Prospective Pricing Research Articles

A cost calculation model for specialist palliative care for patients with non-small cell lung cancer in a tertiary centre

Five-year survival of patients with non-small cell lung cancer (NSCLC) is below 15%. Therefore, an early integration of palliative care according to the 2002 WHO definition is indispensable. In this paper, we describe methodical and financial aspects of prospective pricing of palliative care within a concept of integrated care for patients with NSCLC in Germany. Four structures of palliative care services were defined (hospital support, home care, day care and in-patient care). Prospectively, resource use was estimated, using real cost data from the finance department of the University Hospital. Resource use was forecasted on the basis of operating experience, data of the national core documentation of palliative care patients and recommendations from the European Commission. Expected average hospital support team services were priced at 483 euros and budgeted for 10% (stage 1) to 90% (stage 4) of patients. Home care (60 visits, 4,573 euros) and day-care (5 visits) services were budgeted for between 5% (stage 1) and 30% (stage 4). The resulting prospective reimbursements range from 393 euros (stage 1) to 2,503 euros (stage 4). In-patient care was excluded from the prospective payments and reimbursed separately. For the first time, global reimbursements covering palliative care hospital support, home care and day care for patients with NSCLC were prospectively calculated and successfully negotiated. The contractual specification of palliative care services may contribute to transparency and quality in cancer care.

DRG-based prospective pricing and case-mix accounting—Exploring the mechanisms of successful implementation

Escalating health care expenditures have brought on the need for restructuring health care delivery. A common response to this problem has been to seek market-based solutions. In the literature, however, increasing concern has been expressed that hospital management reforms will fail or will have only a limited impact. This longitudinal case study extends our understanding of the effects of implementing DRG-based prospective pricing and case-mix accounting systems for hospital management control in a specific health care setting. Moreover, this study contributes to current knowledge by focusing on the mechanisms explaining successful implementation of new accounting and control systems in the health care sector. A deep understanding of these mechanisms may help us to design better management control systems, and thus circumvent problems in implementing these systems. Our study suggests that successful implementation in the studied context is strongly dependent on the involvement of clinicians in this process. Integrated clinical and financial accountability, assigning responsibility for implementation to clinicians, freedom in choosing appropriate control tools, and flexibility in adoption all facilitated implementation. Furthermore, we argue that this process has also been advanced by the gradual implementation of these reforms and intensifying institutional pressures.

Projecting future drug expenditures--2001.

Drug cost projections for 2001 and factors that are likely to influence drug costs are discussed. The year 2000 introduced many new factors into the decision-making process for drug pricing and raised new considerations regarding drug therapy, distribution, and costs. It is anticipated that drug costs will continue to increase at a rate of 11-15% in 2001. Research and development expenditures for new drugs continue to grow and are estimated to be $26.4 billion in 2000, but the number of new drug approvals, especially for new entities, has not increased significantly. The generic drug industry has been expanding, and sales of generics are expected to increase to $20 billion by 2005. Drug costs also keep rising, and sales may reach $243 billion by 2008; this amounts to 12.6% of total health care spending, compared with 8.1% in 1999. There is a trend toward increasing the rate of conversion of prescription drugs to nonprescription status; this may reduce drug budgets somewhat. 2001 will see new systems of drug distribution and pricing, a federal prospective pricing system for ambulatory care patients covered by Medicare, drug imports from foreign manufacturers, and states taking legal action to reduce prescription drug costs. Drug costs in 2001 are expected to continue to increase at double-digit rates. The increase in costs is due to increased utilization, to new products replacing older products, and to price increases for drugs currently on the market.

The U.S. home infusion market.

