Prospective payment for Medicare inpatient psychiatric care: assessing the alternatives

This article reports the findings of an empirical analysis of per case and per diem models of prospective payment for Medicare inpatient psychiatric care. Quantitative measures are presented that show the improvement of a per diem model over a per case model. The research supports the viability of per diem prospective payment and identifies directions for future research that would refine current per diem models.     

Effect of the structure of hospital payment on length of stay.

In response to rapidly rising costs, payers for health care services have made a number of changes in the way they reimburse hospitals for care. In this article we study the effect of different payment methods on the length of stay of Medicaid patients. We examine supply response by type of patient (medical, surgical, and psychiatric) and hospital ownership. We find that per case payment systems and negotiated contracts lead to significant decreases in the length of stay for all groups. Prospective per diem with limits in most cases leads to decreases in the length of stay. In general, we find that the supply response is stronger for psychiatric patients than for medical and surgical patients, and that publicly owned hospitals are more responsive to payment system incentives than are nonpublic hospitals.     

Differences between non-profit and for-profit hospices: patient selection and quality

This research compares the behavior of non-profit organizations and private for-profit firms in the hospice industry, where there are financial incentives created by the Medicare benefit. Medicare reimburses hospices on a fixed per diem basis, regardless of patient diagnosis. Because under this system patients with lower expected costs are more profitable, hospices can selectively enroll patients with longer lengths of stay. While it is illegal for hospices to reject potential patients explicitly, they can influence their patient mix through referral networks. A fixed per diem rate also creates an incentive shirk on quality and to substitute lower skilled for higher skilled labor, which has implications for quality of care. By using within-market variation in hospice characteristics, the empirical evidence suggests that for-profit hospices differentially take advantage of these incentives. The results show that for-profit hospices engage in patient selection through significantly different referral networks than non-profits. They receive more patients from long-term care facilities and fewer patients through more traditional paths, such as physician referrals. This mechanism of patient selection is supported by the result that for-profits have fewer cancer patients and more patients with longer lengths of stay. While non-profit and for-profit hospices report similar numbers of staff visits per patient, for-profit firms make significantly less use of skilled nursing providers. We also find some weak evidence of lower levels of quality in for-profit hospices.     

The impact of prospectively set hospital budgets on psychiatric admissions

This article examines the impact of prospectively set hospital budgets on rates of admission of psychiatric patients in New York state, U.S.A. The analysis takes advantage of a natural experiment which took place in the early 1980s, whereby a geographic region adopted a prospective hospital budget reimbursement scheme that differed from the prospective per diem reimbursement scheme used in the rest of the state. The results indicate a strong decrease in psychiatric admissions attributable to the experimental payment method.     

The effects of ownership and ownership change on nursing home industry costs.

