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Policy issues related to prospective payment for pediatric hospitalization.

Children's hospitals have been excluded from the Medicare prospective payment system (PPS) because of concerns over the applicability of the DRG case-mix system and PPS payment weights to pediatric hospitalization. Nevertheless, DRG-based payment systems are being adopted by State Medicaid agencies and private third-party payers, and the Health Care Financing Administration has been mandated to report to Congress on the feasibility of including children's hospitals in the Federal PPS. This article summarizes policy research on this issue and discusses options in the design of prospective payment systems for pediatric hospitalization.

Adolescent↗

Medicare prospective payment and quality of care for long-stay nursing facility residents.

BACKGROUND: The Balanced Budget Act of 1997 dramatically changed the way that Medicare pays skilled nursing facilities and also cut per-diem rates. Previous studies have found effects on facility-wide staffing but not on quality for short-stay residents. Because facilities may combine revenue streams to be used where needed, spillover effects on quality of care for long-stay residents are possible. OBJECTIVE: We sought to investigate effects of financial pressures from Medicare payment changes on quality of care for long-stay residents. METHODS: We investigated the effect of Medicare's Prospective Payment System for skilled nursing facilities on incidence of urinary tract infections and pressure sores among long-stay residents while controlling for resident severity. We conducted panel data analysis of nursing home residents in Ohio, Kansas, Maine, Mississippi, and South Dakota using Minimum Data Set data from 1995 to 2000. Each facility's Medicare dependence was used to separate effects of the policy from underlying industry trends. RESULTS: The probability of developing a urinary tract infection or pressure sore increased significantly among long-stay residents after Medicare's prospective payment system was implemented. Effects were roughly proportional to the percent of residents in a facility covered by Medicare. CONCLUSIONS: Although Medicare prospective payment and rate cuts were directly applicable only to Medicare (largely short-stay) residents in skilled nursing facilities, the resulting financial pressures lowered the quality of care experienced by long-stay residents, as measured by the likelihood of adverse outcomes. The observed quality decreases were likely due to decreases in nurse staffing prompted by the payment reductions.

Humans↗

Changes in Medicare home health care use and practices in rural communities: 1997 to 2001.

OBJECTIVE: This research was designed to examine the impact of the interim and prospective payment systems on home health agencies and Medicare beneficiaries in rural communities. METHODS: Data were collected from two complementary studies: (a) fiscal and use data collected from 10 rural agencies in northwest Pennsylvania and (b) a statewide survey of rural home health agencies in Pennsylvania. RESULTS: The findings show that the implementation of interim and prospective payment systems had a profound affect on the home health agencies' financial vulnerability, staffing management, and service delivery. As a result, Medicare beneficiaries were also affected. The total number of home health visits per episode in rural Pennsylvania was 16 visits, whereas the national estimate was 22 visits. Physical therapy services increased 8% and occupational therapy services increased 1%, whereas visits for other disciplines decreased or remain unchanged. DISCUSSION: Future studies are needed to examine the health outcomes of beneficiaries in rural communities.

Forecasting↗

Length of hospital stay for cerebrovascular disease in the United States: Professional Activity Study, 1963-1991.

OBJECTIVE: To assess the temporal and spatial variation in length of hospital stay for cerebrovascular disease in the United States over three decades. DESIGN: Age-, region-, and stroke type-specific length-of-hospital-stay data for nearly 4 million patients admitted with cerebrovascular disease were obtained for the Professional Activity Study of the Commission on Professional and Hospital Activities for the period 1963-1991. MAIN OUTCOME MEASURE: Weighted averages and standard errors of length of stay were calculated for aggregate diagnosis groups within the category of cerebrovascular disease. Averages were age-adjusted by the direct method. RESULTS: Average length of hospital stay declined from a peak of 18 days in 1967 to 8 days in 1991. The decline accelerated sharply from 1982 to 1986 coincident with implementation of the Medicare prospective payment system. Similar declines were observed within each age group, each cerebrovascular disease diagnosis group, and each census region. There were marked and persistent differences in average length of stay between regions, with longer stays in the Northeast and shorter stays in the West. The large interregional variation was not explained by differences in age or cerebrovascular disease diagnoses. CONCLUSIONS: Implementation of the Medicare prospective payment system produced a marked decline in length of hospital stay for cerebrovascular disease, which was superimposed on a preexisting, but slower, decline. Much of the marked persistent interregional variation probably results from persistent widespread variation in patient management.

