A prospective payment system uses the _____ system of classifying patients' illnesses according to treatment requirements for the purpose of establishing payment rates.

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DRG stands for Diagnosis Related Group, which is a system used by Medicare to classify patients based on their diagnosis and treatment. The purpose of DRG is to establish payment rates for healthcare providers under a prospective payment system. This system groups patients with similar diagnoses and treatment requirements together and assigns a fixed payment amount for their care, regardless of the actual cost incurred by the hospital. The use of DRG is meant to incentivize efficiency and reduce unnecessary hospital stays or services. HMO and PPO are types of insurance plans, and outpatient is a type of care that does not require an overnight hospital stay.

A Prospective Payment System Uses the _____ System of Classifying