Medicare legislation stimulated the development of home care services but also resulted in fragmentation of service components. In the 1980s, prospective pricing and diagnosis-related groups, and resulting pressures to reduce inpatient length of stay, prompted additional growth of the industry. Even so, in 1995 home care represented only 3% of total national expenditures on health care. The annual growth rate of the home infusion industry dropped from 64% in 1982-86 to 24% in 1986-93. While revenue per patient for home infusion is expected to decrease under managed care, an increasing number of patients will support continued market growth. The home infusion market is highly competitive, with only a few large national providers and many small local providers. In 1996, 29% of acute care hospitals provided or were developing a home care program. Community pharmacists' options in the home infusion area include independent services, partnerships, joint ventures, contracts with hospitals, and franchises. The home infusion market is being integrated into alternative sites, such as ambulatory infusion centers (AICs), as providers attempt to diversify to maintain managed care contracts. AICs provide infusion therapy and nursing to noninstitutionalized, nonhome-bound patients. Untapped sources for future growth of the infusion market include long-term-care facilities. More consistent studies of the home care market are needed. Despite slowed growth in recent years, home care has a strong market in the United States.

Understanding reimbursement for pharmacy residents.

n most hospitals in the United States, Medicare patients make up a substantial portion of the total number of patients treated. As a result, the Health Care Financing Administration (HCFA), which manages the Medicare program, reimburses for its share of certain expenses associated with the training and education of health care professionals. Medicare reimbursement must therefore be considered during cost– benefit analysis of any new or existing training and education programs. The complicated rules and regulations of Medicare reimbursement are particularly important to the justification and continual cost– benefit analysis of pharmacy residency programs. Background. A general understanding of Medicare reimbursement of residency programs for health care professions might be useful during discussions with administrative and financial executives. Currently, the costs of pharmacy residency programs are reimbursable under different rules than those that apply to medicine, osteopathy, dentistry, and podiatry residency programs. In the past, however, reimbursement for pharmacy residency programs and for other approved programs (such as some nursing and radiology technician training programs) was more closely tied to the same rules that applied to medicine, osteopathy, dentistry, and podiatry. Making the distinction between the two sets of rules might be useful for educating executives and financial managers. Graduate medical education pass-through costs. Direct costs of medical education (e.g., allocated overhead costs, salaries of interns and residents) are excluded from the Medicare definition of inpatient operating costs covered by the prospective pricing system (PPS). This means that the direct costs of approved medical education activities are not included in hospital-specific, regional, or national payment rates to hospitals under the PPS but continue to be reimbursed on the basis of reasonable costs.1 These expenses are frequently referred to as graduate medical education (GME) costs and are sometimes called GME pass-through costs because they are not reimbursed on the basis of the PPS but, rather, pass through the PPS, thus avoiding the reimbursement limitations imposed by the PPS. To qualify for exclusion from the PPS, interns’ and residents’ services must satisfy the provisions of Section I Appendix D

Models for Determining Cost of Care and Length of Stay in Neonatal Intensive Care Units

New models for determining the cost of care and length of stay in the neonatal intensive care unit (NICU) were developed using financial and clinical data from 588 admissions to our NICU. The model for determining costs explained 71% of the variability in total hospital costs. Models such as the ones developed in this study can be used to compare costs in different institutions, determine temporal trends in costs, and examine the financial impact of using new technologies. Such models can also be useful components of a rational prospective pricing system for the NICU.

Choice of Treatment Intensities by a Nonprofit Hospital Under Prospective Pricing

Under prospective pricing, payers for health care essentially use price regulation of hospitals as a way of indirectly regulating the provision of treatment intensity. This paper presents a theory of how a nonprofit hospital selects treatment intensities for its products given the payer's choice of prices and then determines how the payer should select prices in light of this theory. The main result is that, in equilibrium, the ratio of price to marginal cost will vary across products inversely with the elasticity of demand with respect to treatment intensity. This means that, generally, the hospital will earn positive (negative) accounting profit on products with low‐(high‐) intensity elasticities of demand.

