Prospective Hospital Payment Research Articles

Development of a novel hospital payment system – Big data diagnosis & intervention Packet

The diagnosis related group (DRG) was the most commonly used prospective hospital payment platform in developed countries. One of the major limitations of the DRG system is that the DRG grouping is not sufficiently homogeneous in benchmarking underlying resource needs. We developed a novel hospital payment and management system called Big Data Diagnosis & Intervention Packet (BD-DIP) by applying the similar case mix index (CMI) principles but the grouping is based on unique combination of ICD-10 and ICD-9 v3 codes. The initial prototype of BD-DIP was developed using hospital discharge records in Shanghai and then piloted in Guangzhou, China. The average coefficient of variation of the DB-DIP is about one-third smaller than the US DRG system. Results from the pilot evaluation showed that introduction of the BD-DIP lead to about 5% hospital budget savings and notable improvement in hospital care efficiency, including increased institutional CMI, lower admission rates, smaller variation in hospital charges, and lower patient cost-sharing burdens. The implementation of hospital monitoring tools resulted in identification of potential irregular practices to enable further auditing and investigation. The BD-DIP platform has a number of advantages over DRG-based payment models in terms of more homogeneous resource utilization within groups, design simplicity, dynamic in grouping, and reimbursement value in reflecting real-world treatment pathways and costs, and easy to implement.

Hip and Knee Arthroplasty Alternative Payment Model Successes and Challenges.

Hip and Knee Arthroplasty Alternative Payment Model Successes and Challenges.

Diagnosis-Related Group (DRG)-Based Prospective Hospital Payment System can be well adopted for Acute Care Surgery: Taiwanese Experience with Acute Cholecystitis.

Laparoscopic cholecystectomy (LC) is a common procedure for cholelithiasis paid by diagnostic-related groups (DRGs) systems. However, acute cholecystitis (AC) patients usually have heterogeneous conditions that compromise the successful implementation of DRGs. We evaluated the quality/efficiency of treating AC patients under the DRG system in Taiwan. All AC patients who underwent LC between October 2015 and December 2016 were included. Patient demographics, treatment outcomes, and financial results were analyzed. Patients were reimbursed by one of the two DRG schemes based on their comorbidities/complications (CC): DRG-1, LC without CC; and DRG-2, LC with CC. Hospitals were reimbursed the costs incurred if they were below the lower threshold (balanced sector); with the outlier threshold if costs were between the lower and outlier thresholds (profitable sector); and with the outlier threshold plus 80% of the exceeding cost if costs were higher than the outlier threshold (profit-losing sector). Among 246 patients, 114 were paid by DRG-1, and 132 were by DRG-2. In total, 195 of 246 patients underwent LC within 1 day after admission, and patients with mild AC had shorter hospital stays than those with moderate or severe AC. The complication rate was 7.3% with only one mortality. In total, 92.1% of patients in DRG-1 and 90.9% of patients in DRG-2 were profitable. The average margin per patient was 11,032 TWD for DRG-1 and 24,993 TWD for DRG-2. DRGs can be well adopted for acute care surgery, and hospitals can still provide satisfactory services without losing profit.

CMS Finalizes Plans for Pay Hike, Less Regulation

Regulatory changes impacting post-acute care facilities for fiscal year 2019 are expected to increase reimbursements while reducing bureaucratic burden, according to federal health officials. The Centers for Medicare & Medicaid Services long-term care hospital prospective payment system (LTCH PPS) final rule for fiscal year 2019 will raise overall payments to acute care facilities by 3%, including monies for new technology add-ons and uncompensated care, according to the agency. The standard net payment rates will increase by .09% ($39 million). Skilled nursing facilities will see a 2.4% rise in reimbursements — about $820 million over fiscal year 2018. The threat of the “25% rule” that would have reduced total reimbursements if more than a quarter of a long-term care hospital’s patients came from a single acute-care hospital has also been eliminated by the final rule. Because the changes are budget-neutral, CMS is imposing an annual decrease of about 0.9% to the standard payment rate for LTCHs through 2021. For site-neutral cases, the cut will impact only the standard rate portion of their combined payment. A new “case-mix” model for skilled nursing home facilities will go into effect in October 2019, giving providers time to learn the new ICD-10-based payment system that is tied to what is clinically relevant, rather than to the volume of services provided. The new model also decreases patient assessments documentation requirements, a move that is expected to save facilities approximately $2 billion over 10 years. Other changes include allowing post-admission physician evaluations to count as face-to-face physician visits. The rule takes effect October 1, 2018. For more information, go to https://bit.ly/2vyfr8y Whitney McKnight is a Washington, DC-based health policy freelance writer.

