What is a DRG-based prospective payment system, and how does it affect hospital reimbursement?

• A. Fixed lump-sum payment per case based on diagnosis and services; incentivizes cost efficiency because reimbursement is fixed regardless of actual costs.
• B. Per diem payments; variable with length of stay.
• C. Fee-for-service reimbursements; payment depends on services performed.
• D. Capitation payments per patient per month.

Answer: (A)

A DRG-based prospective payment system pays a fixed lump-sum amount for each hospital admission, set in advance based on the diagnosis-related group category. The DRG groups patients with similar diagnoses and expected resource use, and the payment is calculated before care is provided, not after. Because the reimbursement is fixed regardless of the actual services used or the exact costs of the stay, hospitals are incentivized to be efficient and control costs while maintaining quality. If the actual costs are lower than the fixed payment, the hospital benefits; if costs exceed the fixed payment, the hospital absorbs the difference. This differs from per diem payments (which vary with length of stay), fee-for-service (which pays for each service rendered), and capitation (a fixed amount per patient per month regardless of services).