What describes the prospective payment system in health care?

The prospective payment system in health care is best described by the idea that hospitals receive a fixed sum based on diagnosis-related groups (DRGs). This system was implemented to control rising health care costs and to provide predictable, stable reimbursements for hospitals. Under this model, each diagnosis is assigned a specific payment rate, allowing hospitals to manage their finances more effectively and encouraging them to deliver care more efficiently.

By receiving a predetermined payment for each patient based on their diagnosis, hospitals have an incentive to minimize unnecessary services and manage patient resources wisely, as they benefit from keeping costs below the fixed payment amount. This payment structure contrasts with fee-for-service models where providers are reimbursed based on the volume of services provided, which can lead to more services being delivered than necessary.

Other options describe different aspects of health insurance and payment systems but do not capture the essence of the prospective payment system focused on fixed reimbursements linked to specific diagnoses.