Medicare hospital payment by diagnosis-related groups

The financial impact of Medicare diagnosis-related groups. Effect upon hospitals receiving cardiac patients referred for tertiary care

To evaluate the financial effects of diagnosis-related groups, we compared 128 Medicare and 183 non-Medicare cardiac patients aeromedically evacuated to a major referral center for critical care. A significant difference (p less than 0.05) was found between Medicare patients vs non-Medicare patients for age (71 +/- 7 vs 51 +/- 9 years) and mortality (13 percent vs 6 percent). No significant difference was found for admissions to the intensive care unit (95 percent vs 95 percent), mean length of stay in intensive care (4.7 +/- 5.3 vs 3.9 +/- 5.4 days), mean length of hospitalization (9.6 +/- 7.5 vs 7.9 +/- 7.0 days), mean number of International Classification Diagnoses (ICD-9) surgical operations (0.8 +/- 1.3 vs 0.6 +/- 1.2), and mean number of ICD procedures (3.0 +/- 2.3 vs 3.3 +/- 2.1). The average cost of care ($13,427 +/- $12,700 per patient) for Medicare patients was higher but not statistically different from non-Medicare patients ($10,474 +/- $10,114 per patient). Prior cost-based Medicare payments ($10,594 +/- $9,861 per patient) have been significantly (p less than 0.01) reduced by 24 percent under the Medicare diagnosis-related group (DRG) prospective payment system ($8,024 +/- $4,824). The DRG payments are significantly less than (p less than 0.001) and provide only 60 percent of the true hospital cost required to care for Medicare cardiac patients referred for tertiary care ($13,427 +/- $12,700 per patient). A Medicare DRG system adopted by third-party payers would reduce present hospital revenues from $9,524 +/- $8,422 per patient to $7,968 +/- $4,800 per patient and would provide only 68 percent of the cost required in the care of all cardiac patients referred for tertiary care ($11,690 +/- $11,344). The results of this study indicate that hospitals that receive large numbers of seriously ill cardiac patients, especially Medicare patients, referred for critical care are at a significant financial disadvantage under the Medicare DRG system. Future economic pressures may prohibit critical care treatment centers from accepting large numbers of cardiac patients referred for intensive care and reimbursed under the current Medicare DRG payment policy.

Provider behavior under prospective reimbursement. Cost sharing and supply

This paper develops a model in which physicians choose the level of services to be provided to their patients. We show that if physicians undervalue benefits to patients relative to hospital profits, prospective payment, a system in which hospitals receive a payment dependent on the diagnosis-related group within which a patient falls, can lead to too few services being provided. In contrast, a 'cost-based' reimbursement system is shown to result in too many services being provided. Competition between hospitals for physicians will tend to augment both of these problems. We also examine a mixed reimbursement system, in which hospital reimbursements are paid partly prospectively and partly cost-based. This system is shown under a variety of circumstances to be superior to the other two reimbursement systems by improving the incentives for the efficient level of services, reducing incentives to unnecessarily admit or reclassify patients, and reducing risk to providers.

Office-based care of dermatologic disease

From 1974 to 1981 the number of visits to office-based physicians for dermatologic complaints remained relatively constant. During this period, dermatologists increased their share of patients with such complaints from one third to one half. As a result of the growth in the number of practicing dermatologists, the average number of visits per dermatologist fell during this period. Nearly half of all visits to dermatologists in the 1980-1981 period were for one of three diagnoses: diseases of the sebaceous glands (principally acne), warts, and skin tumors. Competition between dermatologists and other physicians for patients with these three diagnoses is likely to increase. Changes in medical practice structure, a projected increase in the number of dermatologists, and an aging population may make it difficult for dermatologists to preserve the volume of patients they currently see.

Peer review organizations. Promises and potential pitfalls

The Health Care Financing Administration has contracted with 54 peer review organizations (PROs) to monitor hospital use and quality of care for Medicare patients. PROs promised reductions in readmissions, in "unnecessary" admissions or invasive procedures, and in "avoidable" mortality and morbidity. A review of contract summaries for 49 PROs revealed wide variations in reduction targets. In attempting to meet their goals, PROs will encounter numerous potential pitfalls, including inaccurate and incomplete discharge data, inadequate descriptors for the variety of patients and physicians' management plans, honest differences in judgments about patient care, and limited research on the criteria used to set their reduction targets as well as the means to accomplish them. Despite having more explicit quality-of-care objectives, PROs, like PSROs (professional standards review organizations) before them, are more likely to be seen as agents of cost containment than of quality assurance. Both their credibility and their effectiveness might be enhanced if an expert panel of clinicians and health services researchers were established to help them set and achieve reasonable objectives for quality of care.

