The reform of provider payment systems, from retrospective to prospective payment, has been heralded as the right move to contain costs in the light of rising health expenditures in many countries. However, there are concerns on quality trade-off. The heightened attention given to prospective payment system (PPS) reforms and the rise of empirical evidence regarding PPS interventions among developing countries suggest that a systematic review is necessary to understand the effects of PPS reforms in developing countries. A systematic search of 14 databases and a hand search of health policy journals and grey literature from October to November 2016 were carried out, guided by a set of inclusion and exclusion criteria. Data were extracted based on the Consolidated Health Economics Evaluation Reporting Standards checklist. Drummond's 10-item checklist for economic evaluation, Cochrane Collaboration's tool in assessing risk of bias for randomized trials, and Risk of Bias in Non-randomized Studies of Interventions were used to critically appraise the evidence. A total of 12 studies reported in China, Thailand and Vietnam were included in this review. Substantial heterogeneity was present in PPS policy design across different localities. PPS interventions were found to have reduced health expenditures on both the supply and demand side, as well as length of stay and readmission rates. In addition, PPS generally improved service quality outcomes by reducing the likelihood or percentage of physicians prescribing unnecessary drugs and diagnostic procedures. PPS is a promising policy tool for middle-income countries to achieve reasonable health policy objectives in terms of cost containment without necessarily compromising the quality of care. More evaluations of PPS will need to be conducted in the future in order to broaden the evidence base beyond middle-income countries.