Prospective Payment for Medicare Posthospital Services

Some Empirical Considerations

by C. Richard Neu, Scott Harrison

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Since the implementation of the prospective payment system (PPS) for Medicare hospital services, attention has turned to extending the principle of prospective payment to posthospital care provided by skilled nursing facilities and home health agencies. The aim behind this extension of the prospective payment system is to provide a financial incentive for the efficient management of an entire episode of patient care — hospital and posthospital. Whether an extended PPS is feasible and whether it would provide the hoped-for benefits can be assessed only through a demonstration of the proposed system. This report details some preliminary analysis of existing data needed to refine the design of the demonstration, to set payment rates for the demonstration, and to make sure that neither a demonstration nor a fully implemented extended PPS will expose beneficiaries or providers to unacceptable risks. An earlier RAND report, R-3335, describes in detail how an extended PPS would operate and how a demonstration would be structured.

This report is part of the RAND Corporation Report series. The report was a product of the RAND Corporation from 1948 to 1993 that represented the principal publication documenting and transmitting RAND's major research findings and final research.

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