary care unit (CCU) utilization, more intensive Part B physician resources, or other cost-reducing strategies. Among the most cost-effective of these strategies is to reduce the intensity of care. The key is to identify a cost-effective LOS reduction strategy and then select it for implementation. This may involve developing a comprehensive treatment plan that identifies and systematically pursues all eminently cost-effective LOS-reducing alternatives.


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