Evaluating financial risk in the Medicare Prospective Payment System

Evaluating financial risk in the Medicare Prospective Payment System

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Article ID: iaor20002180
Country: United States
Volume: 45
Issue: 3
Start Page Number: 316
End Page Number: 329
Publication Date: Mar 1999
Journal: Management Science
Authors: ,
Keywords: government, risk
Abstract:

The Medicare Prospective Payment System (PPS) is analogous to an insurance scheme in which financial risk is mitigated through experience rating. In addition, risk is also mitigated through reinsurance provisions. Although a provider may not want this reinsurance, participation is mandatory. We develop a framework for evaluating financial risk under the PPS. We use this framework to examine optional reinsurance as an alternative risk mitigation mechanism. We illustrate an application of optional reinsurance using data for Medicare psychiatric inpatient services. Our analysis indicates that viable schemes exist for implementing optional reinsurance as a prospective payment option.

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