Effects Of Prospective Payment System Research Articles

The impact of Medicare's Prospective Payment System on staffing of long-term acute care hospitals

Long-term acute care hospitals (LTACHs) treat patients with complex medical conditions requiring hospital care for extended periods of time. In the last decade, Medicare saw spiraling costs for post-acute care settings. The Balanced Budget Act mandated the use of Prospective Payment System (PPS) for all post-acute care settings including LTACHs. Medicare shifted to PPS for LTACHs in October 2002. This study analyzes the early effect of Medicare's PPS on the staffing intensity of LTACHs. The study uses panel data of measures of hospital and market characteristics in years 2001 through 2004. The impact of the payment mechanism, market, and organizational variables on the staffing intensity of LTACHs is evaluated using fixed-effects (within-groups) regression analysis. The fixed-effects regression models found that Medicare's PPS was associated with higher staffing intensity of the LTACHs in years 2003 and 2004. Market-level per capita income was significantly positively associated with staffing intensity. No secular trend in staffing intensity was found. The concern that the cost containment incentives of PPS would result in lowered staffing levels of LTACHs was not borne out by this study. Further follow-up is required to assess in the longer term the effects of PPS on staffing and quality of care in LTACHs.

The Unmet Needs of the Elderly with Diabetes in Home Health Care

The implementation of the Prospective Payment System (PPS) in Medicare home health care has raised concern about health outcomes of elderly patients since its intention is to curb spending. This study examines the unmet needs of older diabetic patients while receiving home health care and post-discharge from home health care (N = 129) in order to explore any effects of PPS on patients' need. The study found that a higher proportion of elders had unmet needs 30 days post-discharge compared with while receiving home health care. The specific unmet needs identified by the elderly diabetic patients included social work services, home health aide, homemaker services, and need for medical equipment. The study explores the role of social work to better manage the unmet needs of diabetic elders who live in the community.

The Effect of Medicare's Prospective Payment System on Patient Satisfaction

To examine the impact of Medicare's Prospective Payment System (PPS) on patient satisfaction at four inpatient rehabilitation hospitals. Prospective study using a satisfaction survey to examine the effects of Medicare's PPS for rehabilitation hospitals. Surveys were conducted at four affiliated rehabilitation hospitals in the Midwest. Patient characteristics varied only slightly pre- to post-PPS, and several characteristics were related to overall satisfaction, including motor functional gain, discharge to home, and respondent (patient or proxy). A 12-point increase on a 12-item motor function scale resulted in 1.13 greater odds (95% CI: 1.04, 1.24) of reporting excellent satisfaction. Patient respondents were 1.27 times more likely (95% CI: 1.07, 1.50) than proxies to report excellent satisfaction, and patients discharged home were 1.65 times more likely (95% CI: 1.31, 2.07) to report excellent satisfaction than patients discharged elsewhere. We found an increase in observed satisfaction from 60.3 to 63.4% (P < 0.05) after PPS implementation, despite a decrease in motor FIM gain. Patient characteristics such as motor FIM gain, discharge status, and respondent type were significantly associated, although only slightly, with patient satisfaction in inpatient rehabilitation. Percentage of excellent satisfaction improved at these four facilities after PPS implementation, despite declines in motor FIM gain. The improvement may be the result of numerous ongoing quality-improvement initiatives directed at improving patient satisfaction at these facilities.

Physical rehabilitation following medicare prospective payment for skilled nursing facilities.

To examine the effect of the Medicare prospective payment system (PPS) for skilled nursing facilities (SNF) on the delivery of rehabilitation therapy to residents. Resident-level data are based on the Resident Assessment Instrument Minimum Data Set for nursing facilities. All elderly residents admitted to SNFs in Michigan and Ohio in 1998 and 1999 form the study population (n=99,952). A differences-in-differences identification strategy is used to compare rehabilitation therapy for SNF residents before and after a change in Medicare SNF payment. Logistic and linear regression analyses are used to examine the effect of PPS on receipt of physical, occupational, or speech therapy and total therapy time. Data for the present study were extracted from the University of Michigan Assessment Archive Project (UMAAP). One assessment was obtained for each resident admitted to nursing facilities during the study period. The introduction of PPS for all U.S. Medicare residents in July of 1998 was associated with specific targeting of rehabilitation treatment time to the most profitable levels of therapy. The PPS was also associated with increased likelihood of therapy but less rehabilitation therapy time for Medicare residents. The present results indicate that rehabilitation therapy is sensitive to the specific payment incentives associated with PPS.