Early Implementation of Malnutrition Clinical Quality Metrics to Identify Institutional Performance Improvement Needs

The Centers for Medicare and Medicaid Services (CMS) is part of the federal government and the largest health care payer in the United States. 1 About CMS. Centers for Medicare and Medicaid Services website. https://www.cms.gov/About-CMS/About-CMS.html. Accessed January 3, 2018. Google Scholar The CMS writes regulations to ensure they only pay for high-quality, safe health care. To better measure quality in the U.S. health care system, the CMS developed electronic clinical quality measures (eCQMs), which became available for voluntary use in 2013. 2 eCQMs. eCQI Resource Center. The Office of the National Coordinator of Health Information Technology, Centers for Medicare and Medicaid Services. https://ecqi.healthit.gov/ecqms. Accessed January 3, 2018. Google Scholar Effective calendar year (CY) 2016, hospitals are required to electronically report clinical quality measures (CQMs) as a part of hospital inpatient quality reporting (IQR) and the electronic health record (EHR) incentive programs (more commonly known as “meaningful use” of the EHR). Hospitals that successfully submit eCQM data will fulfill the Medicare requirements for both programs with one submission. The CMS approves which eCQMs are accepted for any given CY, as well as the minimum number on which a hospital must report. Starting in CY 2017, there were 15 available eCQMs from which to choose, and hospitals were required to report on a minimum of eight. This has changed to four for CY 2018. 3 Medicare Program; Hospital Inpatient Prospective Payment Systems for Acute Care Hospitals and the LongTerm Care Hospital Prospective Payment System and Policy Changes and Fiscal Year 2018 Rates; Quality Reporting Requirements for Specific Providers; Medicare and Medicaid Electronic Health Record (EHR) Incentive Program Requirements for Eligible Hospitals, Critical Access Hospitals, and Eligible Professionals; Provider-Based Status of Indian Health Service and Tribal Facilities and Organizations; Costs Reporting and Provider Requirements; Agreement Termination Notices. Fed Regist. 2017; 82 (Updated August 14, 2017. Accessed January 3, 2018): 38001https://www.gpo.gov/fdsys/pkg/FR-2017-08-14/pdf/2017-16434.pdf Google Scholar

DRG system design: A financial risk perspective

A prospective hospital payment system induces a substantial financial risk for the provider that not only increases incentives for cost efficiency. If financial risk is not bounded at an equal level for all DRGs and patient cases, hospitals have incentives to minimize their risk level as well. This paper investigates its consequences and proposes a DRG-System redesign encompassing a fair (or risk-adjusted) compensation. We adjust the price of the provider such that the risk of a financial loss is bounded similar to the Value-at-Risk (VaR). By focusing on the risk-transfer relation we are able to understand the induced basic strategies of risk mitigation for providers: The induced incentives reinforces the objectives in the DRG system to streamline processes in order to control its costs and hence stimulates specialized health clinics, while general providers offering basic services are likely to be more exposed to make losses.

Merchants of Health: Shaping the Experience of Illness Among Older People.

Despite nearly universal health-care coverage for older Americans, the quality of care for the sickest and frailest remains sub-optimal. Understanding why requires analysis of the medical ecosystem. This paper considers the role of four of the principal actors in this system: physicians, hospitals, drug companies, and Medicare. Physicians spend more time in the office addressing diabetes and hypertension than they do evaluating falls and impaired cognition because of their training and their interests. Hospital administrators affect the hospital experience by investing in procedural specialties at the expense of low-tech, high-touch care. Pharmaceutical companies affect the medications older patients take by direct-to-consumer advertising and marketing to physicians. Medicare affects the patient's experience by prospective payment for hospitals, resulting in the burgeoning of post-acute care to accommodate early hospital discharges. Determining how to improve the quality of care for older people requires identifying a lever that affects the entire system. Medicare is uniquely positioned to serve this role. Reforming Medicare by introducing cost-effectiveness criteria for reimbursement of expensive devices, by instituting requirements that medical resident training programs include exposure to multidisciplinary team care, and by introducing a new benefit package for the frail elderly could improve American geriatric care.

