Medicare's New Hospital Payment System: Is It Working?

In 1983 Congress changed the way Medicare pays for hospital care. Under the new prospective payment system, hospitals are paid a fixed rate, set in advance, to cover a patient's stay. If costs are less than the fixed rates, the hospital keeps the profit; if the costs are more, it absorbs the loss. From the beginning, prospective payment was recognized as a revolutionary change in Medicare. Congress wanted a system that would make federal expenditures more predictable and controllable, and e...