Pharmacoeconomic evaluation of treatment of penetrating abdominal trauma

The hospital, pharmacy, and antibiotic costs for patients with penetrating abdominal trauma were compared with reimbursement received; these costs were also analyzed to assess the potential impact of a total prospective pricing system (PPS). During a four-year period, 46 patients admitted solely for penetrating abdominal trauma were retrospectively evaluated: their discharge summaries indicated that, for 9 patients, reimbursement was based on diagnosis-related groups (DRGs) under the PPS; 9 patients had private insurance; and 28 were classified as "self-paying/no insurance." All costs, corrected for inflation, were reported in 1989 dollars. Antibiotics represented 22.5%, 1.7%, and 0.5% of pharmacy, hospital, and DRG reimbursement, respectively; pharmacy costs were 8.5% of hospital costs and 2.3% of DRG reimbursement. For all 46 patients, a net loss of $295 per patient was incurred. Four patients accounted for 43% of the hospital costs. If the hospital had been reimbursed for all of these patients by prospective pricing and DRGs, it would have had a median profit of $9730 in 42 of 46 patients. Costs exceeded DRG reimbursement in the remaining four patients by a median of $8210. Antibiotic costs and pharmacy costs represent a small portion of hospital costs and DRG reimbursement for patients with penetrating abdominal trauma; thus, cost containment efforts in these patients should be directed at other ancillary services and length of stay.

Regulation and the provision of quality to heterogenous consumers: The case of prospective pricing of medical services

This gaper analyzes the welfare implications of fixed price regulation in a model in which consumers are heterogeneous and a firm can endogenously quality discriminate. The motivation for this analysis is the current move of third party payors (governmental and private insurors) toward prospective pricing of medical services. Our major result is that prospective pricing causes a distributional welfare loss. Specifically, in our model, prospective pricing induces a profit maximizing medical care provider to simultaneously provide a smaller than socially optimal level of quality to more severely ill patients and, surprisingly, a greater than socially optimal amount of quality to less severely ill patients. Further, the distributional welfare loss does not disappear when ethically motivated deviation from profit maximization is allowed. The inefficient distribution of quality occurs because prospective payment regulation fixes the price across patients with different severities of illness but allows providers to quality discriminate. More complicated DRG pricing rules do not appear to be able to completely avoid this problem. Alternatively, vertical integration of third party payors into the direct provision of medical care is shown to be able to bypass the problem completely. This implies that the recent proliferation of vertically integrated health care organizations such health maintenance organizations, preferred provider organizations, and managed care plans by self-insuring employers are welfare improving.

Effect of the prospective-pricing system on drug use in Pennsylvania long-term-care facilities

Health status, nondrug treatment, and drug use were compared for patients discharged from hospitals to seven long-term-care facilities (LTCFs) in Pennsylvania before and after implementation of the prospective-pricing system (PPS) for hospitalized Medicare patients. Data were collected from medical records of LTCF patients for August 1982 through July 1983 (pre-PPS) and August 1985 through July 1986 (post-PPS). Patients in the post-PPS group (n = 297) had greater numbers of illnesses and more serious illnesses on admission to the LTCFs and were more likely to be readmitted to hospitals than pre-PPS patients (n = 312). Patients in the post-PPS group required more nondrug treatments such as urinary catheters, nutritional supplements, and oxygen and received significantly more drug therapy. The cost of drugs was 50% higher in the PPS group. The post-PPS patients admitted to the LTCFs apparently required more posthospital drug and non-drug therapy than the pre-PPS patients. Any system for prospective pricing in LTCFs should take into account the increases in costs for providing long-term care, including drug therapy, that have occurred since prospective pricing for hospitalized patients began.

Managed care: The second generation

The current status of managed health care is described and its impact on hospital and pharmacy operations is summarized. In the 1980s, managed care evolved into a three-segment industry, comprising health maintenance organizations (HMOs), preferred-provider organizations, and fee-for-service plans. Five new trends are emerging as managed care, now an established part of the country's health-care delivery system, enters its second generation: dual- and triple-option plans with financial risk sharing between employers and insurers/HMOs, point-of-service determination of benefits and coverage, consolidation of the number of options offered by employee health plans, creation of exclusive provider organizations, and direct provider contracting. Persons charged with negotiating managed-care contracts will make use of three primary cost-management methods: benefit design, provider reimbursement, and prospective pricing. Employees will take an increasingly active part in purchase decisions. Enrollees will face tradeoffs between their desire for maximum freedom of choice of provider and higher premiums, deductibles, and out-of-pocket expenses. Managed-care plans will continue to have a strong impact on hospitals, especially in the areas of reimbursement and use review. The effect of managed care on pharmacy operations will vary from institution to institution; among the positive results may be increased appreciation of the role of clinical pharmacy services in reducing the incidence of readmissions and the length of hospital stays. The result of these changes in the structure of health-care benefits will be greater price sensitivity, marked by a suppression of unnecessary use of health-care services and an increased tendency to compare and evaluate health-plan costs.

