Which payment model encourages hospitals to reduce the length of stay for patients?

The Diagnosis-Related Groups (DRG) payment model is specifically designed to incentivize hospitals to manage the length of stay for patients. Under the DRG system, hospitals receive a fixed payment based on the patient's diagnosis at the time of admission, which encompasses all services provided during the hospital stay. This method encourages hospitals to efficiently manage resources and discharge patients in a timely manner, as they will not receive additional payment for extended stays that exceed the average length of stay associated with that specific condition.

In contrast, capitation pays healthcare providers a set amount per patient regardless of the number of services provided, which does not directly correlate with the length of hospital stays. Fee-for-Service (FFS) pays providers based on the quantity of services provided, potentially leading to longer stays as more services could equate to increased payments. Pay-for-Performance focuses on various quality metrics but does not inherently encourage shorter hospital stays. Thus, the DRG model is uniquely aligned with the goal of reducing patient length of stay while ensuring that quality of care is maintained.