One DRG, One Price? The Effect of Patient Condition on Price Variation Within DRGs and Across Hospitals

Costs and prices per patient admission vary greatly across patients and across hospitals. The variance across hospitals is due in part to institutional differences--hospital size, teaching status, local labor costs, and so on--but also to differences in different hospitals' patients' conditions. For purposes of reimbursement under the Medicare program, differences in patients' conditions are typically accounted for by nothing more than noting their different DRGs, without regard to intra-DRG patient differences. My results, which are based on 3.6 million individual patients, show that differences in individual patient DRGs and in observable indicators of their conditions are more than just relevant or important: They are nearly dispositive, explaining over 80% of the total variation in net price per patient admission. Moreover, cross-DRG differences explain only half of that price variation, with the other half explained by patient-level intra-DRG differences in patient condition that are not accounted for by patients' DRG classifications. Further analysis shows that those hospitals that tend to attract the more complex DRGs tend also to attract those patients who are more expensive to treat within each of their DRGs.     

DRG-Based Cost Minimization Models: Applications in a Hospital Environment

The primary objective of this article is to investigate the feasibility of the application of cost minimization analysis in a teaching hospital environment. The investigation is concerned with the development of cost per admission and cost per patient day models. These models are further used for determining the value of the length of stay that would minimize cost per patient day (projected length of stay) and for estimating the costs. This study is based on total of 94,500 observations (1999 and 2000), obtained from a teaching hospital in South Florida. The top ten Diagnosis Related Groups (DRGs) with the highest volume are selected and classified into four insurance categories: Medicaid, Medicare, commercial, and self-pay. The cost models are fitted to the data for an average R2 value of 79%, and a MAPE value of 15%. The result demonstrates that if a hospital can control the length of stay at the projected level, on average, the cost per admission and the cost per patient day will decrease. Based on 6,367 admissions for the selected DRGs in 2000, the total cost per year and the cost per patient day decreased by approximately 11.58 and 10.35%, respectively. Overall, these results confirm that the concept of cost minimization analysis in economic theory can be applied to healthcare industries for the purpose of reducing of costs. In addition, this research offers a decision support instrument for healthcare administrators.     

An analysis of trends in average length of stay in Maryland Hospitals, 1980-1988

Nationally, the introduction of the Medicare Prospective Payment System (PPS) in 1983 caused a substantial change in average length of stay (ALOS) trends in hospitals. This resulted from an average decline in DRG-specific length of stay, partially offset by an increase in the relative contributions of DRGs with longer length of stay. The study finds that the interaction of these two opposing forces was present in Maryland as well as in the United States during the early and mid-1980's although Maryland was not under PPS. The analysis also indicates that these post-PPS ALOS trends tapered off gradually during 1985-1988, although the trends still continued to show the same pattern of movement.     

ID1 Randomised Prospective Study Comparing Cost-Effectiveness of Teicoplanin and Vancomycin as Second-Line Empiric Therapy for Infection in Neutropenic Patients

This study examines Diagnostic-Related Group (DRG) day outliers among End-Stage Renal Disease (ESRD) patients enrolled in Medicare's ESRD Program. Day outlier hospitalizations are cases that remain in the hospital longer than a specified period of time defined by HCFA. The study uses a sample of hospitalizations from the United States Renal Data System.
OBJECTIVES: The objectives of the study are to describe the portion of the ESRD population which is most likely to be hospitalized, to examine the distribution of ESRD patients within DRGs, and to identify variables significantly related to DRG day outlier status.
METHODS: This study has a retrospective cohort design. To describe the hospitalized segment of the Medicare ESRD population, frequency distributions of patient characteristics are reported. To identify variables which are predictors of DRG day outlier status, a logistic regression is performed.
RESULTS: Day outlier hospitalizations represented 3.9% of all hospitalizations by ESRD patients (n=3,921,883). This study shows that white males between the age of 60 and 99 years; with less than a year since their first ESRD service; with admission to MDCs 22, 24 or the DRGs not associated with an MDC; with lung cancer, leukemia, malnutrition, or liver conditions as comorbidities are most likely to have day outlier hospitalizations.
CONCLUSIONS: The findings of this study can aid in identifying patients more likely to benefit from disease management programs specifically designed to address the needs of this population. Other benefits possible benefits are an increase in the patient's quality of care, quality of life, as well as an overall increase in health outcomes.     

