With the Prospective Payment System, how is hospital reimbursement for inpatients, with the exception of critical access hospitals, determined?

In the Prospective Payment System (PPS), hospital reimbursement for inpatients is determined prospectively, meaning that the payment amount is established in advance based on predetermined criteria before the services are provided. This system is designed to create a predictable payment framework for hospitals by setting fixed rates for various diagnoses and treatments.

Under PPS, the reimbursement is tied to the Diagnosis Related Groups (DRGs), which classify hospital cases into categories that exhibit similar hospital resource use. This means that hospitals know the payment they will receive for a patient’s care ahead of time, rather than receiving payments based on the actual costs incurred after services are delivered.

This prospective approach incentivizes hospitals to provide care efficiently and effectively since they have to manage their resources within the fixed payment amount predetermined by the DRG classifications. Thus, the correct answer emphasizes the forward-looking nature of the payment determination in the context of the Prospective Payment System.