Unintended Consequences of Hospital Payment: The Case of Swiss Diagnosis Related Groups

Background: In 2012, Switzerland changed from retrospective to prospective hospital payment based on diagnosis related groups (DRGs), following the example of the United States, Australia, and Germany. As in these countries, the objective of this transition was to motivate hospitals to improve efficiency by making them bear financial risk to some extent.Objective: This contribution seeks to find out whether SwissDRG, the Swiss version of DRG payment, indeed provides hospitals with appropriate incentives, thus creating a level playing field enabling workable competition between them.Methods: Three conditions for creating a level playing are stated, of which the first is tested using data on some 757 000 patient cases treated by 93 hospitals in the year 2012.Results: The evidence suggests that hospital payment as currently devised by SwissDRG fails to create a level playing field. Differences in margins over cost of treatment can be traced to a hospital’s portfolio of specialties and mix of patients, both of which are largely beyond their control. The findings of this paper are subject to several limitations. The true DRG-specific cost distributions (and hence expected values) are not known; moreover, emphasis has been on variable cost, neglecting fixed (capital user) cost. Finally, hospitals with a high amount of capital user cost may well benefit from modern technology contributing to their efficiency in terms of variable cost.Conclusion: The finding that current hospital financing by SwissDRG fails to create a level playing field is likely to be robust, calling for an expeditious adjustment be-cause hospitals are exposed to financial risk to a greatly differing degree. It may be appropriate for them to purchase insurance against their financial risk, which is largely driven by influences beyond their control.

SwissDRG: Ein Vergütungssystem mit ungleichen finanziellen Risiken für die Spitäler?

In 2012, Switzerland changed from retrospective to prospective hospital payment based on Diagnosis Related Groups (DRGs), following the example of the United States, Aus- tralia, and Germany. As in these countries, the objective of this transition was to motivate hospitals to improve efficiency by making them bear financial risk to some extent. This contribution seeks to find out whether SwissDRG, the Swiss version of DRG payment, in- deed provides hospitals with appropriate incentives, thus creating a level playing field en- abling workable competition between them. The empirical evidence relates to some 757,000 patient cases treated by 93 hospitals in the year 2012. It suggests that hospital payment as currently devised by SwissDRG fails to create a level playing field. Differences in margins over cost of treatment can be traced to a hospital’s portfolio of specialties and mix of patients, both of which are largely beyond their control.

The DRG-Based Hospital Prospective Payment System in Greece: An Assessment of the Reimbursement Rates Using Clinical Severity Classification

Introduction: Diagnosis Related Groups (DRGs) are used throughout the health care industry to address issues of cost, effectiveness and quality of care. Nonetheless, many have argued that the DRGs do not adequately adjust for patient severity and this prospective payment system leads to reimbursement inequities. Objective: The purpose of this study is first, to explore the relationship between KEN-DRGs reimbursement rates (along with other controls) and clinical severity classification and second, to draw hospital reimbursement policy implications. Methods: The present study is a retrospective observational study, undertaken in a very large number of hospitalization cases and conducted exclusively by examining reimbursement administrative data collected from the e-DAPY database of National Organization for Provision of Healthcare Services (EOPYY) in Greece. The database provided contained all impatient hospitalizations classified for every single KEN-DRG code and for every MDC (aggregated) for the time period January to June 2013 (first semester of 2013). Results: Our results demonstrate that though there is a strong association between reimbursement rates and clinical severity, there are several KEN-DRG codes that are over-(under-) reimbursed, taking in consideration their clinical severity class. Conclusion: Because DRGs systems are crucial in measuring relative efficiency among hospitals, as well as driving ongoing reimbursement, they should incorporate and establish the severity level for every admission, so as to determine whether case mix growth is associated with real costs or with coding and documentation improvements at the hospital.

