Psychiatric DRGs: more risk for hospitals?

The diagnosis related group (DRG) system, which replaced the cost-plus system of reimbursement, was implemented in 1983 by Medicare to cover medical expenses on a prospective basis. To date, the DRG system has not been applied to psychiatric illness. The authors compare the likelihood of cost overruns in psychiatric illness with that of cost overruns in medical illness. The data analysis demonstrates that a prospective payment system would have a high likelihood of failure in psychiatric illness. Possible reasons for failure include wide variations in treatments, diagnostics, and other related costs. Also, the number of DRG classifications for psychiatric illness is inadequate.

Economics of practice and inpatient care

The nature and structure of inpatient psychiatric services are rapidly evolving. This article identifies and explores how these changes are being influenced by four interrelated areas: rapid growth in general and private hospital psychiatric practice; increased connections of public, private, and voluntary sectors of care; the emergence and quick acceptance of capitated and managed care programs; and dramatic change and growth in the insurance industry. These four interrelated areas further the development of a two-tier system in psychiatry: one for those with insurance, and one of the poor and the severely disabled. The changes in these four areas have also led to greater demand for increased economic competition among services, and new alliances and innovations in the delivery of treatment. This article discusses how the four areas have combined to support a two-tier system and how they are likely to affect the future evolution of general and private hospital inpatient psychiatric practice.

Substitution of self-reporting for observing time spent on work activities by mental health professionals

Self-reported time spent on work activities by mental health professionals during 1147 1/2 hr. compared favorably with the results of a study that involved direct observation of professionals' time spent on work activities.

Inpatient psychiatric units in nonteaching general hospitals. Response to public mental health policy or hospital economics?

The purpose of the study was to determine the extent to which the existence of inpatient psychiatric units (IPU) in general hospitals is related to patient service "needs," to certain economic and organizational characteristics of general hospitals, or to both. Area and institutional characteristics of general hospitals in Massachusetts were analyzed with multivariate techniques. Interviews were also conducted with representatives from hospitals and the Massachusetts Department of Mental Health in three mental health catchment areas. Most of the teaching hospitals in the state have IPUs. The study indicated that a statistical difference exists between characteristics of IPU and non-IPU nonteaching general hospitals. The probability that a nonteaching general hospital will have an IPU is related to both market conditions and institutional characteristics of the hospital. Nonteaching general hospitals with IPUs were more likely to be located in areas with higher incomes but fewer office-based psychiatrists per capita. IPU hospitals were also more likely to be larger and to receive a higher percent of their revenues from Medicaid than their non-IPU counterparts. The study did not provide evidence that "need" as defined by traditional indicators was an influential factor in IPU existence.

Med-psych units. Financial viability and quality assurance

Although medical-psychiatric units may have unique advantages for treating patients with combined medical and psychiatric illness, they may be costly to run, and their success requires a sound financial basis. This begins with filling beds and instituting a waiting list, and then setting admission priorities to regulate case mix deliberately to address financial as well as ethical and clinical considerations. Development of short-stay geropsychiatric evaluation services may offset financial problems associated with long stays of elderly patients requiring definitive treatment for complex conditions. Data are presented to show the effectiveness of deliberate regulation of case mix. Regarding quality assurance, key issues include maintaining documentation to meet HCFA standards for DRG exemption, and effectively integrating physical and psychiatric care, with a special focus on drug interactions and psychiatric toxicities of medical drugs. Effective multidisciplinary treatment planning meeting help in this effort, as do periodic walking rounds focusing specifically on pharmacologic issues. Denials of payment by third parties are most likely to be a problem when both the medical and the psychiatric illness are subacute but their interaction requires conjoint inpatient treatment. Prospective work with PROs can minimize retrospective denials.

Administrative issues in inpatient child and adolescent psychiatry

There has been a dramatic increase in the number of inpatient child and adolescent psychiatric inpatient beds within the past 5 to 10 years. Child psychiatrists have not been trained to play a leadership role in the development and management of these units. Important issues facing the administrative child psychiatrist include the role of the medical director, the development of the clinical program, staffing of the inpatient unit, the design of the physical plant, financing of inpatient care, promotion of the services, and relationship with medical staff.