Age Factors↗

Cost and volume trends in health care facility construction.

In 1987, the Health Care Financing Administration proposed adding capital cost reimbursement to the prospective payment system. A data base was developed from which an index was calculated to adjust for geographic variation in construction cost. Findings from the data base, along with a description of trends in health care facility construction from 1970 through 1986, are presented. Spending (in constant 1986 dollars) and volume of health care facility construction declined from 1970 to 1986. Construction cost per square foot increased until 1983, followed by a decline to pre-1980 levels after the 1983 implementation of the prospective payment system.

Abstracting and Indexing↗

Incentives and obligations under prospective payment.

In this paper I analyze the alleged conflict between economic incentives to efficiently utilize health care resources and the obligation to provide patients with the best possible medical care. My analysis is developed in four stages. First, I discuss briefly the nature of prospective payment systems and economic incentives as well as the issue of professional autonomy. Second, I disscuss the notion of an incentive for action both as an economic incentive and as a concept of moral psychology. Third, I analyze several definitions of the physician's professional obligation and discuss four conditions that morally qualify the obligation. And fourth, I explore why the views of economists and physicians differ so strikingly on the question of economic incentives. In the process of this analysis, I argue that criticisms of prospective payment systems which are premised primarily on the conflict between economic incentives to contain cost and the professional obligation of beneficence are probably as much a matter of rhetoric as serious argumentation.

Beneficence↗

Hospitalization for psychiatric illness under Medicare, 1985.

National and state-level data on Medicare-covered hospital discharges after treatment for psychiatric illness in 1985 were analyzed to determine the distribution of cases among various types of psychiatric and general hospitals. In most states, 80 to 90 percent of Medicare patients with psychiatric conditions received care in a setting that provided specialized treatment for psychiatric illness. However, the distribution of discharges among public and private psychiatric hospitals and general hospitals with psychiatric units varied substantially among states. Between 1984, the first year of Medicare's prospective payment system, and 1985, the number of discharges decreased overall, and a shift toward treatment in specialized psychiatric facilities and toward settings exempt from the prospective payment system was apparent.

Data Collection↗

Determinants of hospital length of stay.

An example of the inefficiency of cost-based reimbursement is that wide variations were observed between hospitals and between regions in the cost of treating similar diagnoses, with no apparent differences in quality. To correct these variations, the Tax Equity and Fiscal Responsibility Act and its concomitant prospective payment system based on DRGs was implemented. However, wide variations continued to exist among hospitals and regions in the United States. The attempt by the medical profession to refine the prospective payment system by severity adjustments has received lukewarm support. The work by Halloran et al on the relationship between nursing diagnosis and length of stay shows some promise. Studies on nursing intensity have produced mixed results. Recently, the Prospective Payment Assessment Commission decided to discontinue efforts to develop nursing intensity adjustments for DRG weights. Additionally, institutional characteristics, except for discharge planning programs, and patient characteristics have exhibited mixed results in attempts to explain hospital length of stay. Concern over continuing variations that DRGs and their proposed adjustments have been unable to correct led to the formation of the Agency for Healthcare Policy and Research, which was brought about by the Omnibus Budget Reconciliation Act of 1989. This agency seems to believe that practice patterns offer the greatest hope of reducing excessive hospital lengths of stay and concomitant costs.

Diagnosis-Related Groups↗

Impact of prophylactic therapy for postoperative thromboembolism on prospective payment.

