Final answer:
The Home Health Prospective Payment System was established to create a more efficient payment method for home health services, countering issues of adverse selection and moral hazard, and to prevent increasing costs and overutilization in health care.
Step-by-step explanation:
The Home Health Prospective Payment System (HPPS) was established to reform the health care payment structure specifically for home health services. Prior to HPPS, health care providers were compensated on a fee-for-service basis which led to increased costs and inefficiencies. HPPS aimed to address issues such as adverse selection and moral hazard by changing the incentive structure. Adverse selection created a situation where insurance companies were unable to accurately price their insurance, as consumers had more information about their risks. This often led to high-risk individuals getting more coverage than the premiums they paid for, and low-risk individuals forgoing insurance altogether. The HPPS aimed to create a more efficient system by providing a set reimbursement to providers, thereby encouraging them to manage resources and reduce unnecessary services, combating both over utilization and insurance fraud.