Patients Feel the Pressure of PPS

Patients Feel the Pressure of PPS

The Impact of Health Care Reform on Capital Acquisition for Hospitals

AbstractIn this paper, the response of the market for hospital stocks to the episode of the Medicare Prospective Payment System (PPS) legislation and its resulting impact on the ability of hospitals to generate capital for expansion and growth are addressed. The response to PPS legislation is evaluated by examining stock returns of publicly traded hospital companies using both traditional event study analysis and intervention analysis. The paper focuses on the effect of PPS over time and uses qualitative data to support the empirical evidence. Before and after its passage, the market reacted negatively to PPS legislation. This result supports qualitative evidence showing that hospitals' capital positions were impaired. When profit margins fell, bond ratings went down, while borrowing costs increased; the rate of hospital bond defaults went up and capital improvements were delayed.

The hospital response to Medicare's Prospective Payment System: an econometric model of Blue Cross and Blue Shield plans.

This paper presents an empirical analysis of the impact that resulted from phase-in of Medicare's Prospective Payment System (PPS) on hospital utilization and payments for the Blue Cross and Blue Shield (BCBS) plans. A pooled cross-sectional time series econometric model was specified and estimated using quarterly hospital utilization and payments of the BCBS plans over the period 1980 to 1987. The results indicate that the implementation of PPS was significantly associated with a lower rate of hospital admissions, days and deflated inpatient payments for the BCBS plan members under age 65. A 1% increase in the proportion of hospital days reimbursed under PPS resulted in a .032% decrease in BCBS plan admissions per 1,000 members, a 0.017% decline in days per 1,000 members and a 0.016% decline in deflated inpatient payment per 1,000 members. The reductions in hospital utilization resulted in lower payments by BCBS plans to participating hospitals suggesting a positive spill-over effect of PPS for private insurers. This research underscores the importance of interaction between federal health policy and the private health insurance market.

Trends in Elderly Hospitalization and Readmission Rates for a Geographically Defined Population: Pre‐ and Post‐Prospective Payment

To address the paucity of patient-level data regarding the effectiveness of Medicare's prospective payment system (PPS), we conducted a population-based study of inpatient hospitalizations among individually identified elderly residents of Olmsted County, Minnesota, 1970-1987. A 4.3% increase in total days of care/1000 population from 2,652/1,000 in 1970 to 2,766/1,000 in 1980 was followed by a 9.8% decline from 1980 to 1987 (2,495/1,000). The decline was due primarily to a 13.4% decrease in mean length stay (9.7 days in 1980 to 8.4 days in 1987). The number of hospitalizations/1,000 Olmsted County elderly in 1980 was already below 1987 U.S. figures and did not exhibit the decline evidenced nationally between 1980 and 1987. A 4.6% decline in the proportion of county residents age 65-74 years who were hospitalized (174/1,000 in 1980 to 166/1,000 in 1987) was offset by an 8.3% increase for persons age greater than or equal to 75 (252/1,000 to 273/1,000) and by a 5.7% increase in the number of hospitalizations per individual hospitalized for persons age 65-74 years (1.34 to 1.42). Using a time-dependent Cox model, which adjusted for differences in patients characteristics between years, there was a significantly higher risk of readmission within 14 days in 1987 vs 1980 (hazard ratio (HR) = 1.33, 95% confidence interval (CI) = 1.05-1.70). The difference between years was no longer evident at 30 or 60 days (HR = 0.84, 95% CI = 0.63-1.11 between 15 and 30 days; HR = 1.12, 95% CI = 0.84-1.49 between 31 and 60 days). This study suggests that initial effects of PPS on utilization may be temporary and that more research is needed to appreciate the impact of cost-containment on patient outcome.

The Effects of the Medicare PPS on Vulnerable Subgroups of Psychiatric Patients Treated in Short-Term General Hospitals

Changes in care in short-term general hospitals were monitored for three vulnerable subgroups of Medicare psychiatric patients: (1) those more than 75 years old, (2) those with comorbidities, and (3) those with one or more secondary diagnoses of psychiatric or substance abuse problems. Patterns of care studied for changes following institution of the Medicare Prospective Payment System (PPS) were volume of cases, average length of stay, discharge locations, and readmission rates. Results indicate that the changes occurring for the three subgroups were similar to the changes occurring for all Medicare psychiatric patients. After PPS was introduced in 1983, the average length of stay decreased, and a greater proportion of patients were discharged to other hospitals or home health care providers; however, rates of readmission to the same hospital did not increase.

