This 1984 paper, which summarizes a number of academic publications that raised questions about a 1983 reform to the Medicare payment system, suggests that whether things have gotten better or worse, they certainly have changed. It’s hard to imagine Congress moving so quickly on a health care measure developed behind closed doors.
The Tax Equity and Fiscal Responsibility Act (TEFRA), signed into law September 3, 1982, mandated the development of a prospective payment methodology for Medicare reimbursement to hospitals. Health and Human Services Secretary, Richard Schweiker, submitted a plan in December 1982 based on administration proposals. Draft legislation was quickly appended to the fast-moving and, highly publicized Social Security Amendments of 1983. Few legislators became actively involved, some commentators feel, because attempts to limit funding rarely become popular issues. As a result, provisions of the legislation were largely designed behind the scenes by legislative aides. The Ways and Means Subcommittee on Health finalized and wrote up the bill in one day, February 24. In April, only four months after initial appearance of a PPS [Prospective Payment System] plan, the Social Security Amendments Act of 1983 (Public Law 98-21) was signed into law, with Title VI containing the new Medicare payment system.
The 1983 act changed Medicare reimbursements from a fee-for-service model to a prospective payment system. The former is pretty much what it sounds like: a hospital charges $30,000 for a hip replacement, and Medicare reimburses it $30,000. In the latter, Medicare devises a schedule — $15,000 is a fair price for hip replacements — and hospitals more or less have to like it or lump it (there were exceptions carved out for teaching hospitals, sole community hospitals and other institutions).