Management of patient education in US Hospitals: Evolution of a concept

While patient education has been an integral part of health care for centuries, the management of this process is a relatively new concept for US hospitals. Beginning in the late 1960s, documentation of patient education coordinator positions, policies, committee mandates, and other management structures began to appear. National surveys and projects documented the growth of these structures and provided, some evidence that their existence positively impacted the number of programs and their effectiveness. Financial pressures on hospitals including the advent of the prospective pricing system, other actions by government and business to control health care costs, and changes in technology have resulted in budget cuts, staff reductions, and reorganizations that have posed new challenges for the development of patient education management. This paper discusses these developments and their impact on management of patient education programs in hospitals.

"Trade-off" between medical cost controls and quality of care? Maybe, maybe not! Part II.

In Part I of this article, published in the last issue of the JQA (February/March 1990, Vol. 12, No. 1), Majors Varney and Schroeder reviewed the issues surrounding the impact of the Medicare prospective pricing system (PPS). After defining "quality health care" and discussing indicators of quality, the authors presented several arguments by anti-cost containment advocates. In Part II, research is presented on the effects of cost containment on access to health care, substance abuse programs, improved care, severity indexing, alternative care, and utilization review programs.

A Successful Combination: Preadmission Testing and Preoperative Education

With the advent of prospective pricing, hospitals now have a powerful incentive to improve efficiency and reduce expenses. Prospective pricing incentives are encouraging movement of preoperative teaching out of the inpatient setting. At The Center for Hip and Knee Surgery, a 24-bed research-oriented midwestern orthopaedic hospital, we have developed and implemented an alternative approach to preadmission testing and preoperative patient education.

Economies of scale, physician volume for neurosurgery patients, and the diagnosis-related group prospective hospital payment system

Hospitals face an increasingly competitive environment in the era of diagnostic related group (DRG) prospective pricing. Further reductions in Medicare outlays relative to hospital costs are likely, given the looming federal deficit. We analyzed the relationship of individual neurosurgical volume, hospital costs, and outcome. All neurosurgical patients (n = 1002) treated for a 3-year period at our large academic medical center were grouped into those treated by low-volume neurosurgeons versus those treated by high-volume neurosurgeons (arbitrarily defined by us); 95% of patients admitted for neurosurgical procedures fit into one of these two categories. Patients of low-volume neurosurgeons had higher hospital costs (even after correction for DRG case-mix and severity of illness) (P less than 0.01), a much worse financial position under DRGs (P less than 0.01), but a similar outcome for both emergency and nonemergency admissions when compared to patients of higher volume neurosurgeons. Pearson correlation showed an inverse relationship between declining cost per patient and increasing neurosurgical volume for both nonemergency patients -0.340 (P less than 0.0001), and emergency patients, -0.321 (P less than 0.0001). These findings suggest that the volume of neurosurgical procedures performed by an individual neurosurgeon is related to hospital resource utilization. This study also suggests that the DRG prospective payment system could provide incentives that may affect both neurosurgical practice and the access to neurosurgical care.

Continuity of Care: Balancing Care of Elders Between Health Care Settings

Continuing care planning and balancing care of elders are crucial components of health care today. The most sweeping change that has come with the advent of prospective pricing for the acute care setting is in the financing of health care for the aged and disabled. Prospective pricing, which uses the diagnosis-related group system, is the method chosen by federal agencies to restrain Medicare costs. For almost two decades, the hospital has been the reservoir for the impaired elderly who could not be returned home or to the community without support services. The system now encourages shortened hospital stays. Continuing care planning is the key to balancing the care of the elder through the process of discharge planning. We must assure patients and families that their needs will be met in the community when the patient is discharged. Balancing care of elders between health care settings through discharge planning is identified in three simple words: A Complex Process. As health care professionals, we must be ready to accept this challenge.