Improving the homogeneity of diagnosis-related groups (DRGs) by using clinical laboratory, demographic, and discharge data.

For 48 of the most common diagnosis-related groups (DRGs) at our hospital, we examined the ability of clinical laboratory tests, demographic data, and ICD-9-CM codes, which provide a measure of severity of illness, to predict patients' length of stay (LOS) more accurately than DRGs alone. For 10 of 20 medical DRGs and 13 of 23 surgical DRGs examined, we were able to increase the ability to predict LOS by at least 10 per cent. The laboratory tests that proved most predictive of LOS over all DRGs were the mean serum sodium, potassium, bicarbonate, and albumin. The system is data driven, objective, and flexible, thus ensuring its utility for the purpose of equitable reimbursement.     

Access to insurance and length of psychiatric stay among adolescents and young adults discharged from general hospitals

This study examines the characteristics of over 100,000 young people hospitalized in short-term, general hospitals throughout the United States between 1986 and 1988 for psychiatric and substance abuse diagnoses. Adolescent patients (ages 13-17) are compared with young adults (ages 18-22) in terms of demographic characteristics, diagnosis, source of payment, and length of stay. The study focuses on the relationship between the patients' access to private insurance and length of stay.     

Inpatient resource use: a comparison of family medicine and internal medicine physicians.

BACKGROUND. It is not known whether differences exist between the use of inpatient resources by family medicine and internal medicine physicians when patient demographic and complexity variables are statistically controlled. METHODS. The study population was all patients in 13 higher volume diagnosis-related groups (DRGs) discharged from the family medicine (n = 306) and internal medicine services (n = 2374) of the University of Cincinnati Hospital during 1985 and 1986. The dependent variables were length of stay and inpatient readmission within 2 weeks. Stratification by DRGs was used to control for the effects of age and case mix on these variables. RESULTS. With the exception of findings regarding one DRG, the results do not indicate that differences exist in average length of stay between patients of family medicine and internal medicine physicians after adjustment for other variables. Furthermore, almost all of the explained variance in length of stay was attributed to patient complexity and not to physician specialty or patient race or sex. For all discharges, the proportion of patients readmitted within 2 weeks was about 4% higher for the internal medicine service. However, multivariate analysis did not support the importance of physician specialty (family medicine or internal medicine) as a predictor of whether readmission occurred within 2 weeks. CONCLUSIONS. General indicators of resource use (such as length of stay or readmission occurrence) without adjustment for patient case mix, demographics, and complexity are inadequate for comparison of health care providers. Further research regarding interspecialty differences should use longitudinal data from large populations, which would permit more detailed examination of resource utilization.     

How well do diagnosis-related groups explain variations in costs or length of stay among patients and across hospitals? Methods for analysing routine patient data

We set out an analytical strategy to examine variations in resource use, whether cost or length of stay, of patients hospitalised with different conditions. The methods are designed to evaluate (i) how well diagnosis-related groups (DRGs) capture variation in resource use relative to other patient characteristics and (ii) what influence the hospital has on their resource use. In a first step, we examine the influence of variables that describe each individual patient, including the DRG to which the patients are assigned and a range of personal and treatment-related characteristics. In a second step, we explore the influence that hospitals have on the average cost or length of stay of their patients, purged of the influence of the variables accounted for in the first stage. We provide a rationale for the variables used in both stages of the analysis and detail how each is defined. The analytical strategy allows us (i) to identify those factors that explain variation in resource use across patients, (ii) to assess the explanatory power of DRGs relative to other patient and treatment characteristics and (iii) to assess relative hospital performance in managing resources and the characteristics of hospitals that explain this performance.     