OBJECTIVE. This study examines the effects of ownership type and ownership change on nursing home cost structures, differentiating patient care costs from plant costs. DATA SOURCES. Administrative data from the Michigan Department of Social Services, Medical Services Administration (Medicaid), and the Michigan Department of Public Health are used. Cost data are based on audited cost reports for 393 nursing care facilities in Michigan in 1989. Other facility characteristics are based on data from the 1989 annual licensing and certification survey conducted by the Michigan Department of Public Health. STUDY DESIGN. A series of ordinary least squares regressions is estimated, in which the dependent variable is either per diem patient costs or per diem plant costs. Ownership types are defined as chain, proprietary non-chain, freestanding non-profit, government-owned, and hospital-based facilities. Pooled estimation techniques, as well as separate regressions by ownership type, are presented to test for interaction effects. Key variables include whether a facility changed ownership in the preceding five years and whether chain facilities are in-state- or out-of-state-owned, in addition to size, payer mix, and case mix. PRINCIPAL FINDINGS. Behavioral differences among nursing home ownership types in respect to patient care costs tended to distinguish government-owned and hospital-based facilities from the freestanding homes rather than the usual distinction between for-profit and not-for-profit classes. Variables traditionally included in nursing home cost studies, such as size, occupancy, payer mix and case mix, were found to have similar effects on per diem patient care costs for freestanding non-profit homes as well as for chain proprietary facilities. With regard to the effects of ownership change on per diem plant and per diem patient costs, however, there are few differences among ownership types. Chain and non-chain for-profit facilities, non-profit homes, and hospital long-term care units that had changed ownership reported significantly higher per diem plant costs than facilities without a change of ownership, but did not spend more on patient-related costs. Michigan Medicaid plant reimbursement system policy changes instituted in 1985 to promote continued ownership of facilities were not entirely successful. CONCLUSIONS. Non-profit homes look increasingly like their for-profit counterparts with respect to spending on patient care costs. Increased competition for the more lucrative private-pay patients, coupled with declining state Medicaid reimbursement to nursing homes, may have blurred the historical distinctions between the non-profit and for-profit sectors in the nursing home industry. An exception to increasing homogeneity within the nursing home industry is the tendency of proprietary homes to experience more frequent changes of ownership, which results in higher capital costs passed on to state Medicaid programs. Findings from this study indicate that while facility sales increase per diem plant costs, they do not result in increased spending for direct patient care, suggesting that state Medicaid programs may be indirectly subsidizing facility sales with no accompanying increase in expenditures for patient care. To discourage frequent facility sales, state Medicaid programs may need to consider alternative methods of reimbursing nursing home owners for capital costs.     

Suicide risk factors among veterans: Risk management in the changing culture of the department of veterans affairs

Suicide risk management in the Department of Veterans Affairs (VA) health care system is particularly challenging because of both patient characteristics and aspects of the delivery system. The prototypical suicide-prone person is an older white male with alcoholism, depression, physical problems, and poor psychosocial support. This describes a large portion of the veteran patient population. Suicide risk factors that are common in VA patients include male gender, older age, diminished social environment support (exemplified by homelessness and unmarried status), availability and knowledge of firearms, and the prevalence of medical and psychiatric conditions associated with suicide. A variety of characteristics of the VA system complicate suicide management. Efforts under way to emphasize ambulatory care and decrease the VA culture of reliance on inpatient treatment heighten the importance of accurate suicide assessment. The authors recommend several strategies that VA administrators can consider for improving the assessment and management of veterans with long-term suicide risk factors.     

Assessing the RUG-III resident classification system for skilled nursing facilities

Resource utilization groups, version III (RUG-III) is used by CMS to classify skilled nursing facility (SNF) residents into Medicare payment groups. Using a sample of 1,304 SNF residents with Medicare-covered stays, we find that RUG-III only explains 10.4 percent of the variance in total per diem costs. RUG-III explains variance in staff-time costs fairly well, but does not explain variance in non-therapy ancillary costs. Receipt of special treatments such as intravenous medications and respiratory therapy is strongly associated with high residual costs (p < 0.01). Modifications to the RUG-III system can increase its variance explanation.     

Equity and efficiency in Italian health care

Health care finance and provision in Italy is unusual by international standards: public financing relies heavily on both general taxation and social insurance, and although the vast majority of expenditure is publicly financed, the majority of care is provided by the private sector. The system suffers, however, from a chronic failure to control expenditures and its record on perinatal and infant mortality is poor. Hospitals in Italy have a low bed-occupancy rate by international standards and the per diem system of reimbursing private hospitals encourages unduly long stays. Costs per inpatient day are high by international standards, but costs per admission are close to the OECD average. Ambulatory care costs are extremely low, but this appears to be due to the fact that GPs see so many patients that their role is inevitably mainly administrative. Consumption of medicines is extremely high, but because the cost per item is low, expenditure per capita is not unduly high. Despite the emphasis on social insurance, the financing system appears to be progressive. There is evidence of inequalities in health in Italy, and some evidence that health care is not provided equally to those in the same degree of need.     

The hospital multistay rate as an indicator of quality of care.