Minimum-distance requirements could harm high-performing critical-access hospitals and rural communities.

Since the inception of the Medicare Rural Hospital Flexibility Program in 1997, over 1,300 rural hospitals have converted to critical-access hospitals, which entitles them to Medicare cost-based reimbursement instead of reimbursement based on the hospital prospective payment system (PPS). Several changes to eligibility for critical-access status have recently been proposed. Most of the changes focus on mandating that hospitals be located a certain minimum distance from the nearest hospital. Our study found that critical-access hospitals located within fifteen miles of another hospital generally are larger, provide better quality, and are financially stronger compared to critical-access hospitals located farther from another hospital. Returning to the PPS would have considerable negative impacts on critical-access hospitals that are located near another hospital. We conclude that establishing a minimum-distance requirement would generate modest cost savings for Medicare but would likely be disruptive to the communities that depend on these hospitals for their health care.

US hospital payment adjustments for innovative technology lag behind those in Germany, France, and Japan.

Medicare pioneered add-on payments to facilitate the adoption of innovative technologies under its hospital prospective payment system. US policy makers are now experimenting with broader value-based payment initiatives, but these have not been adjusted for innovation. This article examines the structure, processes, and experience with Medicare's hospital new technology add-on payment program since its inception in 2001 and compares it with analogous payment systems in Germany, France, and Japan. Between 2001 and 2015 CMS approved nineteen of fifty-three applications for the new technology add-on payment program. We found that the program resulted in $201.7 million in Medicare payments in fiscal years 2002-13-less than half the level anticipated by Congress and only 34 percent of the amount projected by CMS. The US program approved considerably fewer innovative technologies, compared to analogous technology payment mechanisms in Germany, France and Japan. We conclude that it is important to adjust payments for new medical innovations within prospective and value-based payment systems explicitly as well as implicitly. The most straightforward method to use in adjusting value-based payments is for the insurer to retrospectively adjust spending targets to account for the cost of new technologies. If CMS made such retrospective adjustments, it would not financially penalize hospitals for adopting beneficial innovations.

Does prospective payment increase hospital (in)efficiency? Evidence from the Swiss hospital sector

Several European countries have followed the USA in introducing prospective payment for hospitals with the expectation of achieving cost efficiency gains. This article examines whether theoretical expectations of cost efficiency gains can be empirically confirmed. In contrast to previous studies, the analysis of hospitals in Switzerland provides a comparison of a retrospective per diem payment system with a prospective global budget and a payment per patient case system. Using a sample of approximately 90 public financed Swiss hospitals during the years 2004-2009 and Bayesian inference of a standard and a random parameter frontier model, cost efficiency gains are found, particularly with payment per patient case. Prospective payment, designed to put hospitals at operating risk, is more effective in terms of cost reduction than the retrospective alternative. However, hospitals are heterogeneous with respect to their production technologies, making a random parameter frontier model the superior specification for Switzerland.

The Redistribution Of Graduate Medical Education Positions In 2005 Failed To Boost Primary Care Or Rural Training

Graduate medical education (GME), the system to train graduates of medical schools in their chosen specialties, costs the government nearly $13 billion annually, yet there is little accountability in the system for addressing critical physician shortages in specific specialties and geographic areas. Medicare provides the bulk of GME funds, and the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 redistributed nearly 3,000 residency positions among the nation's hospitals, largely in an effort to train more residents in primary care and in rural areas. However, when we analyzed the outcomes of this recent effort, we found that out of 304 hospitals receiving additional positions, only 12 were rural, and they received fewer than 3 percent of all positions redistributed. Although primary care training had net positive growth after redistribution, the relative growth of nonprimary care training was twice as large and diverted would-be primary care physicians to subspecialty training. Thus, the two legislative and regulatory priorities for the redistribution were not met. Future legislation should reevaluate the formulas that determine GME payments and potentially delink them from the hospital prospective payment system. Furthermore, better health care workforce data and analysis are needed to link GME payments to health care workforce needs.