Integrated healthcare networks' performance: a growth curve modeling approach

This study examines the effects of integration on the performance ratings of the top 100 integrated healthcare networks (IHNs) in the United States. A strategic-contingency theory is used to identify the relationship of IHNs' performance to their structural and operational characteristics and integration strategies. To create a database for the panel study, the top 100 IHNs selected by the SMG Marketing Group in 1998 were followed up in 1999 and 2000. The data were merged with the Dorenfest data on information system integration. A growth curve model was developed and validated by the Mplus statistical program. Factors influencing the top 100 IHNs' performance in 1998 and their subsequent rankings in the consecutive years were analyzed. IHNs' initial performance scores were positively influenced by network size, number of affiliated physicians and profit margin, and were negatively associated with average length of stay and technical efficiency. The continuing high performance, judged by maintaining higher performance scores, tended to be enhanced by the use of more managerial or executive decision-support systems. Future studies should include time-varying operational indicators to serve as predictors of network performance.     

Did Medicare's prospective payment system cause length of stay to fall?

It is well accepted that the Medicare Payment System caused average length of stay in United States hospitals to fall, but these calculations have been based on patients in short-stay, acute care hospitals. If one considers all patients covered by Medicare, length of stay rose between 1981 and 1984, although the 1985 value was below the 1981 value. The proximate cause was a marked increase in the proportion of patients staying more than 60 days in the hospital. The data are consistent with a shift of such patients from short-stay, acute care hospitals to other, exempt hospitals and units.     

The financial effect of physician practice style on hospital resource use.

Several specifications of a statistical model were used to measure the effect that internal medicine attending physicians had on inpatient charges and length of stay at a large urban teaching hospital. The study was based on a sample of 1,458 patients discharged during 1985-1987 with 12 common principal diagnosis clusters. The relationship between 31 physicians' clinical decisions and hospital charges and length of stay was analyzed controlling for patients' health status, as measured by demographic characteristics, diagnostic group, and ratings for the Severity of Illness Index (SOII). Results indicated that attending physicians were statistically significant predictors of the log of total charges (p = .0030) and the log of length of stay (p less than .0001), and not as significant predictors of untransformed total charges (p = .1255). Equivalent results were obtained when overall SOII ratings were replaced by SOII subscale ratings for the presenting stage of the principal diagnosis on admission. Examination of individual physician regression coefficients revealed that physicians varied within a 40 percent range of generated per patient charges. No significant differences in mortality, early readmissions or residual impairment on discharge were found between the ten highest and ten lowest resource use physicians. The conservatively estimated range of attending physician practice variations observed in this study has serious financial implications for hospitals operating under incentives to minimize operating costs, particularly for teaching hospitals facing reductions in subsidies for graduate medical education.     

A comparison of the resource intensity of inpatients in urban and rural nonteaching hospitals

PL 98-21 mandated a prospective payment system based on diagnosis related groups (DRGs) for all Medicare inpatients. The predetermined payment for each DRG is intended to reflect the resources used to treat patients within the DRG. Eventually, the system will allow for one payment level for each DRG in rural hospitals and a higher payment level for the same DRG in urban hospitals. This represents an equitable approach, provided there is not a predominance of high severity cases in rural hospitals and that higher costs in urban hospitals are reflective of higher priced exogenous factors beyond the control of the hospital. Equitability also requires that DRGs capture the resource intensity of treatment for a given classification of patients, equally for urban and rural patients. This work compares the pediatric population of urban hospitals without a pediatric residency program with that of rural hospitals in terms of major diagnostic category, DRG, disease severity, length of stay, and charges. It also compares the capacity of DRGs to explain the variation in resource consumption in urban and rural hospitals. A sample of 116,721 discharges from 130 urban hospitals and a sample of 54,073 discharges from 97 rural hospitals are used in this work. The results indicate that there is no difference in the patient populations of these two hospital groups. The results also indicate that DRGs explain only 50 percent of the variance in the resource variables, but this obtains equally for both populations.     

DRGs as a basis for prospective payment.

Hospital care in Europe has for a number of years been changing towards prospective payment systems. The mechanisms of implementing PPS varies between countries and between health care systems. In the United States prospective payment for hospital care under Medicare was jointly introduced with DRGs being the basis for payment. The combined power of both techniques seems to surpass significantly the individual power of independent applications of PPS and DRGs. The DRG classification system is now the subject of experimentation and research in approximately 16 European countries. The prospects for case-mix measurement and prospective payment in Ireland are discussed in more detail.     

