Prospective Payment System (PPS)
Prospective Payment System (PPS) is a method where Medicare or Medicaid pays a predetermined per-encounter or per-episode rate for healthcare services, rather than fee-for-service per individual code billed.
Definition.
PPS is the payment chassis underneath FQHC Medicaid billing, FQHC Medicare billing (separate rate methodology), hospital inpatient (DRG-based PPS), skilled nursing (PDPM-based PPS), and home health (PDGM-based PPS). The defining feature: payment is set in advance based on type of service, not based on individual line-item charges.
Key points.
FQHC Medicaid PPS
Each face-to-face visit with a qualifying FQHC provider triggers a single PPS encounter payment, set annually by the state. Charges on the claim are essentially irrelevant to payment. Rate calculated using base year cost plus annual MEI inflation.
FQHC Medicare PPS
Separate from Medicaid PPS. CMS sets a national FQHC PPS base rate, adjusted by geographic area. Carve-outs exist for Annual Wellness Visit, Chronic Care Management, and Behavioral Health Integration codes that bill FFS alongside PPS.
Hospital inpatient PPS (IPPS)
Inpatient stays paid at a DRG-based rate calculated from clinical condition severity, comorbidities, and procedures. Length of stay does not determine payment; DRG assignment does.
SNF PPS (PDPM)
Patient-Driven Payment Model rates skilled nursing payment based on patient characteristics and clinical needs, with case-mix groups across five components (PT, OT, SLP, nursing, NTA).
Home health PPS (PDGM)
Patient-Driven Groupings Model pays 30-day episodes based on admission source, episode timing, clinical grouping, functional impairment level, and comorbidity adjustment.
Why PPS matters for RCM
Standard fee-for-service RCM metrics (GCR, denial rate by code) misread performance under PPS. Different denominators, different leverage points. PPS-aware RCM measures realization against rate letters, not charges.