A survey of prophylactic antibiotic use for total joint replacements in a community hospital

This study was conducted in a nonteaching community hospital to characterize the use of prophylactic antibiotics in patients undergoing total joint replacements by orthopedic surgeons in private practice. Of the 101 patients studied, 43 were started on antibiotics too early, 32 were left on the drugs for too long a period, and 33 received subsequent oral antibiotics without identifiable reason. Seventy-nine (78.2 percent) received 8 g/d of a first- or second-generation cephalosporin for prophylaxis. None of the patients received cefazolin 1 g q8h.

Cost containment in medicine: why cardiology?

In 1984, expenditures for health care in the United States were nearly $350 billion, more than 10% of the gross national product, and continued increases exceeding the general economic growth are projected. Cardiology and cardiovascular surgery represent a large part of this cost, reflecting the many new diagnostic and therapeutic procedures developed over the past 2 decades. Previous cost containment attempts failed because they provided no incentive to reduce spending for advanced technologies and procedures. A method of payment based on a case mix of 467 diagnosis related groups (DRGs), average duration of hospital stay and location of hospitals has been developed for Medicare. A 4-year trial using this method in New Jersey resulted in lower hospital costs per capita than in the rest of the country. In October 1983, a 3-year phase-in for all Medicare payments by the DRG method began. The 43 DRGs assigned to cardiology and cardiovascular surgery are among the highest-weighted for large reimbursement; thus, with the great number of aging patients with cardiac diagnoses, cardiology represents a very large share of the cost of medical care today. Because the quality of care can be determined and compared directly with costs, cardiology DRGs lend themselves to careful analysis. Three components will be examined. Coronary bypass surgery is the largest single reimbursement, thus the rationale for its use should be carefully studied. Coronary care units have markedly increased hospital costs for acute myocardial infarction, but have also improved care.(ABSTRACT TRUNCATED AT 250 WORDS)

Impact of diagnosis-related group-based reimbursement for treatment of rheumatic diseases in a teaching hospital

The impact of Medicare's diagnosis-related group (DRG)-based reimbursement system was examined for care given to 734 rheumatic disease patients discharged from a teaching hospital during a 2-year period. The analysis accounted for length of stay "outliers" as defined by Medicare and distinguished costs from charges. Excluding outliers, DRG reimbursement would result in net revenues to the hospital of +1,126 per DRG 240 patient and $1,794 per DRG 241 patient. The difference between DRGs in cost per patient was significant, indicating that DRGs clearly identify 2 groups of rheumatic disease patients. After excluding outliers, the coefficients of variation in costs for DRGs 240 and 241 were 72% and 80%, respectively, which although high, were average for DRGs at our institution. Mean total charge per patient was different for groups defined by their primary rheumatologic diagnosis in DRG 240 but not DRG 241. For rheumatoid arthritis and systemic lupus erythematosus patients, the total charge per patient did not differ, but the types of services did. The cost of treating outliers would create an average loss per outlier of $18,400 and $16,500, respectively, in DRGs 240 and 241. Outliers accounted for 34.5% and 21.8% of the 2 DRGs' total costs, respectively, but only 6.4% and 3.6% of the total number of patients. Under current DRG reimbursement rates, the cost of care for rheumatology patients would be adequately reimbursed in our hospital: losses from outliers would be offset by net revenues from inliers as long as current Medicare adjustments for capital and medical education costs were continued.

Nosocomial infections, diagnosis-related groups, and study on the efficacy of nosocomial infection control. Economic implications for hospitals under the prospective payment system

It is obvious that escalating costs of medical care must be curbed. Fortunately, since the major proportion of health care costs relate to inpatient management, the diagnosis-related group "experiment" forces the medical community to examine carefully the costs of the specific components of health care delivery. One such item is the cost of nosocomial infections. With respect to the potential importance of hospital-acquired infections and reimbursement under the diagnosis-related group system, several points should be underscored. Nosocomial infections represent a direct economic liability of $5 to $10 billion annually in the United States. Under the new diagnosis-related group reimbursement system, it is probable that very little of the costs related to excess stay resulting from infections will be reimbursed to hospitals. For the first time, there are data indicating that as much as one third of hospital-acquired infections can be prevented by implementing effective infection control programs. The currently available information suggests that under the existing diagnosis-related group reimbursement system, hospitals with effective infection control programs can significantly improve their economic position.