OBJECTIVES: To evaluate the hospital multistay rate to determine if it has the attributes necessary for a performance indicator that can be applied to administrative databases. DATA SOURCES/STUDY SETTING: The fiscal year 1994 Veterans Affairs Patient Treatment File (PTF), which contains discharge data on all VA inpatients. STUDY DESIGN: Using a retrospective study design, we assessed cross-hospital variation in (a) the multistay rate and (b) the standardized multistay ratio. A hospital's multistay rate is the observed average number of hospitalizations for patients with one or more hospital stays. A hospital's standardized multistay ratio is the ratio of the geometric mean of the observed number of hospitalizations per patient to the geometric mean of the expected number of hospitalizations per patient, conditional on the types of patients admitted to that hospital. DATA COLLECTION/EXTRACTION METHODS: Discharge data were extracted for the 135,434 VA patients who had one or more admissions in one of seven disease groups. PRINCIPAL FINDINGS: We found that 17.3 percent (28,300) of the admissions in the seven disease categories were readmissions. The average number of stays per person (multistay rate) for an average of seven months of follow-up ranged from 1.15 to 1.45 across the disease categories. The maximum standardized multistay ratio ranged from 1.12 to 1.39. CONCLUSIONS: This study has shown that the hospital multistay rate offers sufficient ease of measurement, frequency, and variation to potentially serve as a performance indicator.     

Access of Women Veterans to Veterans Affairs Hospitals

Women veterans represent a rapidly growing segment of the veteran population. This study examines how the utilization of VA hospitals by women veterans has changed since 1980. Information on the use of VA hospitals was obtained from the discharge database for all VA hospitals. The demographics of the veteran population was compiled from the Veteran Population Files, which contain annual estimates of the number of veterans by age and sex. The VA hospital discharge rate for women increased nearly 29 percent during the 1980's while the VA user rate increased nearly 18.6 percent for women. The increase in the average number of VA stays per user was smaller for women than for men (8.4 percent versus I1 percent). Substantial increases in the utilization of VA hospitals by women veterans occurred during the 1980's. In most cases these increases were larger for women veterans than for men veterans. However, women veterans still use VA hospitals at about one-half the rate for men. Regardless, the VA system will continue to be an important source of health care for women.     

Ökonomische anreize und steuerungsinstrumente im krankenhaus Das beispiel eines universitären Großklinikums

Until 1972 the hospital care sector in Germany was financed through a monistic system. Costs for the hospital sector constituted the largest portion of health care expenditure in the German social sickness insurance system. Thus, in 1972, a dualistic financing system was introduced. Central to this system was coverage of basic hospital costs. In 1985, the Hospital per Diem Regulation still in place today was introduced. Financing in this system is based on a prospectively calculated budget within which hospitals are constrained to operate in a given year. The calculations are based on presumed basic hospital costs and the per diem care volume for the coming year. The most important basis for payment became the “care per diem” rate. Additional control mechanisms for expenditures, such as special per diem care rates and remunerations, as well as the possibility of financial gains and losses for the hospital through failure of adherence to the precalculated budget, were introduced. It is shown here that the combination of such an incentive structure with the economic control mechanisms described has a high probability of increasing costs in the hospital care sector.     

Assessment of the introduction of DRG-based reimbursement in Switzerland: Evidence on the short-term effects on length of stay compliance in university hospitals

The implementation of a nationwide diagnosis-related groups (DRG) reimbursement system in 2012 marked an important step in increasing the transparency and efficiency of hospital services in Switzerland. However, no clear evidence exists to date on the response of hospitals to the introduction of SwissDRG. Using administrative data on inpatient stays in Swiss university hospitals and the length of stay compliance (LOSC) as a measure of hospital performance, we find a significant short-term reduction in LOSC for hospitals that experienced a change from retrospective per diem to prospective DRG reimbursement, compared to hospitals with a prospective payment system already before 2012. LOSC can be interpreted as a performance indicator because it compares the actual length of stay with a benchmark value, taken from the yearly DRG catalogue. The reduction in LOSC implies that hospitals in the treatment group on average had an increase in LOS relative to the benchmark compared to the control hospitals. This may be interpreted as a negative effect of SwissDRG on hospital performance, at least in the short-run, and we provide supporting evidence that hospitals that worked under DRG already before adapted more quickly and efficiently.     

