Diagnosis-related group and other prospective payment systems: problems and prospects.
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How did Medicare's prospective payment system affect hospitals?
Using data from 1982 and 1984, we examined how Medicare's prospective payment system affected hospitals. The study showed that hospitals paid through the prospective payment system had significantly lower increases in Medicare costs and greater declines in Medicare use than did other hospitals. Unlike these other hospitals, for which Medicare costs approximately equaled Medicare revenues, hospitals receiving prospective payment kept Medicare costs from rising as fast as Medicare revenues, earning the profit that the prospective payment system allowed. The opportunity to earn a profit led hospitals to slow increases in Medicare costs, regardless of the level of revenue constraint. However, the more the prospective payment system constrained hospitals' revenues, the more hospitals slowed increases in Medicare costs. In the most constrained hospitals, slower increases in Medicare costs were accompanied by slower increases in total hospital spending. The least constrained hospitals slowed Medicare cost increases the least and did not show their overall spending. These hospitals nevertheless increased their profit margins the most, since the prospective payment system's federal rate paid them the highest rates relative to base-year costs. Since federal rates produced extra profits, not extra cost containment, their appropriateness is questionable. The prospective payment system should be modified to eliminate windfalls while continuing to promote cost containment.
Cost Control↗
Case shifting and the Medicare Prospective Payment System.
We assessed impacts of the Medicare Prospective Payment System (PPS) during its first two years of operation (1984-85) on 467 hospitals using data from the Commission on Professional and Hospital Activities and from the American Hospital Association. Medicare discharges as a per cent of total discharges remained constant between 1983 and 1985, but the per cent of uninsured patients increased, especially at large public hospitals. The number of Medicare and total discharges per hospital declined. The number of complex diagnosis related groups (DRGs) increased, both for Medicare and non-Medicare. This trend began before the implementation of PPS and affected all types of hospitals. There was also an appreciable increase in case mix types of hospitals. There was also an appreciable increase in case mix severity within specific DRGs during 1980-85. The proportion of total patients received from or transferred to other hospitals rose after 1983, but these increases were very small. The per cent of Medicare patients admitted through the emergency room increased, especially after 1983. By contrast, the share of total non-Medicare admissions through the emergency room (ER) remained stable. Although the growth of the number of uninsured and Medicare patients admitted through the ER predate PPS, they may be influenced by it and warrant further monitoring.
Diagnosis-Related Groups↗
Prospective payment systems: steps to enhance quality, efficiency, and regionalization.
The prospective payment system has many benefits and risks for the hospital industry. A quality-enhancing bidding process can be used to redistribute any unfair windfall profits, and foster quality care, effectiveness, efficiency, and productivity.
Competitive Bidding↗
Accuracy of diagnostic coding for Medicare patients under the prospective-payment system.
Reimbursement of hospitals by Medicare under the prospective-payment system is based on patients' diagnoses as coded at discharge. During the period October 1984 through March 1985, we studied the accuracy of the coding for diagnosis-related groups (DRGs) in hospitals receiving Medicare reimbursement. We used a two-stage cluster method to sample 7050 medical records from 239 hospitals that were stratified according to size. Using blinded techniques with reliability checks, medical-record specialists reabstracted the International Classification of Diseases, Ninth Revision, Clinical Modification (ICD-9-CM) codes to assign correct DRGs to discharged patients. The correct DRGs were then compared with those originally assigned by the physician and the hospital administration. The study revealed an error rate of 20.8 percent in DRG coding. Errors were distributed equally between physicians and hospitals. Small hospitals had significantly higher error rates. Previous studies had found that errors occurred randomly, so that half the errors benefited the hospital financially and half penalized the hospital. The present study found that a statistically significant 61.7 percent of coding errors favored the hospital. These errors caused the average hospital's case-mix index--a measure of the complexity of illness of the hospital's patients--to increase by 1.9 percent. As a result, hospitals received higher net reimbursement from Medicare than was supportable by the medical records. We conclude that "creep" does occur in the coding of DRGs, resulting in overpayment to hospitals for patients covered by Medicare.
Abstracting and Indexing↗
Challenges in bringing exempt psychiatric services under a prospective payment system.
By December 31, 1985, the Secretary of the Department of Health and Human Services must report to Congress on whether psychiatric programs now exempt from Medicare's prospective payment system can be brought under that system, and if so, how. The underlying issue is determining how funds for psychiatric treatment should be divided up between psychiatric facilities. After discussing the advantages of incorporating psychiatric services into the prospective payment system, the authors review the criteria and methods for evaluating a psychiatric prospective payment system and suggest ways that the current classification and payment systems can be improved. Steps to ease the transition to prospective payment are reviewed, as are issues requiring further research.
Costs and Cost Analysis↗
Implications of Medicare's prospective payment system for the provision of uncompensated hospital care.
