Policy issues related to prospective payment for pediatric hospitalization.

Children's hospitals have been excluded from the Medicare prospective payment system (PPS) because of concerns over the applicability of the DRG case-mix system and PPS payment weights to pediatric hospitalization. Nevertheless, DRG-based payment systems are being adopted by State Medicaid agencies and private third-party payers, and the Health Care Financing Administration has been mandated to report to Congress on the feasibility of including children's hospitals in the Federal PPS. This article summarizes policy research on this issue and discusses options in the design of prospective payment systems for pediatric hospitalization.