All acute care hospital services are reimbursed on a prospective basis using the Diagnosis Related Group (DRG) system. A small portion of hospital services provided in freestanding rehabilitation or long term hospitals, in hospitals which are licensed as HMOs, and in cancer hospitals are paid on a "reasonable cost" basis.
Under the DRG system, hospitals are reimbursed based on the principal diagnosis or condition requiring the hospital admission. The DRG system is designed to classify patients into groups that are clinically coherent with respect to the amount of resources required to treat a patient with a specific diagnosis. Applicable additional payments are added for capital, medical education, and outliers.