The 2009 Hospital Financing Reform Act (KHRG) mandated the German self-governing bodies to develop a prospective payment system (PPS) for psychiatric and psychosomatic facilities. The process of developing the system mirrors the introduction of DRGs for other hospitals prior 2004. However, the future psychiatric PPS will be based on per diem payments adjusted for patient characteristics and procedures in order to introduce performance incentives to this part of the German hospital sector.