Widescale implementation of prospective payment systems as a means of reimbursing hospitals on the basis of diagnosis-related group designation has important implications with respect to the selection of drug therapy. Instead of analyzing costs on a departmental basis, pharmacists need to identify the impact of optimal drug therapy on overall profitability. Clinically evident deep venous thrombosis and pulmonary embolism occur in approximately 3.5% and 1.8% of patients undergoing general surgery. Treatment of these complications consumes hospital resources, but the hospital absorbs the cost of treatment under the prospective payment system. Effective prophylactic measures increase profitability by preventing complications and minimizing the proportion of outliers due to increased length of stay. In selecting prophylactic measures, this impact on overall profitability is as important as acquisition cost. For example, in comparison with no prophylaxis, dihydroergotamine-heparin reduces the frequency of deep venous thrombosis in patients undergoing general surgery by 61.5% and heparin alone reduces it by 31.2%. The relative effect of this combination on postoperative complications and resultant savings in terms of treating them compensates for differences in acquisition costs between these measures.

Cost-Benefit Analysis↗

Civilian Health and Medical Program of the Uniformed Services (CHAMPUS)--Department of Defense. Notice of revised rates.

This notice provides the updated adjusted standardized amounts, DRG relative weights, outlier thresholds, and beneficiary cost-share per diem rates to be used for FY 1992 under the CHAMPUS DRG-based payment system. It also describes the non-regulatory changes made to the CHAMPUS DRG-based payment system in order to conform to changes made to the Medicare Prospective Payment System (PPS).

Diagnosis-Related Groups↗

TRICARE/CHAMPUS; FY98 DRG updates--DoD. Notice of DRG revised rates.

This notice provides the updated adjusted standardized amounts, DRG relative weights, outlier thresholds, and beneficiary cost-share per diem rates to be used for FY98 under the TRICARE/CHAMPUS DRG-based payment system. It also describes the changes made to the TRICARE/ CHAMPUS DRG-based payment system in order to conform to changes made to the Medicare Prospective Payment System (PPS).

Diagnosis-Related Groups↗

TRICARE/CHAMPUS: FY99 DRG updates--DoD. Notice of DRG revised rates.

This notice describes the changes made to the TRICARE/CHAMPUS DRG-based payment system in order to conform to changes made to the Medicare Prospective Payment System (PPS). It also provides the updated fixed loss cost outlier threshold, cost-to-charge ratios and the Internet address for accessing the updated adjusted standardized amounts, DRG relative weights, and beneficiary cost-share per diem rates to be used for FY 1999 under the TRICARE/CHAMPUS DRG-based payment system.

Diagnosis-Related Groups↗

Medicare program; legislative changes concerning payment to hospitals for federal fiscal year 1991--HCFA. Notice of legislative changes.

This notice describes changes to the Medicare prospective payment system for inpatient hospital services concerning the hospital wage index and the regional payment floor resulting from the provisions of the Continuing Resolution of October 1, 1990 (Pub. L. 101-403). Also described in this notice are those self-implementing portions of sections 4001 (a) and (c), 4002 (e) and (f), 4007, 4151, and 4158 of the Omnibus Budget Reconciliation Act of 1990 (Pub. L. 101-508) that affect Federal fiscal year 1991 payments to prospective payment hospitals and hospitals and units excluded from the prospective payment system. The changes required by these sections affect the following: 15 percent capital payment reduction, use of the regional payment floor, offset for physician assistant services, market basket percentage increase, standardized amounts, hospital-specific rates for sole community hospitals and Medicare-dependent small rural hospitals, target rate of increases for excluded hospitals and units, hospital wage index, payments for graduate medical education, and Part B payment reduction.

Capital Expenditures↗

Civilian Health and Medical Program of the Uniformed Services (CHAMPUS); FY95 DRG updates--DoD. Notice of DRG revised rates.

This notice provides the updated adjusted standardized amounts, DRG relative weights, outlier thresholds, and beneficiary cost-share per diem rates to be used for FY 1995 under the CHAMPUS DRG-based payment system. It also describes the non-regulatory changes made to the CHAMPUS DRG-based payment system in order to conform to changes made to the Medicare Prospective Payment System (PPS).

Diagnosis-Related Groups↗

The increased needs of patients in nursing homes and patients receiving home health care.

