Differential effects of hospital case mix on hospital costs and revenues, with a focus on Medicaid patients

Abstract

Hospitals in California have argued that because of hospital competition and managed care, their costs have increased faster than their revenues. By developing a payer-specific Case Mix Index (CMI) for Medi-Cal, California's Medicaid programme, this study attempts to test the hospitals' argument. Using California hospitals' financial and utilisation data for selected years from 1986 through 1998, this study finds that the coefficients for Medi-Cal CMIs in the hospital inpatient revenue model were greater than those in the hospital inpatient cost model until 1995. Since 1995, however, the coefficients of CMIs in the cost model have been greater than those in the revenue model. Thus, by focusing on the payer-specific CMI for Medi-Cal, this study reveals that in the later years the rate of increase for hospital inpatient costs of Medi-Cal patients has been greater than that for hospital inpatient revenues. The claim the hospitals are making may be warranted for the years since 1995 for Medi-Cal patients.