Redistribution of revenues under a prototypical prospective payment system: Characteristics of winners and losers

A variety of prospective payment programs have been implemented over the past decade in attempts to contain the rapidly escalating costs of providing hospital care. Eventually the hospital bills of most Americans are likely to be reimbursed on the basis of preset prices. In this simulation study the most important of the existing cost-containment programs, Medicare's Prospective Payment System, is extended to all hospital patients in order to estimate the revenue redistributions likely to take place as more and more comprehensive prospective rate-setting programs are enacted. After discussion of the methodology and results of the empirical section, the study considers several major policy issues facing the hospital industry and the likely responses by the industry.