Financial Regulations in Healthcare

Since the hospital prospective payment system ("PPS") was introduced in the mid-1980s, hospitals have been trying to develop a means by which they can align their financial incentives with those of their physicians. PPS limits hospitals to a fixed reimbursement amount based on diagnosis, with some adjustment based on the resources used by the patients under certain limited circumstances. However, physicians remain reimbursed based on a fee schedule, so that the more they do, the more they get paid. Therefore, physicians do not have the same incentives to limit costs for treatment that hosp…