deral government along with a general prospective payment system (PPS), and a system for the selection of providers to deliver health care services funded by the federal government, which is known as the preferred provider organization (PPO) system. DRG is a procedure used in the classification of patient groups. DRG classifications are used in PPS reimbursement determinations. These procedures (DRG) are also used in decision-making related to (1) service access, and (2) in the designation of PPOs, and thus are of great relevance to the application of the managed care concept. The intent of DRG implementation, with respect to provider reimbursement, was to limit the exposure of the federal government for health care funding costs, and control health care delivery costs (Rovner, 1991).
Retrospective reimbursement is the traditional method of settling hospital charges in the United States. The retrospective technique provides for the reimbursement of health care providers on the basis of after-the-fact determinations. Prospective reimbursement, conversely, provides for a pre-negotiated fee for health care services which are to be provided. Variations of the prospective reimbursement technique have been implemented by the federal government, some state governments, and by joint agreement between some third-party insurers and hospitals (Moble & Magnussen, 1998).
Critics of the DRG reimbursement procedure claim that its use will produce some adverse effects. Among the more significant of the adverse effects attributed to the DRG reimbursement procedure are (1) a restriction in the access to health care services for those individuals whose health care is funded by the United States government, (2) a diminution in the quality of the health care services received by many of the individuals for whom the federal government funds health care, and (3) overall increases in the government's health care expenditures (Gosfield, 1994)
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