Prospective payment system

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A prospective payment system (PPS) is a term used to refer to several payment methodologies where means of determining insurance reimbursement is based on a pre-determined payment, regardless of the intensity of the actual service provided.

It includes a system for paying hospitals based on predetermined prices, from Medicare. Payments are typically based on codes provided on the insurance claim.[1] Examples of these codes include:

The PPS was established by the Center for Medicare and Medicaid Services (CMS) in 1983, specifically to address expensive hospital care. Regardless of services provided, payment was of an established fee. The idea was to encourage hospitals to tame increasingly expensive hospital care.

In 2000, CMS changed the reimbursement system for outpatient care at Federally Qualified Health Centers (FQHCs) to include a prospective payment system for Medicaid and Medicare.[2] Under this system, health centers receive a fixed, per-visit payment for any visit by a patient with Medicaid, regardless of the length or intensity of the visit. The per-visit rate for the Medicaid PPS is specific to the individual health center location. This rate is determined and updated by a financial accounting process conducted by State Medicaid agencies. The FQHC PPS rate for Medicare (previously called the All Inclusive Reimbursement Rate), in contrast, is fixed at the same level across different health centers. [3] [4]

Aside from FQHCs, other entities that provide outpatient services to Medicaid patients, that are also paid by a PPS methodology include:

  • "FQHC look-alikes" (Health centers not receiving a federal grant under section 330 of the Public Health Service Act, but otherwise meet the criteria for FQHC-status.)
  • Indian Health Service Health Centers[5]
  • Rural Health Centers (in some states, like California)[6]

See also[edit]


  1. ^ "Overview Prospective Payment Systems". Centers for Medicare & Medicaid Services. 
  2. ^ Chris Koppen (January 2001). "Understanding the Medicaid Prospective Payment System for Federally Qualified Health Centers (FQHCs)" (PDF). Retrieved 24 December 2014. 
  3. ^ National Association of Community Health Centers. "Medicaid Prospective Payment System". Retrieved 24 December 2014. 
  4. ^ Center for Healthcare Research and Transformation (July 23, 2013). Retrieved 24 December 2014.  Missing or empty |title= (help)
  5. ^ "Indian Health Service Legislation". Retrieved 24 December 2014. 
  6. ^ "Securing additional Medi-Cal payments for Clinics in California". Retrieved 24 December 2014.