Prospective and retrospective payment systems are two different approaches used by healthcare payers to reimburse healthcare providers for the services they provide.
A prospective payment system is a payment method in which the payer establishes a predetermined rate or fee for a specific healthcare service or procedure. This rate is established in advance and is based on factors such as the type of service provided, the geographic location of the provider, and the payer’s own policies and guidelines. Examples of prospective payment systems include the Medicare prospective payment system, which sets predetermined payment rates for hospital services based on the patient’s diagnosis.
In contrast, a retrospective payment system is a payment method in which the payer reimburses the healthcare provider after the services have been provided, based on the actual costs of the services provided. Under a retrospective payment system, healthcare providers are typically paid on a fee-for-service basis, with the payer reimbursing the provider for the actual cost of each service or procedure. Examples of retrospective payment systems include traditional fee-for-service payment models.
The key difference between prospective and retrospective payment systems is the timing of the payment. With a prospective payment system, the payment rate is established in advance, before the services are provided, while with a retrospective payment system, the payment is made after the services have been provided, based on the actual costs incurred.
Prospective payment systems are often used to encourage healthcare providers to be more efficient and cost-effective in their delivery of care, as providers receive a fixed payment rate for each service provided regardless of the actual costs incurred. Retrospective payment systems, on the other hand, can incentivize providers to provide more services or to perform more expensive procedures, as they are reimbursed for the actual cost of each service.
Overall, both prospective and retrospective payment systems have advantages and disadvantages, and the choice of payment system used by a healthcare payer depends on a variety of factors, including the payer’s goals, the type of healthcare services being provided, and the healthcare market in which the payer operates.