Teaching wound care in the home

A survey of Medicare-certified agencies in Alaska, Idaho, Montana, Oregon, and Washington identified wound care and teaching wound care as being among the highest ranked clinical problems related to earlier hospital discharges that have resulted from Medicare Diagnostic Related Groupings (DRGs). Home care nurses are treating increasingly complex wounds and are required to teach complex wound care skills to clients and caregivers. This paper provides guidelines and resources to home care nurses for teaching wound care to their elderly clients and caregivers. The process of developing and implementing a teaching plan is described through the use of the community health nursing process. Following the presentation of the process content, a sample teaching wound care plan and sample teaching handouts are presented with a list of available teaching resources about wound care.     

Rural Implications of Medicare''s Post-Acute-Care Transfer Payment Policy

CONTEXT: Under the Medicare post-acute-care (PAC) transfer policy, acute-care hospitals are reimbursed under a per-diem formula whenever beneficiaries are discharged from selected diagnosis-related groups (DRGs) to a skilled nursing facility, home health care, or a prospective payment system (PPS)-excluded facility. Total per-diem payments are below the full DRG payment only when the patient's length of stay (LOS) is short relative to the geometric mean LOS for the DRG; otherwise, the full DRG payment is received. This policy originally applied to 10 DRGs beginning in fiscal year 1999 and was expanded to additional DRGs in FY2004. The Secretary may include other DRGs and types of PAC settings in future expansions. PURPOSE: This article examines how the initial policy change affected rural and urban hospitals and investigates the likely impact of the FY2004 expansion and other possible future expansions. METHODS: The authors used 1998-2001 Medicare Provider Analysis and Review (MEDPAR) data to investigate changes in hospital discharge patterns after the original policy was implemented, compute the change in Medicare revenue resulting from the payment change, and simulate the expected revenue reductions under expansions to additional DRGs and swing-bed discharges. FINDINGS: Neither rural nor urban hospitals appear to have made a sustained change in their discharge behavior so as to limit their exposure to the transfer policy. Financial impacts from the initial policy were similar in relative terms for both types of hospitals and would be expected to be fairly similar for an expansion to additional DRGs. On average, including swing-bed discharges in the transfer policy would have a very small financial impact on small rural hospitals; only hospitals that make extensive use of swing beds after a short inpatient stay might expect large declines in total Medicare revenue. CONCLUSION: Rural hospitals are not disproportionately harmed by the PAC transfer policy. An expanded policy may even benefit rural hospitals by recognizing their lower use of post-acute-care and readjusting DRG weights so that they are paid more appropriately when providing the full course of inpatient care.     

Purpose of admission and resource use during cancer hospitalizations

This study examined the role of purpose of admission (POA) in hospitalizations for lung, colon, and breast cancers, using the 1985 20-percent Medicare provider analysis and review file. Six POA categories were created from discharge abstract data. Average hospitalization charges, per diem charges, length of stay, and rates of death varied significantly by POA (p < .001). Rural and small hospitals were more likely to admit patients for palliation, while urban and large hospitals admitted relatively more patients for active interventions (p < .0001). POA and indicators of case complexity added only modestly to the ability of diagnosis-related groups to predict hospitalization charges.     

A prospective study of prolonged stay in the intensive care unit: predictors and impact on resource utilization.

OBJECTIVE: To evaluate the predictors of prolonged Intensive Care Unit (ICU) stay and the impact on resource utilization. DESIGN: Prospective study. SETTING: Adult medical/surgical ICU in a tertiary-care teaching hospital. STUDY PARTICIPANTS: All admissions to the ICU (numbering 947) over a 20-month period were enrolled. Data on demographic and clinical profile, length of stay, and outcome were collected prospectively. The ICU length of stay and mechanical ventilation days were used as surrogate parameters for resource utilization. Potential predictors were analyzed for possible association with prolonged ICU stay (length of stay > 14 days). RESULTS: Patients with prolonged ICU stay formed only 11% of patients, but utilized 45.1% of ICU days and 55.5% of mechanical ventilation days. Non-elective admissions, readmissions, respiratory or trauma-related reasons for admission, and first 24-hour evidence of infection, oliguria, coagulopathy, and the need for mechanical ventilation or vasopressor therapy had significant association with prolonged ICU stay. Mean APACHE II and SAPS II were slightly higher in patients with prolonged stay. ICU outcome was comparable to patients with < or = 14 days ICU stay. CONCLUSIONS: Patients with prolonged ICU stay form a small proportion of ICU patients, yet they consume a significant share of the ICU resources. The outcome of this group of patients is comparable to that of shorter stay patients. The predictors identified in the study can be used in targeting this group to improve resource utilization and efficiency of ICU care.     

