Hospital case-mix funding and the necessity to adjust for socio-economic status

Abstract

Although the efficacy of hospital case-mix funding in reducing resource use has been largely documented (at least in the short term), many debates persist as regards its consequences on equity. Several authors have pointed to the failure of risk-adjustment methods to accurately reflect the patient's condition and needs, raising the threat of patient and unfair penalization of hospitals. Most of this debate has centered around the failure to risk-adjust for the severity of disease, pointing to the drawbacks of diagnosis classification systems. In this paper, we emphasize the importance of the patient's socio-economic status (SES). The of Belgium is an interesting example of this risk-adjustment debate. Simply put, the Belgian system consists of paying in-patient services a per diem for a normative number of in-patient based on the patient's characteristics (AP-DRG, age and hospitalization, or not in a geriatric ward). The hospitals with excess days with respect to the norm are financially penalized, while the others are financially rewarded. On the one hand, the pro-SES argue that the AP-DRG/age classification system is limited in predicting the differences in length of stay between poorer and richer patients. Hence, hospitals with a large proportion of underprivileged patients are unfairly penalized, while other hospitals receive windfall gains. Meanwhile, the failure to adjust payments to patients' SES rewards hospitals practicing case selection while punishing hospitals doing well in treating the poor. On the other hand, the opponents contend that the socio-economic condition is accounted for by severity indicators, particularly since the shift from AP- to the refined APR-DRGs. In 2007, the Belgian government decided to adopt a series of socio-economic characteristics as risk-adjustors, starting from the 2008 financing. In this paper, we present the evidence that sustained this decision.