medicare used cost-based reimbursement method from 1966 to 1983 to pay US hospitals. What are the...

medicare used cost-based reimbursement method from 1966 to 1983 to pay US hospitals. What are the pros and cons of this reimbursement method?

Expert Solution

Costs that are allowed as per the terms and conditions of medicare are reimbursed to the healthcare providers under cost-based reimbursement. The crucial advantage of such a method is that it assures health care providers of payment for the costs incurred during the course of services provided by them. At the same time the patients are also assured that payment would be made for the care they will be receiving.

Now let us talk about the cons of this reimbursement method. The major disadvantage of cost-based reimbursement is the lack of cost control. If one went to a hospital for a vasectomy, the hospital would pass all individual charges like tests in the laboratory, the room or the nursing care straight to Medicare, and would those get paid. As a result, a steep increase in costs was observed in a few years.

Thus, cost-based reimbursement was discontinued in 1983 and Diagnosis Related Group was introduced where, instead of individual costs, medicare would be paid for particular diagnosis. A particular diagnosis, for example, a vasectomy would have fixed payment. This capped the costs incurred and brought in cost control.

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