Ripple Effects of PPS on Nursing Homes: Swimming or Drowning in the Funding Stream?

In a sample of 189 nursing homes, 83% reported that Medicare's hospital Prospective Payment System (PPS) impacts patient needs, 53% said it impacts both patients and services provided, and 25% said it impacts referrals to hospitals. The PPS effects were found to depend on the facility factors of size, Medicare certification, and tax status, and on the local market area factors of prevalence of PPS-nonexcluded hospital psychiatric units, competition, and levels of hospital discharges.

Effects of prospective payment financing on rehabilitation outcome

A suspected benefit of paying hospitals per diagnostic related groups (DRGs), i.e. the prospective payment system (PPS), is that lengths of stay (LOS) and costs may be reduced. A potential adverse effect is that providers may discharge patients to reduce costs regardless of clinical consequence. The Veterans Administration (VA) is one of the first agencies to adopt PPS for rehabilitation. This study analyzed the effects of PPS on LOS, readmission rate, nursing home placement (NHP), and referral for Home Health Care (HHC) on a 22 bed rehabilitation unit. One hundred and eighty-seven patients discharged in 1987, prior to the program, were compared (using t-tests) with 215 discharges in 1988, after PPS was established. There were no significant differences in demographics, self-care ability, or in readmissions. Referrals for HHC decreased significantly. LOS decreased from 29.3 days (SD = 16.4) in 1987 to 26.4 days (SD = 14.1) in 1988 (t = 5.3, p less than 0.01). However, 24 more patients were discharged to nursing homes in 1988 (N = 54, 25%) than in 1987 (N = 30, 16%), which represents an increase of 64% (p less than 0.05). Findings suggest that PPS may defer home care in favor of placement. Clinicians need to assess whether reducing inpatient LOS justifies increased use of nursing homes. Further research on the effects of PPS is needed to determine: (a) impact on clinical aspects of rehabilitation; and (b) if other funding mechanisms are more appropriate.

A Preliminary Assessment Of Medicare's Prospective Payment System

A Preliminary Assessment Of Medicare's Prospective Payment System

Changes in Sickness at Admission Following the Introduction of the Prospective Payment System

We developed disease-specific measures of sickness at admission based on medical record data to study mortality of Medicare patients with one of five conditions (congestive heart failure, acute myocardial infarction, cerebrovascular accident, pneumonia, and hip fracture). We collected an average of 73 sickness variables per disease, but our final sickness-at-admission scales use, on average, 19 variables. These scales are publicly available, and explain 25% of the variance in 30-day postadmission mortality for patients with acute myocardial infarction, pneumonia, or cerebrovascular accident. Sickness at admission increased following the introduction of the prospective payment system (PPS). For our five diseases combined, the 30-day mortality to be expected because of sickness at admission was 1.0% higher in the 1985-1986 period than in the 1981-1982 period (16.4% vs 15.4%), and the expected 180-day mortality was 1.6% higher (30.1% vs 28.5%). Studies of the effects of PPS on mortality must take this increase in sickness at admission into account.

Hospital Case-Mix Change: Sicker Patients Or Drg Creep?

Prologue: Medicare's prospective payment system (PPS) has for the past five and a half years attempted to constrain the rising payments to hospitals for care of the nations elderly. Early on, the new system appeared to reward hospitals with double-digit Medicare profit margins. Later reports predicted that over half the hospitals would show a negative margin if annual update factors were not increased. Debate over the level of increase in the update factor for PPS's unit of payment, diagnosis-related groups (DRGs), pits hospitals and government against each other, leading to mistrust between provider and payer. One payment factor that has not received much attention is the effect of PPS on hospitals' case-mix (the mix of patients across DRGs in a hospital). Yet case-mix change under PPS has greatly affected payment levels to hospitals, say Bruce Steinwald and Laura Dummit. They write: “The cumulative formal update from the beginning of PPS through fiscal year 1988 totals less than 8 percent. The cumulativ...

Medicare prospective payment and posthospital transfers to subacute care.