Deriving a risk-adjustment formula for hospital financing: integrating the impact of socio-economic status on length of stay

The imperfect risk adjustment of prospective payment for hospitals may have dramatic consequences on equity. If the hospital is able to distinguish subgroups of patients with different expected costs within a group for which the risk-adjusted payment per admission is the same, it is likely to select the most profitable cases and deny care to the others. Meanwhile, hospitals refusing to practice patients' selection may experience solvency problems. In the long term, either those hospitals fail and access to care is at risk, or they decrease the quality of treatments and access to quality is at risk. In Belgium, since 1995, a prospective payment per case has replaced the traditional per diem payments for non-medical expenditures. A fixed number of days are paid to each admission, based on the patient's characteristics, namely diagnosis, age and geriatric profile. In this paper, we examine the imperfect risk adjustment related to the non-inclusion of socio-economic factors in the hospital financing formula. Using data from 61 Belgian hospitals from 1995, we observe that socio-economic status, which is currently not accounted for as risk adjuster, has a significant impact on length of stay (LOS). We estimate that patients in the upper-income categories, patients with a self-employed status and patients with an employee status are beneficial for hospitals' financial results, due to their shorter stays. On the contrary, the non-active, the low-income patients and patients benefiting from an insurance preferential regime represent, on average, a financial loss for hospitals. Finally, we find that financial results under the current financing scheme are biased due to the non-inclusion of SES risk-adjustors. Hospitals with the most beneficial social case-mix are shown to experience a shift from a positive to a negative financial outcome when SES risk adjustors are included, while the reverse is observed for hospitals with the worst social case-mix.     

Economic analysis of home vs hospital-based parenteral nutrition in Ontario, Canada

BACKGROUND: Advances in technology and infrastructure have facilitated transfer of complex services from acute care hospitals to the home. This increases the burden on community resources but may provide net savings to the health care system. We undertook a retrospective cohort study of patients transferred from hospital to home while receiving home parenteral nutrition (PN) to assess their costs of care. METHODS: A detailed review of medical records was undertaken for all patients managed by the Hamilton Health Sciences Home PN Program between 1996 and 2001 whose PN was initiated in hospital. Mean per diem direct medical costs were estimated from the perspective of the provincial Ministry of Health for 3 periods: the last 2 weeks before discharge and the first month after discharge. Costs were compared among time intervals and among patients subgroups defined by age and underlying disease. RESULTS: Twenty-nine eligible subjects were identified. Common indications for PN included malignancy (n = 12), inflammatory bowel disease (n = 6), and intestinal ischemia (n = 4). Mean per diem costs in the last week of hospitalization were higher than those in the first month after discharge (dollars 567 vs dollars 405, p < .0001). Acute care resources accounted for <10% of the overall costs on home PN. The estimated monthly savings per patient maintained on home PN were dollars 4860 (95% confidence interval dollars 2700-dollars 7000). Savings were even greater among patients with underlying malignancy and advanced age. CONCLUSIONS: Home PN is cost saving when compared with hospital-based PN. Neither age nor underlying malignancy should pose a barrier to receipt of home PN.     