Medicare's prospective payment system (PPS) has the potential to directly affect the level of uncompensated care provided by hospitals. Hospitals that realize deficits for their Medicare patients may have to limit provision of uncompensated care whereas those that realize surpluses may provide more free care. This paper measures these potential effects by combining simulation estimates of PPS's impact on the revenues of high-volume providers of uncompensated care with regression estimates of the impact of changes in hospitals' financial margins on uncompensated care. Our analysis indicates that PPS may result in a slight increase in the aggregate amount of uncompensated care provided by hospitals, but that it will likely reduce care for the indigent in some localities. Potential modifications to PPS--particularly those that limit price increases or reduce the indirect teaching adjustment--could eventually reduce any of the initial positive effects on uncompensated care and enhance the negative effects.
Cost Allocation↗
Medicare reimbursement accuracy under the prospective payment system, 1985 to 1988.
BACKGROUND: Hospital reimbursement by Medicare's prospective payment system depends on accurate identification and coding of inpatients' diagnoses and procedures using the International Classification of Diseases, Ninth Revision, Clinical Modification (ICD-9-CM). A previous study showed that 20.8% +/- 0.5% (mean +/- SE) of hospital bills for 1985 contained errors that changed their diagnosis related group (DRG) and that a significant 61.6% +/- 1.3% of errors overreimbursed the hospitals. This DRG "creep" improperly increased net reimbursement by 1.9%, +308 million when projected nationally. The present study updated our previous study with 1988 data. METHODS: The Office of Inspector General, US Department of Health and Human Services, obtained a simple random sample of 2451 hospital charts for Medicare discharges from 1988. The American Medical Record Association reabstracted the ICD-9-CM codes on a blinded basis, grouped them to DRGs, and determined the reasons for discrepancies. RESULTS: Coding errors declined to 14.7% +/- 0.7% in 1988, and a nonsignificant 50.7% +/- 2.6% of DRG errors overreimbursed the hospitals. Projected nationally, hospitals did not receive a significant overreimbursement. Physician misspecification of the narrative diagnoses underreimbursed the hospitals, while billing department resequencing overreimbursed them. CONCLUSIONS: The attestation requirement may have deterred DRG creep due to attending physician upcoding, but the peer review organizations' sentinel effect and educational activities have not eliminated hospital resequencing.
Abstracting and Indexing↗
Quality of care before and after implementation of the DRG-based prospective payment system. A summary of effects.
In this series we have described changes in the quality of care that have occurred in the treatment of hospitalized elderly Medicare patients with one of five conditions between 1981-1982 and 1985-1986. In this article we report on a mortality analysis, patient and hospital subgroup comparisons, and time series studies we have conducted in an attempt to determine whether changes in quality of care can be linked causally to the introduction of the prospective payment system. Based on these analyses we conclude that (1) mortality following hospitalization has been unaffected by the introduction of the prospective payment system, and improvements in in-hospital processes of care that began prior to the prospective payment system have continued after its introduction, but (2) the prospective payment system has increased the likelihood that a patient will be discharged home in an unstable condition. We recommend that efforts to correct this problem be intensified and that clinical monitoring of the impact of the prospective payment system continue as hospital cost-containment pressures intensify.
Continuity of Patient Care↗
Ethical issues in the use of a prospective payment system: the issue of a severity of illness adjustment.
The current Medicare prospective payment system has many positive incentives for hospitals to control costs. Hospitals are increasing outpatient surgery, decreasing admissions, decreasing length of stay, and decreasing use of ancillary services. These are just the effects that Congress and the Health Care Financing Administration hoped for to save the Medicare trust fund. However, there has been evidence of some adverse outcomes including premature discharge, "dumping" sicker patients and patients without insurance, and adverse impact on hospitals with specialty centers. We examine these issues and present a possible solution based on a new Computerized Severity Index.
Cost Control↗
Effect of the Medicare prospective payment system on the utilization of physical therapy.
The purpose of this study was to examine the effect of the Medicare prospective payment system on the utilization of physical therapy for patients served by Medicare. The total number of inpatient and outpatient physical therapy referrals and the percentage of physical therapy Medicare referrals from January 1981 through May 1985 for the 336 acute care beds in the county selected for this study were analyzed. The results indicated that acute care inpatient and outpatient physical therapy Medicare referrals have increased significantly since the implementation of the diagnostic related group system. The results indicate that physical therapy is being used increasingly to rehabilitate patients within the time and economic constraints established by the Medicare prospective payment system.
Aged↗
Changing patterns of hip fracture care before and after implementation of the prospective payment system.
We tested the hypothesis that since the implementation of the prospective payment system (PPS), elderly patients hospitalized for hip fractures receive shorter, less care-intensive hospitalizations and are more frequently institutionalized. In blinded fashion, we reviewed the charts of elderly patients with hip fractures admitted to a municipal hospital from 1981 through 1985. Demographic and clinical characteristics of patients treated before implementation of the PPS were similar to patients treated thereafter. After implementation of the PPS, the mean length of hospitalization fell from 16.6 to 10.3 days, and the mean number of physical therapy sessions received decreased from 9.7 to 4.9. Concomitantly, the proportion of patients discharged to a nursing home increased (21% to 48%), as did the proportion receiving nursing home care at six months after discharge (13% to 39%). This increase in long-term nursing home placement suggests that the quality of care for elderly patients with hip fractures may have deteriorated.
