The Effects of the DRG-Based Prospective Payment System on Quality of Care for Hospitalized Medicare Patients: Executive Summary
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To control rising health care costs, the federal government, in 1983, established a prospective payment system (PPS) to reimburse hospitals for inhospital care of Medicare patients. PPS changed the way Medicare reimbursed hospitals from a cost or charge basis to a prospectively determined fixed-price system in which hospitals are paid according to the diagnosis-related group (DRG) into which a patient is classified.
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