Simulating policy options for psychiatric care in general hospitals under Medicare's PPS

Psychiatric hospitals and certain distinct part psychiatric units of general hospitals are currently exempt from diagnosis related group (DRG)-based payment under Medicare's prospective payment system (PPS), in large part due to concern about the degree to which such payment would match historical costs for these facilities. This communication simulates DRG-based payments for psychiatric admissions to general hospitals under the PPS and also under a modified version of the PPS. Two major types of modifications are made: (1) an increase in the role of outlier payments and (2) a restructuring of the DRG classification to allow for a difference in the basic payment rate, depending on whether or not care is provided in a facility that is currently exempt. When compared with cost data from just before the start of the PPS, the simulation results show the degree to which these hypothetical modifications will decrease the systematic risk of general hospitals with exempt units from receiving payments that fall short of costs.

Decentralized services for public hospital patients: a cost analysis

Dr. Sharfstein's introduction: In this era of cost containment and fiscal constraint, it is critical to consider alternative methods of delivering public psychiatric care that emphasize decentralized approaches, shortened lengths of stay, and innovative clinical interventions. This month's report dramatically illustrates the cost savings that can be achieved in a decentralized treatment program, particularly costs associated with the judicial process and involuntary commitment. The need for high-quality services at the local level is greater than ever.

The decision to seek an exemption from PPS

This paper examines the receipt of exemptions from Medicare's Prospective Payment System (PPS) for distinct part psychiatric units of general hospitals. A logit model of the exemption status of 1,045 psychiatric units is estimated using 1984 data. The results suggest that units that were expected to profit from a change in payment method (cost based on PPS) were least likely to obtain an exemption from PPS.

Fiscal and service analyses in general hospital psychiatry

Fiscal matters were analyzed in four specialized programmes of the Department of Psychiatry at the Toronto Western Hospital in order to plan for service and academic activities. The resultant analysis allowed for the establishment of criteria for growth and the evaluation of clinical service performance and goals.

Psychiatry under prospective payment: experience in the first year

The authors present data on changes in resource use by Medicare psychiatric patients in general hospitals after the introduction of the prospective payment system in 1984. Length of stay and charges per discharge during fiscal year 1984 fell 13.8% and 15.9%, respectively, after the new system began, even though 31.8% of the discharges for Medicare psychiatric cases were from exempt psychiatric units. The decrease in length of stay was considerably larger (23.2%) in hospitals with no psychiatric units, which were not exempt from prospective payment.

The evaluation of a hostel ward. A controlled study using modified cost-benefit analysis

A controlled modified cost-benefit evaluation of a hostel ward caring for new long-stay patients is described and results are presented for the first two years. In some respects the residents of the hostel ward had fewer psychotic impairments than those remaining on the wards of the district general hospital, mainly because the latter seem to continue to acquire such defects, while the former have remained relatively unchanged. The hostel ward residents also develop superior domestic skills, use more facilities in the community, and are more likely to be engaged in constructive activities than controls. These advantages were not purchased at a price, since the cost of providing this form of care for these patients has cost less than care provided by the district general hospital.

A method for comparing two systems of acute 24-hour psychiatric care

A quasi-experimental method was developed to evaluate the cost-effectiveness of a public system of 24-hour acute psychiatric care in Santa Clara County, California, before and after a new treatment setting was introduced. The original system relied on a 54-bed psychiatric unit in a county general hospital; the new system consisted of a 20-bed unit in the general hospital plus a 45-bed nonhospital psychiatric health facility. The study demonstrated that the per diem cost of the psychiatric health facility was approximately 60 percent that of the original general hospital unit, but the average difference in cost per episode between the two systems was only about +25, primarily due to longer lengths of stay in the new system. In addition, patients treated in the new, combined system appeared sicker at discharge than those treated in the old system. The findings suggest the importance of simultaneously evaluating both cost and treatment effectiveness to make sure that one element does not dominate program direction at the expense of the other.

An analysis of DRG-based reimbursement for psychiatric admissions to general hospitals

The authors analyzed the potential financial impact of paying general hospitals on the basis of diagnosis-related groups (DRGs) for Medicare alcohol-drug abuse and psychiatric admissions. Average costs per admission were substantially higher for general hospitals with special psychiatric units that are currently exempt from the prospective payment system (PPS) than for hospitals without exempt units. Simulations of DRG-related payments indicated that these payments would be greater for admissions to hospitals with exempt psychiatric units than for admissions to hospitals without exempt units. However, the differences in costs between these two types of facilities were greater than the differences in payments that would occur under a PPS.