Managed health care

The fundamental components of managed-care plans are described; the development of managed-care programs is discussed; and the impact of managed care on pharmacy services and the price, quality, and accessibility of health care are reviewed. Health care can be considered to be managed when at least one of the following fundamental components is present: prospective pricing, "UCR" (usual, customary, and reasonable) pricing of services, peer review, mandatory use review, benefit redesign, capitation payments, channeling, quality criteria, and health promotion. The managed-care industry consists of health maintenance organizations (HMOs), preferred provider organizations (PPOs), and managed fee-for-service plans. Managed-care reimbursement principles involve transferring some or all of the impetus for controlling use of services to the health-care provider. Means by which this is done include prospective pricing, services bundling, price discounts and negotiated fees, and capitation financing and reimbursement. Financial risk-sharing arrangements with providers--including hospitals, physicians, pharmacies, and home-care companies--are necessary for any managed-care plan to attain true control over its service costs. Use-review and use-management services are also fundamental to containing health-care spending. These include retrospective, concurrent, and prospective reviews of the necessity and appropriateness of medical services. Use management, like services bundling and prospective pricing, has been more effective in reducing costs of hospital inpatient services than costs associated with ambulatory care. Per case payments and services bundling have made individual charges for items irrelevant to hospital revenue. This has forced hospital pharmacy managers to become more sensitive to cost management. Drug formularies, improved productivity, and use of prescribing protocols are means by which hospital pharmacies have controlled costs. However, since shorter hospital stays are not associated with a linear decline in the need for drug therapy, reducing pharmacy operating expenses in proportion to the decline in hospital occupancy is probably not possible. Community pharmacies have responded to managed care by forming pharmacy services administrative organizations. Application of managed-care principles has reduced the use of inpatient hospital services by Medicare beneficiaries, helped HMOs and PPOs to lower prices for some services, reduced use of hospital services by HMO members, and redirected some inpatient hospital care to alternate-care providers.(ABSTRACT TRUNCATED AT 400 WORDS)

Practical aspects of teaching home parenteral nutrition therapy

With the implementation of the prospective pricing system there has been a greater emphasis on discharging patients on home health care therapy. Home parenteral nutrition (HPN) has been a successful method of treating patients with compromised gastrointestinal tracts. The key to the success of these programs remains patient and family training. Adequate knowledge and skills must be demonstrated and documented in the areas of aseptic technique, procedures of catheter care, complications, and equipment, prior to discharge. This paper describes the various aspects of identifying and training patients for HPN, and some of the problems and complications that may occur.

Prospective Pricing Model for Neonatologists and Obstetricians in Tertiary Care Centers

According to the new federal diagnosis-related group (DRG) system, hospitals are reimbursed fixed sums based on discharge diagnoses, rather than variable sums that depend on specific goods and services consumed and number of days hospitalized. The government is now exploring DRGs as a potential mechanism for reimbursing physicians. In Florida, two DRG-type reimbursement systems were developed for neonatal and obstetrical hospitalizations in tertiary care settings, as departures from the federal DRG system. Called neonatal care groups (NCGs) and obstetrical care groups (OBCGs), both classification systems predicted hospital charges in these settings more accurately than did federal DRGs. The feasibility of a prospective pricing system for neonatologists and obstetricians based on NCGs and OBCGs was investigated. The data showed that neonatologists' charges had a high correlation with hospital charges (r = .90) and that increasing levels of intensity of care as defined by the NCGs were reflected by consistent increases in reimbursement to neonatologists. If the NCG system were to be applied, neonatologists would receive compensation equivalent to that which they currently earn according to the fee-for-service system. In contrast, obstetricians' charges bore almost no relationship to hospital charges. However, modest differences in obstetrician's charges did emerge as a reflection of number of complications, which are incorporated into the OBCG categories; this suggests that a reimbursement system based on hospital OBCG categories might be applied to obstetricians.

Which patient education strategies will pay off under prospective pricing?

As cost containment pressures mount under prospective pricing, patient education managers need to assure that appropriate educational strategies are implemented. This article reviews the evidence for nine educational strategies which demonstrate cost-saving potential under prospective pricing: pre-operative education, medication self-administration programs, outpatient education, discharge planning education, family education, peer educators, cooperative care units, early discharge programs and home health programs. Whenever possible, the diagnosis related groups (DRGs) to which these strategies apply are indicated. Finally, issues of patient education and quality of care are discussed.