Factors determining inpatient satisfaction with care

The objective of the study was to identify factors associated with satisfaction among inpatients receiving medical and surgical care for cardiovascular, respiratory, urinary and locomotor system diseases. Two weeks after discharge, 533 patients completed a Patient Judgments Hospital Quality questionnaire covering seven dimensions of satisfaction (admission, nursing and daily care, medical care, information, hospital environment and ancillary staff, overall quality of care and services, recommendations/intentions). Patient satisfaction and complaints were treated as dependent variables in multivariate ordinal polychotomous and dichotomous logistic stepwise regressions, respectively. Patient sociodemographic, health and stay characteristics as well as organization/ activity of service were used as independent variables. The two strongest predictors of satisfaction for all dimensions were older age and better self-perceived health status at admission. Men tended to be more satisfied than women. Other predictors specific for certain dimensions of satisfaction were: married, Karnofsky index more than 70, critical/serious self-reported condition at admission, emergency admission, choice of hospital by her/himself, stay in a medical service, stay in a private room, length of stay less than one week, stay in a service with a mean length of stay longer than one week. The factors associated with inpatient satisfaction elucidated in this study may be helpful in interpreting patient satisfaction scores when comparing hospitals, services or time periods, in targeting patient groups at risk of worse experiences and in focusing care quality programs.     

Impact of declines in nutritional status on outcomes in adult patients hospitalized for more than 7 days

OBJECTIVE: To assess the association between changes in nutritional status in hospitalized patients and the occurrence of infections, complications, length of stay in hospital, and hospital charges. DESIGN: A prospective observational study with a retrospective component was conducted over a 7-month interval at a university hospital. SUBJECTS: A total of 404 adults (> or = 18 years old) admitted to the inpatient service for more than 7 days who were not pregnant or lactating and not a psychiatric patient were included. MAIN OUTCOME MEASURES: Major outcome variables included changes in nutritional status as assessed by subjective global assessment (SGA) at hospital admission and discharge, length of stay, hospital charges, complications, and infections. STATISTICAL ANALYSIS PERFORMED: Analysis of variance with a Tukey adjustment for multiple comparisons was used to examine the impact of changes in nutritional status between nutrition change categories for continuous variables (charges and length of stay). Discrete variables were assessed using chi 2 analysis. Logistic regression was used to calculate odds ratios with 95% confidence intervals for the development of complications and infections when compared with the reference group. RESULTS: Compared with the reference group (normally nourished at admission and discharge), patients who declined nutritionally, regardless of nutritional status at admission, had significantly higher hospital charges ($28,631 +/- 1,835 vs $45,762 +/- 4,021). Odds of complications were significantly greater for patients who declined nutritionally, regardless of nutritional status at admission, compared with the reference group. APPLICATIONS/CONCLUSIONS: Declines in patients' nutritional status while they are hospitalized, regardless of their nutritional status at admission, were associated with significantly higher hospital charges and a higher likelihood of complications. Practicing clinicians should make reducing declines in patients' nutritional status a priority regardless of patients' nutritional status at admission.     

Teaching Wound Care in the Home

A survey of Medicare-certified agencies in Alaska, Idaho, Montana, Oregon, and Washington identified wound care and teaching wound care as being among the highest ranked clinical problems related to earlier hospital discharges that have resulted from Medicare Diagnostic Related Groupings (DRGs). Home care nurses are treating iacreasingly complex wounds and are required to teach complex wound care skills to clients and caregivers.

This aper provides guidelines and resources to home care nurses for teacling wound care to their elderly clients and caregivers. The process of developing and implementin a teaching plan is described through the use of the community healt f nursing process. Following the presentation of the process content, a sample teaching wound care plan and sample teaching handouts are presented with a list of available teaching resources about wound care.