The impact of cost containment on alcohol and drug treatment

Hospitals offering alcohol and drug treatment programs that meet certain criteria are currently exempt from Medicare's prospective payment system, which was introduced in October 1983 as a means of containing medical costs. Substance abuse experts have successfully lobbied for changes in the alcohol and drug diagnosis-related groups (DRGs) on which reimbursement is based so that they now more accurately reflect patterns of inpatient detoxification and rehabilitation. However, major adjustments are still necessary to protect the quality of care and financial diversity of substance abuse treatment programs. Differences in types of treatment facilities must be considered in order to prevent a major redistribution of funds away from facilities offering specialized care. Incentives to reduce costs must be balanced with a determination to maintain high-quality care.

Patient characteristics predictive of treatment costs on inpatient psychiatric wards

A study to determine patient characteristics that are predictive of treatment costs was conducted at the Neuropsychiatric Institute and Hospital of the University of California, Los Angeles. Using nursing care time utilized and length of stay as measures of resource consumption, the study identified several characteristics, such as age and the presence of medical comorbidities, that are predictive of the costs of delivering care. Besides providing information valuable to administrators for product costing, the results of the study augment recent research demonstrating the inadequacy of relying on diagnosis alone--as is the case for psychiatric services under the current Medicare prospective payment system--to predict resource consumption.

The changing patient population in general hospital psychiatric services

There has been a profound expansion in the past 25 years in the numbers and categories of psychiatric patients treated in general hospital programs. These changes have been stimulated by new technologies, better integration of health and other human services systems, and changing fiscal concerns. Particularly affected have been inpatient units, emergency services, and the ambulatory care and consultation-liaison sections. Much greater attention and more effective treatments are currently available for involuntary, geriatric, and substance abuse patients, as well as patients with chronic psychiatric illnesses and a few discrete clinical entities. General hospitals need to continue to refine and expand their role as a major clinical component in the comprehensive psychiatric care delivery system.

Effects of proprietary management in general hospital psychiatric units

The rapid increase in the number of proprietary psychiatric hospitals during the last 15 years has drawn criticism from those concerned about the impact of the profit motive on the quality of patient care. This study assessed changes in the structure and quality of care on 13 acute care psychiatric units before and after a single outside proprietary firm was hired to manage the units. The study found significant improvements in many areas after the change; they included higher occupancy rates, higher staffing levels, more hours of staff inservice training, higher collections-to-billings ratios, and improved program structure and process as measured by Joint Commission on Accreditation of Hospitals criteria. No changes were found in the length of stay or diagnostic mix of patients. The findings indicate that program quality and profit are not necessarily incompatible, but the author cautions against making generalizations to other situations based on the small study sample.

An alternative to DRGs. A clinically meaningful and cost-reducing approach

A statistical methodology based on the Cox proportional hazards model (a survival time analysis method), an alternative to the approach underlying DRGs, is presented. The method is used to obtain an estimate of the length-of-stay (LOS) distribution of a patient incorporating either patient-specific or hospital variables. A percentile of the distribution chosen to minimize prediction error serves as the assigned LOS. Absolute deviation is used as the loss function both to determine the choice of a predicted LOS and to examine how well the scheme works. Multiple assignment schemes may also be developed from this approach. The results of the method, tested on a national probability sample of 4,608 psychiatric patients treated in psychiatric units of general hospitals, suggest that with respect to average absolute deviation, the proposed methodology may provide a scheme that is superior to the present DRG scheme. For the sample, the average percent improvement obtained using the median of the estimated LOS distribution as the predicted LOS over the sample mean of the DRG group is 19%. A two assignment strategy results in average improvements over DRGs of 43%.

Diagnosis-related groups and general hospital psychiatry: the APA Study

Psychiatric units in general hospitals are exempt from diagnosis-related groups (DRGs), a system of per case prospective payment that is used for the majority of patients covered by Medicare. The American Psychiatric Association purchased a large hospital discharge data base and studied the potential impact of DRGs on psychiatric patients and inpatient psychiatric units in general hospitals. There was substantial inaccuracy in the psychiatric DRGs' prediction of resource use, which could lead to inappropriate discharge of patients and financial risk to hospitals that treat more severe cases. The authors advocate further research because psychiatry must anticipate prospective payment in the future.

