Limits the amount paid to hospitals that are reimbursed by Medicare; uses diagnosis related groups (DRGs) to establish pretreatment diagnosis billing categories.

• A. Prospective payment system
• B. Private Insurance
• C. Medicare
• D. Managed Care

Answer: (A)

The concept here is a payment approach that sets hospital reimbursement in advance based on diagnosis groups. It uses diagnosis-related groups to categorize inpatient cases and assigns a fixed payment amount for each group before care is delivered. Because the payment is predetermined, the hospital receives the same amount for a given DRG regardless of the actual services or costs incurred during the stay. This promotes cost containment and shifts some financial risk to the hospital, encouraging efficiency in resource use. Medicare adopted this system to standardize payments and control inpatient costs, making the process prospective rather than reimbursement after the fact.

Private Insurance and Managed Care involve payer types and delivery models that may use a variety of reimbursement methods, not necessarily DRG-based fixed payments. Simply referring to Medicare describes the payer, not the payment mechanism.