Prospective Payment Plan vs. Retrospective

There are two competing schools of thought regarding payment plans for health care: prospective and retrospective. Many health providers, including state-provided health care providers, have converted from retrospective to prospective payment plans. While this move has been advantageous in some ways, there have also been unintended detrimental consequences.

Prospective Payment Plan

Prospective payment plans assign a fixed payment rate to specific treatments based on predetermined factors. These payment rates may be adjusted periodically to account for inflation, cost of living in certain regions or other large scale economic factors -- but not to accommodate individual patients. Each health-care provider receives the same payment for each treatment of the same type. Multiple treatments of the same type receive multiple payments, however, each payment amount remains the same. Cases that require multiple treatments are segmented so that each treatment is assigned the corresponding payment rate.

Retrospective Payment Plan

Retrospective payment plans provide payment to health-care providers based on their actual charges. Under a retrospective payment plan, a health-care provider treats a patient and submits an itemized bill to the insurance provider describing the services provided. The insurance provider may approve or deny payment for specific services or for the entire bill. However, the customary procedure is that the health care provider receives payment for the full amount specified on the submitted bill without dispute from the insurance company.

Advantages of Prospective Payment Plans

Along with the rise of managed care in the health-care field for private health-care providers, Medicaid programs in many states have converted from a retrospective payment plan to a prospective one. The fixed rates associated with a prospective payment plan have made calculating expenditures more predictable. The move has also resulted in significant savings for many insurance companies. Some of these companies pass the benefits to consumers in the form of lower premiums and co-pays.

Prospective Payment Plan Drawbacks

Prospective payment plans provide an incentive for health-care providers to treat a higher volume of patients to realize the greatest possible revenue and profit margin. Prospective payment plans may also encourage health-care providers to cut corners or employ other means to cut costs. These cost-cutting measures do not account for quality of care for patients. Additionally, physicians have reduced latitude to determine the type and amount of care their patients receive.