To evaluate the effects of Medicare's prospective payment system and Medicaid's preadmission regulations on long-term care, we constructed clinical profiles in 1982 and 1986 of about 500 randomly selected patients from each of three types of facilities: nursing homes with relatively high proportions of Medicare patients (high-Medicare nursing homes; n = 23), traditional nursing homes (n = 19), and home health agencies (n = 18). Data were obtained directly from the care givers on the medical problems, problems requiring skilled nursing, and functional problems of these representative patients from 12 states. For Medicare patients in high-Medicare nursing homes, the prevalence of medical problems and problems requiring skilled nursing increased substantially, whereas the prevalence of functional problems remained relatively unchanged. For example, from 1982 to 1986 there was a marked increase in the frequency of tube feedings (21 to 29 percent), oxygen use (6 to 14 percent), urinary tract infection (7 to 13 percent), and diastolic hypertension (1 to 10 percent), but not difficulty in eating (48 to 51 percent) or speaking (28 to 29 percent). In contrast, in traditional nursing homes there was an increase in the prevalence of functional disability, but virtually no change in that of problems requiring medical and skilled nursing care. In home health care the functional care needs of Medicare patients increased significantly, and there was a slight increase in the prevalence of problems requiring medical and skilled nursing care. We conclude that from 1982 to 1986 the needs of patients in long-term care increased substantially. This trend appears to result from Medicare's prospective payment system, which encourages earlier hospital discharge to long-term care settings, and from Medicaid's policy of de-institutionalization. Meeting this greater need for care will be costly. We require a better system of reimbursing for long-term care and ensuring its quality.

Deinstitutionalization↗

Changes in quality of care for five diseases measured by implicit review, 1981 to 1986.

We measured quality of care before and after implementation of the prospective payment system. We developed a structured implicit review form and applied it to a sample of 1366 Medicare patients with congestive heart failure, acute myocardial infarction, pneumonia, cerebrovascular accident, or hip fracture who were hospitalized in 1981-1982 or 1985-1986. Very poor quality of care was associated with increased death rates 30 days after admission (17% with very good care died vs 30% with very poor care). The quality of medical care improved between 1981-1982 and 1985-1986 (from 25% receiving poor or very poor care to 12%), although more patients were judged to have been discharged too soon and in unstable condition (7% vs 4%). Except for discharge planning processes, the quality of hospital care has continued to improve for Medicare patients despite, or because of, the introduction of the prospective payment system with its accompanying professional review organization review.

Aged↗

Civilian Health and Medical Program of the Uniformed Services (CHAMPUS); DRG revised rates--DoD. Notice of DRG revised rates.

This notice provides the updated adjusted standardized amounts, DRG relative weights, outlier thresholds, and beneficiary cost-share per diem rates to be used for FY 1994 under the CHAMPUS DRG-based payment system. It also describes the non-regulatory changes made to the CHAMPUS DRG-based payment system in order to conform to changes made to the Medicare Prospective Payment System (PPS).

Diagnosis-Related Groups↗

The effects of managed care and prospective payment on the demand for hospital nurses: evidence from California.

OBJECTIVE: To examine the effects of managed care and the prospective payment system on the hospital employment of registered nurses (RNs), licensed practical nurses (LPNs), and aides. DATA SOURCES: Hospital-level data from California's Office of Statewide Health Planning and Development (OSHPD) Hospital Disclosure Reports from 1976/1977 through 1994/1995. Additional information is extracted from OSHPD Patient Discharge Data. STUDY DESIGN: Multivariate regression equations are used to estimate demand for nurses as a function of wages, hospital output, technology level, and ownership. Separate equations are estimated for RNs, LPNs, and aides for all daily services and for medical-surgical units. Instrumental variables are used to correct for the endogeneity of wages, and fixed effects are included to control for unobserved differences across hospitals. PRINCIPAL FINDINGS: HMOs are associated with a lower use of LPNs and aides, and HMOs do not have a statistically significant effect on the demand for RNs. Managed care has a smaller effect on nurse staffing in medical-surgical units than in daily service units as a whole. The prospective payment system does not have a statistically significant effect on nurse staffing. CONCLUSIONS: HMOs have affected nursing employment both because HMOs have reduced the number of discharges and because of a direct relationship between HMO penetration and the demand for LPNs and aides. Contrary to press reports, LPNs and aides have been affected more by HMOs than have registered nurses.

California↗