Medicare as Insurance Innovator

The stylized fact is that while private insurance has tended to innovate on the benefit design side of the insurance contract, Medicare has lead innovation on the payment side. Traditional or Fee-For-Service Medicare has produced many innovations in the payment for health care services, such as Prospective Payment for hospitals, Diagnostic-Related Groups to categorize care, and the Resource-Based Relative Value System used by the program to pay physicians, while private insurance has produced a series of benefit design innovations. This story misses one important example of Medicare benefit innovation: the creation of the Medicare hospice benefit. A key question is whether Medicare can again lead a system-wide benefit design effort to improve upon current hospice and palliative care policy.

The Lessons Of Medicare’s Prospective Payment System Show That The Bundled Payment Program Faces Challenges

Policy makers have been trying to replace Medicare's fee-for-service payment system for years with approaches that pay one price for an aggregation of services. The intent is to reward providers for offering needed care in the most appropriate and cost-effective manner. Medicare's first payment change designed to accomplish such a change was the hospital prospective payment system, introduced during 1983-84. But because it focused only on hospital care, its impact on total Medicare spending was limited. In 2011 Medicare began a new initiative to expand the "bundled payment" concept to link payments for multiple services that patients receive during an episode of care. The goal of Medicare's current bundled payment initiative is to provide incentives to deliver health care more efficiently while maintaining or improving quality. This article provides a detailed analysis of how Medicare implemented the hospital prospective payment system, how hospitals responded to the new incentives, and lessons learned that are applicable to the bundled payment initiative. The lessons include that any Medicare payment reform needs to continuously respond to the many different components of the health system and that payment reform should be coupled with analogous reforms in private insurance payment, so that providers receive consistent signals to alter their behavior.

Does Prospective Payment Increase Hospital (In)Efficiency? Evidence from the Swiss Hospital Sector

Several European countries have followed the United States in introducing prospective payment for hospitals with the expectation of achieving cost efficiency gains. This article examines whether theoretical expectations of cost efficiency gains can be empirically confirmed. In contrast to previous studies, the analysis of Switzerland provides a comparison of a retrospective per diem payment system with a prospective global budget and a payment per patient case system. Using a sample of approximately 90 public financed Swiss hospitals during the years 2004 to 2009 and Bayesian inference of a standard and a random parameter frontier model, cost efficiency gains are found, particularly with a payment per patient case system. Payment systems designed to put hospitals at operating risk are more effective than retrospective payment systems. However, hospitals are heterogeneous with respect to their production technologies, making a random parameter frontier model the superior specification for Switzerland.