Contrasting models for combined medical and psychiatric inpatient treatment

The authors contrast the clinical, administrative, and reimbursement aspects of two units offering combined medical and psychiatric inpatient treatment, one under medical auspices (the medical/psychiatric model), the other under psychiatric auspices (the psychiatric/medical model). The typical patient on both units suffered from depression with prominent somatic symptoms. The psychiatric/medical model was clinically advantageous because of its greater capacity for containing agitated, psychotic, and suicidal behavior and because of its potentially longer lengths of stay for refractory patients. Furthermore, the psychiatric/medical model offers more predictable payment for psychotherapy under fee-for-service insurance and is less likely to be adversely affected by the current prospective payment system based on diagnosis-related groups.

Financial incentives for alternatives to hospital care

Many studies have shown that there are cost-effective alternatives to 24-hour hospital care. The new era of medical economics emphasizes prospective payment and alternative delivery systems. This provides new opportunities for psychiatric patients to receive appropriate care outside the traditional inpatient context.

Toward the integration of psychosocial services in the general hospital. The human services department

This article describes an innovative administrative organization for the delivery of psychologic care in the contemporary teaching hospital that, by combining services under medical leadership, takes an evolutionary beyond multidisciplinary team approaches. The long-range goal of this organization is to provide cost-effective psychosocial services in the general hospital while maintaining the unique role contributions of the participating disciplines. To allow for informed decision making in this process, the initial step has been to establish a collaborative data base for patient and staff tracking, program planning, and evaluation.

Prospective payment and psychiatric discharges from general hospitals with and without psychiatric units

For psychiatric patients treated in general hospitals, the prospective payment system does not differentiate between patients treated in medical-surgical wards and patients treated in psychiatric units. In particular, the system uses a single length-of-stay norm for both kinds of patients, even though psychiatric patients in medical-surgical units have shorter stays. The authors document major differences in length of stay and hospital charges for both groups of patients in relation to selected patient and hospital characteristics. They conclude that the current reimbursement procedures systematically overpay for stays in nonpsychiatric units and underpay for stays in psychiatric units, and they suggest mechanisms for partly reducing such inequities.

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.

Nursing home care as an alternative to psychiatric hospitalization. A Veterans Administration cooperative study

Nursing homes have played a major role in deinstitutionalization, and their increased use for the mentally ill has been questioned. We performed a controlled study of nursing homes as an alternative to continued psychiatric hospitalization. Men (N = 403) referred for nursing home placement from eight Veterans Administration medical centers were randomly assigned to community nursing homes (CNHs), Veterans Administration nursing care units, continued care on the same ward, or transfer to another psychiatric ward. Patients met defined criteria for schizophrenia or organic brain disease. Data were collected before random assignment and six and 12 months later, covering physical and mental function, psychopathology, mood, social adjustment, satisfaction with care, as well as drug use, characteristics of settings, and movement in and out of settings. Significant differences between settings were found in self-care, behavioral deterioration, mental confusion, depression, and satisfaction with care. Results were strikingly consistent, showing the group transferred to another ward doing better and the CNH group doing worse. Drug use did not differ from six months before entering the study or later between the settings. Cost showed a marked advantage for the CNH group. Thus, the less costly community nursing home alternative must be viewed in the context of the nonmonetary costs of less favorable patient outcome.

Federally funded CMHCs: the effects of period of initial funding and hospital affiliation

Previous research on federally funded community mental health centers has largely failed to recognize fundamental differences among different types of centers. Here we show that such basic factors as the arrangement for providing inpatient services and the period of initial federal funding have large effects on the development and organization of a center. Although the centers joining the federal program from 1965-1970 are the largest, those facilities funded between 1971-1975 are generally smaller than those funded later. The arrangement for providing inpatient services has an important effect on staffing. This work suggests the national norms may not be the most useful data for evaluating past performance or planning the future of a specific center.

DRGs in psychiatry. An empirical evaluation

On October 1, 1983, Medicare began paying general hospitals by a prospective payment system based on DRGs. Psychiatric settings are exempted automatically or by request. By January 1985, however, a decision is required on how to integrate psychiatric settings into this system. This article provides an empirical analysis of the current DHHS DRGs categories for mental disorders. Current mental disorder DRGs and alternate DRGs examined here explain less than 3-12% of the variation in psychiatric length of stay. This is in contrast to 30-50% explained variation for other disorders. Alternatives and policy implications are discussed.