What aspect of healthcare payment does the prospective payment system focus on?

The prospective payment system primarily focuses on pre-estimated costs by establishing payment rates in advance for specific categories or types of healthcare services, such as inpatient hospital stays. By setting these rates beforehand, it encourages healthcare providers to operate more efficiently, as they must manage their expenses to stay within the predetermined amounts. This system shifts the financial risk to the provider, who is incentivized to reduce costs without compromising the quality of care.

In contrast to this, retrospective billing evaluates the costs incurred after services are rendered, which does not align with the concept of a prospective payment system. Similarly, cost-based analysis involves reviewing actual costs incurred, rather than utilizing pre-determined payments. Episodic funding refers to payment models that cover a patient's care for a specific episode of illness, but the focus of the prospective payment system is specifically on the pre-estimation of costs for service categories rather than episodic care.