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Milbank Q. 1988;66(2):191-220.

Effects of the Medicare prospective payment system on hospital cost containment: an early appraisal.

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  • 1Vanderbilt University.


In 1983 federal efforts to contain hospital costs were coalesced under the Medicare prospective payment system (PPS)--a "self-interest" approach to administered prices. Diagnosis-related groups (DRGs) and the tougher peer review organizations (PROs) serve to define "products"; PPS sets the price on each. The effects of PPS go beyond Medicare; they have been system-wide. Differential impacts on hospital utilization, substitution of capital for labor, and quality are examined through a variety of data sources and descriptive as well as regression analyses. The greatest cost savings are attributed to a reduction in hospital admissions per capita.

[PubMed - indexed for MEDLINE]
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