of quality and cost review was implemented. Before then, reimbursement had been paid on fee-for-service basis (Skinner, 1997). Enforcement procedures included denial of payment for unnecessary care, an intensified review for those providers not meeting a threshold of compliance, and exclusion from Medicare and monetary penalties for failure to meet professionally recognized standards of care quality (Gosfield, 1994).
DRG procedures, with respect to provider reimbursement, were introduced by the federal 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 ...