Policy Options to Improve Discharge Planning and Reduce Rehospitalization

FRAIL OLDER PATIENTS AND THEIR FAMILIES ARE GENerally unprepared for the flurry of activity that occurs during a hospitalization and for how quickly they must decide where to go at discharge. Hospital discharge is not the time to undertake the extended process of long-term care planning and goals clarification. The biggest challenge patients and families face as they decide their discharge destination is to establish realistic goals of care in the absence of coherent information about their prognosis and options. This decision is particularly important because of the weighty implications of their choices. Decades ago patients remained in hospital until they recovered or stopped improving. Introduction of prospective Medicare hospital payment with diagnosis related groups in the United States in 1983 and other industrialized countries in later years changed all that. Hospital stays became shorter and illness episodes more disjointed between acute and postacute care, a process exacerbated a decade ago by payment changes to postacute care and the rise of an industry largely separate from hospital-based and primary care physicians. Although evidence suggests that the hospitalist movement has reduced hospital stays and improved inpatient quality indicators without clear deleterious effects on patient outcomes, some observers have worried that such services may complicate discharge transitions to primary care physicians, particularly for the most frail patients. Policy changes in payment for acute and postacute care and their sequelae are widely recognized as contributing to the rising rates of rehospitalization and the increased frequency of transitions among health care settings and teams, particularly during the past decade. In 2006, some 40% of fee-for-service Medicare beneficiaries discharged from the hospital transferred to some form of postacute care. These patients can be grouped into 3 types: those expecting to recover following rehabilitation; those who will require housing, supportive services (eg, nursing home or home care), or both for the long term; and those needing palliative care, including hospice care and management of complex, progressive disease–related symptoms during the end of life. These groups are neither mutually exclusive nor static; what may begin as postacute rehabilitation may rapidly evolve into a more complicated set of long-term care support services delivered in a nursing home, at home, or in one of the various alternative settings enumerated by Kane in this issue of JAMA. As such, hospital discharge is a critical point in a patient’s medical course; however, it occurs when no specific health care professional is accountable for patients’ experiences. The complexity of identifying appropriate goals of care, not to mention the multiplicity of possible service options available, would be difficult to navigate even without the pressure of a hospital discharge deadline. Nonetheless, decisions have to be made quickly with a high degree of ambiguity regarding goals and with even less time to consider the quality of the different options, regardless of type. In the estimated 70% of US hospitals with inpatient services having hospitalist attendings, these decisions generally are made with limited involvement of the primary care physician to advocate for the patient and family’s preferences. Indeed, in many communities, urgent hospital admissions occur without the primary care physician’s knowledge, complicating communication and care both during and after the hospital stay. Because many older patients have multiple chronic conditions, each managed by a different specialist, it is not always clear which physician should be notified in the event of a hospitalization. The challenges of transitions among medical care settings and clinicians have received increasing attention. Over the last decade, the Centers for Medicare & Medicaid Services has made minor revisions to hospital reimbursement rules designed to penalize hospitals for discharging patients prematurely to postacute settings. However, the length of hospital stay has continued to decrease, and rehospitalization rates have increased. It is no surprise, then, that the Affordable Care Act has multiple provisions designed to reduce rehospitalization. In the next year, the Centers for Medicare & Medicaid Services is charged with developing penalties for health care organizations whose patients are

Accounting for Heterogeneity in the Measurement of Hospital Performance

With prospective payment of hospitals becoming more common, measuring their performance is gaining in importance. However, the standard cost frontier model yields biased efficiency scores because it ignores technological heterogeneity between hospitals. In this paper, efficiency scores are derived from a random intercept and an extended random parameter frontier model, designed to overcome the problem of unobserved heterogeneity in stochastic frontier analysis. Using a sample of 100 Swiss hospitals covering the years 2004 to 2007 and applying Bayesian inference, significant heterogeneity is found, suggesting rejection of the standard cost frontier model. Estimated inefficiency decreases even below the 14 percent reported by Hollingsworth (2008) for European countries. Accounting for unobserved heterogeneity would make hospitals rated below 85 percent efficiency according to the standard model gain up to 12 percentage points, serving to highlight the importance of heterogeneity correction in the estimation of hospital performance.

Lien précarité – durée et complexité des séjours hospitaliers en secteur de court séjour

Background Several studies have shown that socioeconomic deprivation is associated with increased hospitalization lengths of stay (LOS) and costs. Yet, the French DRG-based information system (PMSI) does not take deprived situations into account. Hence, we aimed at extracting routinely available variables measuring deprivation from the Hospital Information System and at assessing their association with severity of illness and hospital LOS. Methods We performed record linkage between the PMSI database concerning stays of patients aged more than 16 years in the short-stay sector of Assistance publique–Hôpitaux de Paris in 2007 and an administrative database which provided the following deprivation measures: recipients of Couverture Médicale Universelle (basic or complementary health insurances adapted for underprivileged French citizens) or Aide Médicale d’État (health and medical emergency insurances adapted for underprivileged non French citizens living in France) and homeless patients. We compared length of stays showing a deprivation measure to others after adjustment on morbidity, age and sex. Results Among 352,721 stays, the prevalence of the deprivation measures ranged from 0.71% for “homelessness” to 6.24% for complementary Couverture Médicale Universelle. Stays showing a deprivation measure had specific illnesses and had more frequently associated comorbidities or complications than others. After adjustment, deprivation measures were associated with significantly increased LOS (by 5% for Couverture Médicale Universelle to 48% for emergency Aide Médicale d’État. Conclusion Routine extraction of deprivation measures from Hospital Information Systems is feasible. Age, sex and illness being equal, these deprivation measures were associated with more complicated cases and increased LOS. We recommend that case mix-based hospital prospective payment systems take socioeconomic deprivation into account.