Rationale of inpatient care--towards a new payment system

German statutory health insurance is introducing a system of lump sum payments for hospital care in the framework of a sectorial budget. All hospital cases covered by a major regional health insurance fund (AOK Magdeburg) and completed in 1995 to 1997 (590,000 cases and 7.6 million hospital days, resp.) were analysed to find out changes in the main parameters of inpatient care. The number of hospital cases per 10,000 insured persons continues to increase even after age-adjustment. The increase was 3.1% from 1996 to 1997. Hence the objective "outpatient treatment ranks before inpatient treatment" has not been achieved. The number of hospital days per 10,000 insured patients also increased. Hence the concept of "controlled touch down" (i.e. reaching the prospectively negotiated number of hospital days exactly) has not succeeded. After taking age into account, the number of hospital days slightly and for the first time decreased in 1997 compared to 1996. The average level of hospital stay (LOS) is decreasing, but still high. The proportion of cases with hospital stays exceeding the "Length of Stay Guidelines" was more than 30% in 1997. The pattern of the three parameters (number of cases, hospital days, and LOS) indicate that hospitals manage bed occupancy rates in the first place and that the indications for inpatient treatment are getting softer. Between 1996 and 1997 there has been a 17.5% increase in the total number of cases reimbursed by lump sums. In some categories of the fee schedule the increase is considerably greater. Such changes in performance make it difficult for both contracting parties to assess the "necessary" amount of cases and procedures to be covered by lump sum payments. In a considerable proportion of cases covered by lump sum renumeration, the LOS is longer than the calculated average on which costing is based. In spite of this, however, most hospitals gain more income from lump sum payment than they would if their per diem rates were applied. The proportion of cases with the LOS exceeding the upper compensation limit is low. Between hospitals, the average LOS in the same categories of the fee schedule differs by a factor of 1.5 to 2. There is no consistent indication of adverse risk selection. If the present payment system is maintained until the end of 1999 (or even 2001 as preferred by some), German hospitals will have an opportunity to continue with their development of organisation and costing, to improve their structure of services as well as their negotiating power and- the full compensation scheme having been abandoned in favour of prospective budgets- to net rationalization profits.     

Cost Savings from Assertive Community Treatment Services in an Era of Declining Psychiatric Inpatient Use

Objective

To assess, during a period of decreasing psychiatric inpatient utilization, cost savings from Assertive Community Treatment (ACT) programs for individuals with severe mental illnesses.

Data Source

U.S. Department of Veterans Affairs'' (VA) national administrative data for entrants into ACT programs.

Study Design

An observational study of the effects of ACT enrollment on mental health inpatient utilization and costs in the first 12 months following enrollment. ACT enrollees (N = 2010) were propensity score matched to ACT-eligible non-enrollees (N = 4020). An instrumental variables generalized linear regression approach was used to estimate enrollment effects.

Results

Instrumental variables estimates indicate that between FY2001 and FY2004, entry into ACT resulted in a net increase of $4529 in VA costs. Trends in inpatient use among ACT program entrants suggest this effect remained stable after FY2004. However, eligibility for ACT declined 37 percent, because fewer patients met an eligibility standard based on high prior psychiatric inpatient use.

Conclusions

Savings from ACT programs depend on new enrollees'' intensity of psychiatric inpatient utilization prior to entering the ACT program. Although a program eligibility standard based on prior psychiatric inpatient use helped to sustain the savings from VA ACT programs, over time, it also resulted in an unintended narrowing of program eligibility.     

Simulating the impact of case-mix adjusted hospice rates.

The Medicare hospice benefit prospectively reimburses hospices based on the inpatient status of the patient, whether or not the patient is at home, and whether the patient is receiving round-the-clock nursing. Using national Hospice Study data, two case-mix adjusters based on patient functioning and living arrangement were found to be significantly related to per diem cost. These were tested by simulating their impact on hospice revenues. Increasing per diem reimbursements 35 percent for nonambulatory patients living alone only increases hospice revenues by 4 percent; hospices with sicker patients benefit the most.     

Cost weight compression: impact of cost data precision and completeness

This study was designed to quantitatively assess the impact of deficiencies in completeness and precision of hospital case cost data on cost weight compression. For the nursing per diem model versus the nursing workload model the average compression was 19.6 percent (for the 25.9 percent of cases that changed cost weight by at least 5 percent). We concluded that the compression of case mix cost weights based on nursing per diem cost or per diem charge models, such as for U.S. diagnosis-related groups (DRGs), may be pervasive and material.