Cost-Based Reimbursement and Prospective Payment: Reassessing the Incentives

Prospective payment is distinguished from the imposition of a regulatory ceiling on hospital costs. While a regulatory ceiling could potentially be effective in controlling expenditure growth, its success depends upon the political climate. Prospective payment, as a distinct financial policy, offers little cost-containment potential. It is more appropriately evaluated in terms of its effects on the distribution of risk between providers and third parties and on the trade-off between investment and current consumption.