DRG-based prospective payment: what does the future hold?

This article addresses the future of the diagnosis-related group-based prospective payment system currently used by the Health Care Financing Administration to pay hospitals for care of Medicare patients. Criticisms of the present system are discussed from the standpoint of the quality of the classification system itself, the process by which rates are set using it, and the behavior of providers as a result of the system. Based upon this discussion, the conclusion is reached that it is unlikely that extensions of case-mix based payment for physicians' care and for other non-hospital-based services are feasible. Capitation is an alternative payment mechanism, already in place in some settings and proving increasingly popular.