A framework for analyzing prospective payment system rate-increase factors

Section 1886(e)(4) of the Social Security Act requires the Secretary of the Department of Health and Human Services to update the rates of individual diagnosis-related groups under the prospective payment system beginning in fiscal year 1986, taking into account the recommendations of the Prospective Payment Assessment Commission (1985a and b). Section 1886(e)(4) of the Act reads as follows: "(4) Taking into consideration the recommendations of the Commission [that is, the Prospective Payment Assessment Commission, or ProPAC] the Secretary shall determine for each fiscal year [beginning with fiscal year 1986] the percentage change which will apply for the purposes of this section as the applicable percentage increase (otherwise described in subsection (b)(3)(B)) for discharges in that fiscal year, and which will take into account amounts necessary for the efficient and effective delivery of medically appropriate and necessary care of high quality." As prescribed by Section 1886(e)(2) of the Act, the Commission, in making its recommendations to the Secretary, "shall take into account changes in the hospital market-basket described in subsection (b)(3)(B), hospital productivity, technological and scientific advances, the quality of health care provided in hospitals (including the quality and skill level of professional nursing required to maintain quality care), and long-term cost effectiveness in the provision of inpatient hospital services."