Final answer:
The Tax Equity and Fiscal Responsibility Act of 1982 initiated the use of prospective payment systems for Medicare reimbursement, aiming to control costs and improve efficiency by setting fixed payments based on diagnosis-related groups.
Step-by-step explanation:
Medicare reimburses healthcare providers through prospective payment systems as a way to manage costs and resources more effectively. The legislation that initiated prospective payment systems for hospital reimbursement under Medicare is the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA). This act shifted Medicare payments from a retrospective fee-for-service model, where providers were paid after the delivery of service based on costs incurred, to a prospective payment model, where payments are determined in advance and fixed, based on the diagnosis-related group (DRG) to which the patient's case is assigned.
The change to a prospective payment system was driven by the need to control Medicare costs and ensure that the payments made to healthcare providers are consistent and predictable, reducing the risk of moral hazard and adverse selection in the insurance market. By setting predefined payment rates, Medicare could better budget for healthcare expenditures and incentivize efficiency among healthcare providers.