Healthcare Prospective Payment System Case Study

After World War II the US found its healthcare infrastructure insufficient to handle the growing population and diminishing hospital infrastructure. Senators Hill and Burton along with President Truman worked together to pass the Hospital Survey and Construction Act, or the Hill-Burton Act of 1946. The Act was the federal governments entrance into the field of planning for needed health care resources (Paschall, 2007) and played one of the largest and most important roles in hospital expansion in United States history (Shi and Singh, 2012). The law introduced state and local matching funds with startup funds being offered by the Federal Government. When expenditures ended under the act, the federal government had assisted in financing

In 1974, Congress passed the Health Planning Resources Development Act (P.L. 93-641) which had an emphasis on cost containment and mandated States adopt Certificate of Need (CON) laws. During this era, as the legislators attempted to control costs, the money began to disappear, and the number of hospitals started to decline. The CDC reports that the total number of hospitals decreased by 191 between 1975 and 1980. To further control costs, in 1983 the Medicare payment structure shifted from a cost based system of reimbursement to a Prospective Payment System (PPS) reimbursement methodology. CMS explains that the PPS method calculates Medicare reimbursement based on a predetermined, fixed amount which is for a service and derived using a classification system. Frymark (2003) shared clinicians, working in settings where PPS was applied, reported staffing cutbacks, and greater productivity demands and lower outcomes due to cost

The contraction of hospitals was not stopped immediately but several key legislative events occurred in the 1990's that would positively impact hospitals in the future. In 1996 the Health Insurance Portability and Accountability Act (HIPAA) was signed into law restricting use of pre-existing conditions in coverage determinations, and created favorable tax treatment for long-term care insurance. In 1997, the Balanced Budget Act expanded coverage of low-income children, and allowed states to cover working disabled with incomes up to 250% of poverty levels. Relaxation of restrictions on Medicaid eligibly continued into the administration of George W. Bush which significantly expand the number of community health centers (Kaiser, n/d). The changes in the late 1990's and 2000's were good for hospital spending. Wu et al. (2014) found a rapid rise in growth of hospital spending between 2001 and 2009 which was mostly driven by higher payment. While spending increased, overall, hospitals continued to contract slightly. During the period 2000-2009, the number of hospitals declined by 15