Prospective Payment System (PPS) and the CMS Ruling to slacken off Hospital Burden

Updated: Jun 16

A Controversial move despite the need for more Transparency, Accountability amid today’s Monopolized Healthcare system

Originally Published by Illumination Curated on Medium

A Prospective Payment System (PPS) is a reimbursement scheme through which Medicare makes payments according to predetermined, fixed rates. A given service is materialized founded on service classification such as diagnosis-related groups for inpatient hospital services.

The Hospital PPS payment system offers reimbursement on predetermined prices from Medicare. Payments typically follow specific codes delivered on the insurance claim, such as current Procedural terminology for outpatient, ambulatory payment classification for a hospital outpatient, and diagnosis-related groups for hospital inpatient claims.

The PPS was initially established by the Centers for Medicare and Medicaid Services (CMS). CMS at the time passed the Social Security Amendments Act of 1983, specifically to address expensive hospital care, where the payment was made based on established fees unrelated to services provided.

Recently a new policy directed by the center for Medicare services (CMS) intends to increase Medicare inpatient prospective payment system rates. the American Hospital Association reports It would do so by a net 2.8% during 2022, compared with 2021. “It would also repeal requirements to report certain payer-negotiated rates” and change the Graduate Medical Education (GME) program and related payments, quality measurement, and value programs.

Prospective Payment System: eliminating Transparency when it is all about just that!

The rule seems to apply to hospitals that take part in meaningful use of electronic health records (EHR) and submit quality measure data.

Expectedly American Hospital Association is excited about CMS’s decision by Stating:

“In addition, we applaud CMS for proposing to extend the add-on payment for new COVID-19 treatments through the year in which the current public health emergency ends. That will help hospitals and health systems continue to treat COVID-19 patients and save lives. We are also pleased CMS is proposing to implement the 1,000 new Medicare-funded medical residency positions added by Congress last year.

We look forward to reviewing this proposal in more detail. The AHA has long advocated for increasing the number of Medicare-funded residency slots to help ease current physician shortages and bolster the foundation of our health care system.

“Finally, we are heartened CMS recognizes the COVID-19 pandemic has resulted in non-representative performance in its hospital quality measurement and value programs, requiring temporary policy adjustments. We will work with the agency to ensure its finalized policies assess hospitals fairly and transparently.”

CMS is also contemplating rebasing and revising the hospital market baskets for acute care settings, bring up-to-date the labor-related share, and providing the market basket update to the rate-of-increase limits for some hospitals excluded from the IPPS. It also propositions to rescind the requirement that hospitals disclose privately negotiated contract terms with payers on the Medicare cost report.

A prospective payment system (PPS) is a reimbursement method that determines insurance reimbursement based on a predetermined payment irrespective of the intensity of the actual service. Thus, such a methodology requires “full transparency” in the process of medical service delivery. After all, what would a solution be good for if we intend to set pricing level based on retrospect without full disclosure of the private and non-private payer negotiations and repeal certain transparencies on negotiated rates?

The idea of implementing a prospective payment system was to encourage hospitals to lower their prices for expensive hospital care. It never succeeded!

Today, paradoxically, we are revisiting the transparency and motivation of covert monopoly between the American Hospital Association (AHA) and a government entity.

AHA has contributed in various ways to increase hospital and healthcare costs in general. It has done so through vigorous lobbying practice. Although AHA showed concern for having the funds for medical care in the picture, it lobbied against Medicare for All proposals. It also opposed free care to low-income people who lack medical insurance, filed lawsuits to stop the U.S. government from requiring that hospitals make their prices public.

In the recent decade, Hospital consolidation supported by AHA has been contributing to higher costs, and a new report says it’s also likely a significant cause of an overall decline in health care quality. In fact, in 2019 alone, 8,000 medical practices were acquired by hospitals in 18 months. According to a report in The New England Journal of Medicine shows hospital acquisition practices were associated with lower patient experiences and no significant changes in hospital readmission or mortality rates.

Now, let us take into account, in 2000, CMS also extended the prospective payment system for Federally Qualified Health Centers (FQHCs) outpatient care. Under the scheme, medical facilities would receive a fixed, per-visit payment for any visit by a patient with Medicaid, notwithstanding the length or intensity of the stay. Under the prevailing hospital system consolidation structure, it seems that simple transparency would suffice to keep healthcare costs low given the lack of competition, yet still did not! However, now with the wavier of openness based on unclear criteria, that is a far-fetched ambition.

Eliminating Transparency on Negotiated Rates amid Hospital Consolidation practice is the nidus of Monopoly

The prediction of the controversiality of PPS goes back as far as 1991. It was pertaining, a review of the indicated concerns accompanying the implementation of the program. Those included the effects of the declining generosity of PPS rates, understanding the behavior of hospitals and the medical community, creating equitable adjustments to behavior across the program’s providers, pursuing improvements in the quality of care. But nothing is as severe as the impact of consolidation efforts by the big players.

Hospital consolidation has an exclusive impact on the healthcare system. Nonetheless, the commercial health insurance industry and related healthcare sectors also profoundly affect healthcare costs, quality, and accessibility for patients. Focusing exclusively on hospital consolidation and PPS conveniently ignores the outsize effect of commercial insurance market consolidation. Undeniably, that commercial health insurance markets themselves are consolidated.

Commercial health plans have a long history of little bargaining power when they negotiate prices with monopolistic providers. Insurers favorably adapt to this non-competitive environment, such as consolidated hospital systems utilizing PPS methodology. Sometimes they resort to collusion, like the case with Partners Health, in 2013, where a more extensive medical group and hospitals entered into an ethically dubious arrangement with Massachusetts Blue Cross, as the Boston Globe reported in 2009. That marked the start o