Prospective Payment Plan vs. Retrospective Payment Plan

By Markets Fool.com

In the U.S., cost tends to play a role in the way patients receive medical care. There are two primary types of payment plans in our healthcare system: prospective and retrospective. Each option comes with its own set of benefits and drawbacks.

Continue Reading Below

Prospective payment plans
Prospective payment plans work by assigning a fixed payment rate to specific treatments. While these rates might change over time because of factors such as inflation, they are not adjusted to accommodate individual patients. Under a prospective payment plan, a healthcare provider will always receive the same payment for providing the same specific type of treatment.

Prospective payment plans have a number of benefits. Because these plans pay fixed rates, providers and insurers can better manage and estimate costs and payments. Prospective payment plans also have the potential to save insurance companies money, and when that happens, some of those savings may be passed on to patients in the form of lower annual premiums and copayments. Additionally, prospective payment plans tend to motivate providers to deliver the most efficient care possible.

Prospective payment plans also come with drawbacks. Because providers only receive fixed rates, some might seek to employ cost-cutting measures to maximize profits while not necessarily keeping their patients' best interests in mind. Because providers receive the same payment regardless of quality of care, some might be moved to offer less thorough and less personalized service.

Retrospective payment plans
Retrospective payment plans pay healthcare providers based on their actual charges. With a retrospective payment plan, a provider will treat a patient and submit an itemized bill to an insurance company detailing the services rendered. The insurance company, in turn, may approve or deny payment for the treatment or portions thereof, but healthcare providers generally get paid in full for the amounts they bill.

The primary benefit of retrospective payment plans is that they may allow patients to receive more attentive. Because providers aren't limited to approved treatment plans, they can adjust their services to meet individual patients' needs.

Continue Reading Below

On the other hand, retrospective payment plans come with certain drawbacks. Some fear that providers might try to abuse the carte blanche nature of these plans by recommending treatments or services that are more complicated and costly than necessary in order to maximize profits. This not only subjects patients to prolonged and potentially unnecessary treatment, but also puts a strain on healthcare system resources, driving up costs for patients and insurance companies.

This article ispartofTheMotleyFool'sKnowledgeCenter, which was created based onthecollected wisdom of a fantastic community of investors based intheFoolsaurus. Pop on over there to learn more about our Wiki andhow you can be involvedin helpingtheworld invest, better! If you see any issues with this page, please email us atknowledgecenter@fool.com. Thanks -- andFoolon!

The article Prospective Payment Plan vs. Retrospective Payment Plan originally appeared on Fool.com.

Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.