Prospective Payment Systems: 1st Edition (Paperback) book cover

Prospective Payment Systems

1st Edition

By Duane C. Abbey

Productivity Press

219 pages | 4 B/W Illus.

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pub: 2012-02-15
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The third book in the Healthcare Payment Systems series, Prospective Payment Systems examines the various types of prospective payment systems (PPS) used by healthcare providers and third-party payers. Emphasizing the basic elements of PPS, it considers the many variations of payment for hospital inpatient and outpatient services, skilled nursing facilities, home health agencies, long-term hospital care, and rehabilitation facilities along with other providers.

The book describes the anatomy of PPS, including cost reports, adjudication features and processes, relative weights, and payment processes. It outlines the features and documentation requirements for Medicare Severity Diagnosis Related Groups (MS-DRGs), the Medicare Ambulatory Payment Classifications (APCs), Medicare HHPPS, Medicare Skilled Nursing Resource Utilization Groups (RUGs), and private third-party payers.

  • Provides a framework for understanding and analyzing the characteristics of any PPS
  • Discusses Medicare prospective payment systems and approaches
  • Includes specific references to helpful resources, both online and in print
  • Facilitates a clear understanding of the complexities related to PPS—covering specific topics at a high level and revisiting similar topics to reinforce understanding

Complete with a detailed listing of the acronyms most-commonly used in healthcare coding, billing, and reimbursement, the book includes a series of case studies that illustrate key concepts. It concludes with a discussion of the challenges with PPS—including compliance and overpayment issues—to provide you with the real-world understanding needed to make sense of any PPS.

Table of Contents

Introduction to Prospective Payment Systems

Preliminary Comments

Overview of Healthcare Payment Systems

Claims Filing and Payment

Deductibles and Copayments

Overview of Medicare Prospective Payment Systems

Private Third-Party Payer and Prospective Payment Systems

Payment System Interfaces

Healthcare Provider Use of Prospective Payment Systems to Set Charges

Summary and Conclusion

Healthcare Provider Concepts



Non-Physician Practitioners and Providers



Special Hospitals with Specialized Prospective Payment Systems

Hospitals and Integrated Delivery Systems

Special Provider Organizations

DME Suppliers

Skilled Nursing Facilities

Home Health Agencies

Independent Diagnostic Testing Facilities

Comprehensive Outpatient Rehabilitation Facilities

Clinical Laboratories

Ambulatory Surgical Centers

Summary and Conclusion

Anatomy of a Prospective Payment System


Necessary Elements

PPS Coverage

PPS Unit of Service

PPS Classification Systems

Developing Categories or Groups

Determining Payment Amounts

Unusual Circumstances for Additional Payments

Special Incentives/Constraints

Coding for PPSs

Cost Reports

Hospital Chargemasters

Relative Weights

Conversion Factor

Chapter Summary

Medicare Severity Diagnosis Related Groups (MS-DRGs)



Historical Background

MS-DRG Design Features


Unit of Service

Classification System

MS-DRG Categories

MS-DRG Grouping

MS-DRG Relative Weights

Case-Mix Index (CMI)

ICD-10 Coding: The Key for Optimizing MS-DRG Reimbursement

Conversion of M-DRGs to MS-DRGs

Payment Process


Cost Outliers

Special Types and Designations of Hospitals

Documentation Features

Additional Features for MS-DRGs

3-Day Preadmission Window

Post-Acute Care Transfer

Present on Admission (POA)

Updating Process for MS-DRGs

Variations of DRGs

Compliance Considerations

Quality Initiatives and Electronic Health Records

Summary and Conclusion

Ambulatory Payment Classifications (APCs)


Historical Background

Challenges for Hospital Outpatient Prospective Payment

Ambulatory Patient Groups (APGs)

Three-Day Window of Service

Significant Procedure Consolidation

E/M Service Bundling

APC Design and Implementation Parameters

Medicare APC Coverage

Encounter Driven

APC Classification Systems: CPT and HCPCS

CPT Codes and Modifiers

HCPCS Codes and Modifiers

National Correct Coding Initiative (NCCI) Edits

APC Status Indicators (Sis)


Composite APCs


Global Surgical Package (GSP)

Payment under APCs

Special Payment Considerations

APC Grouper/Pricer

Deductibles and Copayments

The Provider-Based Rule

Provider-Based Clinics

Split Billing: 1500 plus UB-04

Establishing Fee Schedules

Billing Privileges

Special Situations

Ambulatory Surgical Centers

Payment System Interfaces for APCs

APCs and the Federal Register Process

Quality Reporting and Compliance for APCs

Summary and Conclusion

Other Prospective Payment Systems


Skilled Nursing Facilities (SNFs)


Classification and Grouping

SNF Payment

SNF Issues

Home Health


Unit of Service/Unit of Payment


Home Health Payment

Long-Term Care Hospitals (LTCHs)


Classification and Grouping for LTCHs


Other Features for the LTCH-PPS

Inpatient Rehabilitation Facilities

Inpatient Psychiatric Facilities (IPFs)

End-Stage Renal Dialysis (ESRD)

Private Third-Party Payer Utilization of PPSs

Summary and Conclusion

Conclusion and Endnote

Appendix A: Case Studies

Chapter 1 Case Studies

Chapter 2 Case Studies

Chapter 3 Case Studies

Chapter 4 Case Studies

Chapter 5 Case Studies

Chapter 6 Case Studies

Appendix B: Acronyms

About the Author

Duane C. Abbey, Ph.D., is a management consultant and president of Abbey & Abbey Consultants Incorporated. Based in Ames, Iowa, Abbey & Abbey specializes in healthcare consulting and related areas. His work in healthcare now spans more than 25 years, earned his graduate degrees at the University of Notre Dame and Iowa State University. Today he spends about half his time developing and teaching workshops (for students who affectionately quip that the Federal Register is his favorite reading material) and making presentations to professional organizations. He devotes the other half to consulting work that involves performing chargemaster reviews and compliance reviews, providing litigation support, and conducting reimbursement studies.

Dr. Abbey also uses his mathematical and financial background to perform assessments, develop complex financial models, and conduct various types of statistical work. His studies in the field of neurolinguistic programming have enhanced his ability to provide organizational communication facilitation services for healthcare organizations. He also provides litigation support services for attorneys representing healthcare providers in legal proceedings.

Dr. Abbey can be contacted by e-mail at

Subject Categories

BISAC Subject Codes/Headings:
BUSINESS & ECONOMICS / Information Management
COMPUTERS / Information Technology