(A) To provide cost containment incentives for providers of care to Medicaid recipients, the department shall convert the Medicaid hospital reimbursement system from a retrospective payment system to a prospective payment system by October 1, 1985. The prospective payment system includes, at a minimum, the following elements:

(1) a maximum allowable payment amount established for individual hospital products, services, patient diagnoses, patient day, patient admission, or per patient, or any combination thereof. This payment must be based on hospital costs rather than hospital charges and must be adjusted at least every two years to reflect the most recent audited cost data available. The department shall set by regulation those circumstances under which a hospital may seek an exception. The maximum allowable payment amount must be weighted to allow for the costs of medical education and primary, secondary, or tertiary care considerations;

(2) payment on a timely basis to the hospital by the commission or patient or both, of the maximum allowable payment amount determined by the commission; and

(3) acceptance by the hospital of the maximum payment amount as payment in full, which includes any deductible or copayment provided for in the state Medicaid program.

(B) The department shall at the same time implement other cost containment measures which include, but are not limited to:

(1) utilization reviews for appropriateness of treatment and length of stay;

(2) preadmission certification of nonemergency admissions;

(3) mandatory outpatient surgery in appropriate cases;

(4) a second surgical opinion pilot study; and

(5) procedures for encouraging the use of outpatient services.

The department, to the fullest extent possible, shall utilize information required in this subsection in the form hospitals are presently submitting the information to other governmental agencies or in the form hospitals are presently utilizing the information within the hospital.