Prospective Payment System

Prospective Payment System

Prospective Payment System- In order to change hospital behavior to encourage more efficient management of medical care, Medicare introduced hospital inpatient prospective payment in 1983. Using a system that was developed in the 1970s by Yale University, reimbursement to hospitals was based on diagnosis-related groups (DRGs). Data already appearing on the claim form are used to assign each patient discharge into a DRG: Examples are Principal diagnosis, Complications and comorbidities (CCs), Surgical procedures, Age, Gender, and Discharge disposition (died, transferred, went home). Once a DRG has been assigned, the determination of the reimbursement amount can start. Each DRG has a relative weight assigned to it. Patients in a given DRG are assumed to have similar conditions, receive similar services, and use similar amounts of hospital resources. The prospective payment system is based on paying the average cost to treat patients in that DRG. The DRG weights are adjusted annually. The more complex the DRG, the higher the weight.

2) Explain medical necessity and how it impacts payment- To determine medical necessity, it involves comparing the procedure being billed to the diagnosis submitted. If you receive a denial notice from the payer that the procedure was “not medically necessary”, it means that your payer does not think the procedure or test was justified for the diagnosis given. Medicare carriers publish what are known as “Local Coverage Determinations” (LCDs) that contain lists of diagnosis codes that validate procedures. If your diagnosis is not on the list, your claim will be rejected. If the provider of the service knows in advance that a service is likely to be deemed not medically necessary, he or she can ask the patient to sign an Advance Beneficiary Notice (ABN) in which the patient acknowledges the possibility the claim will not be paid and agrees to be financially liable for the charge.

3) What has been the effect of payment methods on coding? Medical billing procedures have been much more effective since the advent of the CPT medical coding system. Developed by the AMA, the CPT system was designed to help facilitate and standardize medical billing practices. The coding system consists of alpha-numerical codes which are designated to describe the various services and treatments a doctor or medical facility performs on their patients. These codes are entered into a database system which is used for billing insurance companies, Medicare and Medicaid. Through the use of this billing system, medical professionals are better able to keep track of their financial records and receipt of their medical payments(findacode.com).

Aalseth, P. (2015). Medical Coding. What It Is and How It Works. Second Edition. Burlington, MA. Jones & Bartlett Learning

https://www.findacode.com/articles/the-impact-of-coding-system-on-medical-billing