This study analyzed the early effects of the Medicare Prospective Payment System (PPS) on the likelihood of hospital's discharging Medicare beneficiaries to skilled nursing facilities (SNFs), intermediate care facilities (ICFs), and home health agencies. It also examined length of stay before transfer. Discharge abstract data on patients in five DRG groups were studied. Data were obtained from 501 hospitals for the third quarters of 1980, 1983, 1984, and 1985. Multinomial logit and ordinary least squares regression techniques were employed. After controlling for hospital and patient characteristics, including severity of illness, it was found that the probability of transfer increased substantially in virtually all DRGs and discharge destinations studied. This was particularly true for patients with stroke, pneumonia, and major joint and hip procedure. The analysis reveals that PPS increased the rate of discharges to subacute facilities. This effect was stronger for transfer to SNFs than to ICFs and home health agencies. Further, the impact of PPS on transfers was greater in 1985 than in 1984. Lengths of stay before transfer tended to decline in almost all DRGs and destinations examined. However, the effects of PPS on lengths of stay of transferred patients were not statistically significant at conventional levels. The results suggest that payment experiments with broader forms of bundled services are in order, as are experiments with hospital acute-subacute swing beds.

Determinants of acquisition of MR imaging units in an era of prospective payment.

A survey was undertaken to examine the impact of Medicare's Prospective Payment System (PPS) and other recent changes in the health care environment on providers' decisions regarding acquisition of high-cost technologic equipment. The survey group included 199 hospitals and freestanding imaging centers known to have acquired magnetic resonance (MR) imaging units, as well as a random sample of 400 hospitals whose acquisition decisions were unknown to the authors. Fifty-eight percent of the known adopters and 61% of the randomly selected hospitals responded to the survey. Nonadopters' decisions were dominated by economic considerations, including the high cost of MR imagers and concerns about Medicare's reimbursement policies. Competition and a desire to provide the highest quality of care are counterbalancing the retardant effects of PPS, however, and are stimulating widespread diffusion of MR imagers.

The effect of PPS on hospital product and productivity.

The results suggest that Prospective Payment System (PPS) prompted a reduction in the proportion of Medicare patients that were discharged, for whom the hospital considered the episode of care to be completed. The results also show a reduction in the proportion of patients discharged dead. When controlling for patient type, the results support the findings, but the magnitude of the change that might be attributed to PPS is somewhat smaller. Proportional changes in the input measures for all patients were next considered. The results indicate that fewer diagnostic tests, fewer laboratory tests, and fewer x-rays were used in 1984. Laboratory tests showed the most dramatic decrease. LOS decreased, but the drug input remained fairly constant. A productivity index that reflects the change in the input measure while controlling for patient type was developed. The results provide strong evidence of a productivity increase in all products for Medicare patients. The drug input did not contribute to the productivity increase. The 50 most frequent DRGs for Medicare patients were examined separately for productivity changes by product. The results further support the findings of an increase in productivity.

Factors influencing DRG 210 (hip fracture) reimbursement.

The effect of prospective payment system (PPS) on reducing cost and quality of care is still unknown. Fifty-two patients (mean +/- SD, 82.0 +/- 6.5 years) with hip fracture classified as DRG 210 (hip and femur procedures except major joint, age greater than 69 years and/or complication and/or comorbidity), treated by compression nail were separated into four groups: Group I--no comorbidity, no complications; Group II--no comorbidity but had complications; Group III--with comorbidity but no complications; and Group IV--with both comorbidity and complications. Compared to length of stay (LOS) in Groups I, II and III (mean 26 days), Group IV had significantly increased LOS (mean, 61.5 days) and 81% of the 16 who were day outliers (L.O.S. greater than 40 days). Patients without comorbidity (I & II) even if they did develop complications were not financial losers. Those with comorbidity appear to be high-cost patients as they invariably end up with complications (78%), and reimbursement for Group IV was significantly less, resulting in net loss of this DRG. Our finding demonstrates the importance of preventing complications in patients with comorbidity. Present DRG reimbursement guidelines do not provide sufficient attention to LOS implications of both comorbidity and complications. Ideally, they should be considered as separate factors within the DRG category.

The Role of Medicare Reimbursement in Contemporary Hospital Finance

A hospital, while performing its major function of providing health care, is also viewed as a business. It needs capital from a wide variety of sources, many of which are government regulated. Over the past few years, federal expenditures for Medicare have increased dramatically, as has regulation of hospital revenue sources. Congress enacted the Medicare Prospective Payment System (PPS) to curb hospital cost inflation. This Note examines historical trends in health care financing and analyzes the Medicare reimbursement system, with emphasis on PPS and its impact on hospital revenues. The Note suggests that hospitals, due to the effects of PPS, will be forced to reduce their levels of financial leverage and will have to look for corporate financial alternatives. PPS may signal a new era in hospital finance. Survival mandates an increased focus on efficient corporate, financial and managerial policies.