On what is the Medicare payment system primarily based?

The Medicare payment system is primarily based on the Prospective Payment System (PPS), which was established to control healthcare spending by providing predetermined rates for services. Under PPS, healthcare providers receive a fixed amount for a particular service or treatment based on the diagnosis-related group (DRG) classification, regardless of the actual costs incurred. This approach incentivizes efficiency and cost control, as providers are encouraged to deliver care within the confines of the fixed payment.

This system contrasts with fee-for-service reimbursement, where providers are paid for each service rendered, regardless of outcome or efficiency. Capitation, another payment model, involves a set payment for each patient regardless of the number of services used, focusing on preventive care. Retrospective payment methods assess costs after services are delivered and may lead to unpredictability and higher spending, making them less desirable in controlling overall costs in Medicare.

Thus, while other systems exist, the PPS framework is central to how Medicare structures its reimbursements, reflecting its focus on efficiency and budgeting in the management of healthcare services.