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Measuring quality of care with explicit process criteria before and after implementation of the DRG-based prospective payment system.
We developed explicit process criteria and scales for Medicare patients hospitalized with congestive heart failure, myocardial infarction, pneumonia, cerebrovascular accident, and hip fracture. We applied the process scales to a nationally representative sample of 14,012 patients hospitalized before and after the implementation of the diagnosis related group-based prospective payment system. For the four medical diseases, a better process of care resulted in lower mortality rates 30 days after admission. Patients in the upper quartile of process scores had a 30-day mortality rate 5% lower than that of patients in the lower quartile. The process of care improved after the introduction of the prospective payment system; eg, better nursing care after the introduction of the prospective payment system was associated with an expected decrease in 30-day mortality rates in pneumonia patients of 0.8 percentage points, and better physician cognitive performance was associated with an expected decrease in 30-day mortality rates of 0.4 percentage points. Overall, process improvements across all four medical conditions were associated with a 1 percentage point reduction in 30-day mortality rates after the introduction of the prospective payment system.
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The impact of new reimbursement schemes on clinical research in hospitals: the case of the Prospective Payment System.
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Hospitals↗
Profits and fiscal pressure in the prospective payment system: their impacts on hospitals.
For hospitals that were under Medicare's Prospective Payment System (PPS) for one and two years in their 1985 fiscal year, this paper examines how variation in the fiscal pressure PPS imposed affected expenditures and other aspects of behavior. The analysis shows that in hospitals' second as well as first year on PPS, hospitals under greater pressure experienced greater behavioral change. However, second year changes were far smaller than changes in the system's first year. Evidence that variation in pressure reflects factors in addition to hospitals' relative efficiency and may undermine rather than promote appropriate cost containment leads the authors to propose modifications in PPS methods.
Costs and Cost Analysis↗
Coronary angioplasty under the prospective payment system: the need for a severity-adjusted payment scheme.
To evaluate the adequacy of Diagnosis Related Group prospective payment for percutaneous transluminal coronary angioplasty, the clinical characteristics, length of stay and hospital charges of all patients undergoing this procedure at Boston's Beth Israel Hospital during a 100 day period were examined. Of 113 such patients, the 61 patients in whom nonelective dilation was performed for unstable or postinfarction angina had a significantly greater length of stay and total hospital charge (10 +/- 6 days and $14,700 +/- $7,400, respectively) than did the 52 patients in whom elective dilation was performed (6 +/- 5 days and $8,500 +/- $7,700, respectively, p less than 0.0001). Under the current prospective payment system, however, these two groups of patients would have been placed in the same Diagnosis Related Group, and would have thus commanded equal institutional reimbursement. One potential revision of the payment system is presented to help to deal with this disparity.
Adult↗
The impact of Medicare's prospective payment system on Wisconsin nursing homes.
To assess the impact of Medicare's prospective payment system (PPS) on nursing homes, we reviewed hospitalization and mortality data for Wisconsin's Medicaid and general elderly populations. During the 12 months following implementation of the PPS, Wisconsin's institutionalized elderly Medicaid population experienced a 72% increase in the rate of hospitalization and a 26% decline in hospital length of stay. Two explanations for the increased hospitalization include physician manipulation of the PPS and increased rehospitalization of nursing home residents who may have been discharged prematurely from hospitals. Between 1982 and 1985, analysis of mortality data revealed a 26.2% increase in the rate of deaths occurring in nursing homes. The increase in nursing home deaths began in 1983 and was associated with a 10.3% decline in hospital deaths during the same period. Using a series of logistic analyses, the shift in location of death from hospitals to nursing homes was found to be more pronounced after implementation of the PPS. This change in location of death may reflect both a less aggressive use of hospital resources by physicians caring for terminally ill patients and a transfer of seriously ill patients to nursing homes for terminal care.
Aged↗
The impact of the prospective payment system on the treatment of hip fractures in the elderly.
A review of 386 Medicare patients with hip fractures admitted to a private, suburban, teaching hospital from 1981 through 1987 revealed that since the implementation of the prospective payment system in 1984, average hospital stays declined from 17.0 days to 12.9 days (24.1%). Although the mean number of physical therapy sessions declined from 11.1 to 9.8 (11.7%), the average number of treatments per day during the physical therapy phase actually increased from 1.2 before to 1.4 after the prospective payment system. The proportion of patients discharged to nursing homes remained the same (52.9% vs 53.6%); the proportion of patients remaining in a nursing home 6 months after hospital discharge did not differ significantly (22.6% vs 19.9%). Furthermore, there were no differences in the 6-month ambulation status. Total adjusted average hospital charges for the pre- and post-prospective payment system groups did not increase significantly ($7295 vs $7565). These findings do not support the contention that the quality of care provided Medicare patients with hip fractures has deteriorated in this hospital environment.
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