Prospective payment: the next big policy disappointment?

Assessing Medicare's prospective payment system for hospitals

The Medicare prospective payment system for hospitals was created to slow the growth of government spending on health care. This analysis has shown that the program has accomplished its cost-containment objective in the first five years of its existence. The average length of hospital stay has dropped sharply under PPS, reducing hospital costs. These reduced costs combined with payments based on higher pre-PPS historic costs have given hospitals high profits in the early years of PPS. One of the expected but unwanted outcomes, more admissions, has never occurred. The unexpected rop in admissions under PPS has been responsible for government savings on Medicare inpatient care. Although Medicare outpatient hospital and physician expenditures have grown at fast rates during PPS, there is no evidence in aggregate date that they have grown any faster because of inpatient care shifting to avoid PPS payment controls. The Medicare PPS savings have extended to all U.S. hospital spending, which has grown at much slower rates since the implementation of PPS. There have also been negative outcomes from PPS, and some questions posed about PPS remain unanswered. The inflation in "DRG creep" or upcoding that was predicted for PPS did occur. The government has since washed much of this code inflation out of the permanent payment base, but this phenomenon may not be a self-limiting problem, as was widely hoped. To date there is no convincing evidence of poorer quality of care under PPS, but most of the available evidence is based on mortality studies, which have limited use in measuring changes in quality of care. While PPS has helped to slow the growth in Medicare and national hospital spending, it has not had an appreciable effect on the rate of growth in the nation's total health spending. Although it was unintended, PPS has been providing a natural experiment on the issue of whether increased cost sharing dampens demand for health care services. By slowing the growth rate of inpatient hospital spending, PPS has increased the share of Medicare spending under SMI, where beneficiaries have higher coinsurance. The short-run beneficiary response appears to be an increase in demand for Medi-gap health insurance rather than a dampening of demand for services. To this point it appears that Medicare's PPS has been successful in containing the growth in hospital costs while avoiding, or managing, unwanted consequences. (ABSTRACT TRUNCATED AT 400 WORDS)

DRGs U.K. style: a comparison of U.K. and U.S. policies for hospital cost containment and their implications for health status

Health care cost containment in the U.K. has been characterised by the imposition of cash limits on health and personal social services. More recently performance appraisal has been introduced. The U.S. approach, on the other hand, has linked both cost containment and implicit performance appraisal by funding hospital activities on a DRG basis. Under the U.K. approach there is an internal inconsistency between the funding of hospital activities, primarily determined by the characteristics of the served population, and the appraisal of hospital performance by reference to the use of resources in relation to national norms not necessarily corresponding to the characteristics of the served population. Under the U.S. approach performance is appraised implicitly, not by the use of real resources but by the cost to the hospital of the service provision for each individual patient. Consequently the incentive is to minimise the cost of the service provision regardless of the output produced. The incentives, in both the U.K. and the U.S. approach, generate similar effects: an off-loading of responsibility for service provision at the margin onto other sectors of the health care system. They are the response to the incentive to minimise the costs incurred by the hospital in providing services to the patient. Until greater attention in paid to the monitoring of the outcomes achieved by all sectors of the health care system, and to the incentives generated to shift demands between the sectors, the respective policies will continue to be successful simply in controlling the resource cost of the hospital system.

Software for health care analysts: a modular approach

The many concerns about the cost and quality of health care suggest the need to facilitate planners' using existing data bases for utilization review, program evaluation, and technology assessment. Despite both the availability of relevant data and widespread improvements in computing power, integrated computer software to permit analyses by nonspecialists has not previously been developed. This paper discusses the features of a health policy information system which aids working with hospital discharge abstracts, medical claims, cancer registries, and vital statistics files. Analyses of small area utilization, length of stay, in-hospital mortality, and readmissions are facilitated by this package. This information system, named the Health Applications System, includes an analysis module, three information management modules, and a set of record linkage modules. The modules were developed using the macroprocessor in the fourth-generation SAS system. Features of the software and their implications for data analysis are discussed.

Performance indicators and performance assessment in the UK National Health Service: implications for management and planning

Throughout the Western world policy makers are seeking to control the use of health care resources. Often the primary motive for these policies is to control or the total level of public expenditure on health care. One manifestation of such policies in the USA is the use of diagnostic related groups (DRGs), and this instrument is now being adopted in Europe (for example, in France as from January 1986). In Britain, as similar management tool is that of performance indicators, which are basically measures of input and activity. In this article it is argued that management responses to these measures may not lead to greater efficiency in resource utilization. Whilst the use of input and process measures to control resource allocation are better than no controls at all, the achievement of efficiency requires that such measures are supplemented with the assessment of outcomes and analyses of input-output relationships. Such supplementation, for example by using quality-adjusted life years (QALYs), is urgently required if policy makers are not to become disenchanted with the usefulness of existing performance indicators.