Prospective pay refers to which type of Medicare reimbursement?

• A. Fixed payment based on DRG categorization of diagnosis, treatment, and length of stay.
• B. Fee-for-service payment per service provided
• C. Capitated payment per patient per month
• D. Payment based on hospital size and location

Answer: (A)

Prospective payment is a system where Medicare sets a fixed payment in advance for an inpatient stay. The amount is determined by the Diagnosis Related Group (DRG) category, which groups similar diagnoses and procedures that are expected to cost about the same. Once the DRG is assigned, the hospital receives a fixed payment for that admission, regardless of the actual services provided or the length of stay. This creates an incentive for hospitals to be efficient because costs that come in under the fixed DRG payment improve margins.

This is different from fee-for-service, where payment is made for each individual service performed; different from capitation, which pays a set amount per patient each month regardless of services used; and not based on hospital size or location. The DRG-based fixed payment is the hallmark of Medicare’s prospective payment system for inpatient care.