Prospective Reimbursement System Research Articles

The best of both worlds? The economic effects of a hybrid fee-for-service and prospective payment reimbursement system.

Countries seeking to move away from a purely fee-for-service (FFS) system may consider a hybrid approach whereby only some procedures are paid by FFS while others are paid prospectively. Yet little evidence exists whether such a hybrid payment system contains overall costs without adverse influences on health outcomes. In 2003, Japan experienced a reform from FFS to a hybrid payment system in which only some inpatient procedures were paid prospectively. We exploit this reform to test how such a hybrid system affects overall costs and health outcomes. Briefly, we find that healthcare providers responded opportunistically to the reform, moving some procedures out of the bundled inpatient setting to FFS services, leading to no reduction in cost. There was some evidence of a moderate deterioration in health outcomes, in terms of a decline in the probability of symptoms being cured at discharge. In sum, our results suggest that in some cases, a hybrid payment system can be non-superior to either FFS or prospective payment system.

Can Yardstick Competition Reduce Waiting Times?

Yardstick competition is a regulatory scheme for local monopolists (e.g., hospitals), where the monopolist’s reimbursement is linked to performance relative to other equivalent monopolists. This regulatory scheme is known to provide cost-reduction incentives and serves as the theoretical underpinning behind the hospital prospective reimbursement system used throughout the developed world. This paper uses a game-theoretic queueing model to investigate how yardstick competition performs in service systems (e.g., hospital emergency departments), where in addition to incentivizing cost reduction the regulator wants to incentivize waiting time reduction. We first show that the form of cost-based yardstick competition used in practice results in inefficiently long waiting times. We then demonstrate how yardstick competition can be appropriately modified to achieve the dual goal of cost and waiting-time reduction. In particular, we show that full efficiency (first-best) can be restored if the regulator makes the providers’ reimbursement contingent on their service rates and is also able to charge a provider-specific “toll” to consumers. More important, if such a toll is not feasible, as may be the case in healthcare, we show that there exists an alternative and particularly simple yardstick-competition scheme, which depends on the average waiting time only, that can significantly improve system efficiency (second-best). This scheme is easier to implement because it does not require the regulator to have detailed knowledge of the queueing discipline. We conclude with a numerical investigation that provides insights on the practical implementation of yardstick competition for hospital emergency departments, and we also present a series of modelling extensions. The e-companion is available at https://doi.org/10.1287/mnsc.2018.3089 . This paper was accepted by Serguei Netessine, operations management.

Competition in the Dutch hospital sector: an analysis of health care volume and cost

This paper evaluates the impact of market competition on health care volume and cost. At the start of 2005, the financing system of Dutch hospitals started to be gradually changed from a closed-end budgeting system to a non-regulated price competitive prospective reimbursement system. The gradual implementation of price competition is a ‘natural experiment’ that provides a unique opportunity to analyze the effects of market competition on hospital behavior. We have access to a unique database, which contains hospital discharge data of diagnosis treatment combinations (DBCs) of individual patients, including detailed care activities. Difference-in-difference estimates show that the implementation of market-based competition leads to relatively lower total costs, production volume and number of activities overall. Difference-in-difference estimates on treatment level show that the average costs for outpatient DBCs decreased due to a decrease in the number of activities per DBC. The introduction of market competition led to an increase of average costs of inpatient DBCs. Since both volume and number of activities have not changed significantly, we conclude that the cost increase is likely the result of more expensive activities. A possible explanation for our finding is that hospitals look for possible efficiency improvements in predominantly outpatient care products that are relatively straightforward, using easily analyzable technologies. The effects of competition on average cost and the relative shares of inpatient and outpatient treatments on specialty level are significant but contrary for cardiology and orthopedics, suggesting that specialties react differently to competitive incentives.

Payment by results for mental health services: economic considerations of case-mix funding

SummaryAgainst the backdrop of a tight financial climate, a new method of funding mental health services is being rolled out in England's National Health Service. Called payment by results (PbR), it represents a fundamental change to the way providers of psychiatric services are paid for care of patients. The Mental Health Clustering Tool has been developed to capture activity which reflects the relative needs of patients, and cluster costs are being collected by service providers. The ultimate goal is the creation of a national tariff or fixed price for each cluster. This article describes the incentives generated by PbR and gives evidence on PbR in acute physical care services where it has been in operation for a decade, with respect to efficiency, quality, volume of activity, administrative costs, upcoding or gaming, equity of provision, and cross-subsidisation. It explores the challenges for mental health services as PbR is introduced.LEARNING OBJECTIVESUnderstand the difference between retrospective and prospective reimbursement systems and the incentives generated by each financing system.Understand the three key building blocks of PbR: currency, reference costs and tariffs.Consider the evidence on PbR in acute physical care and the implications for mental health services.

Priorisierung im Gesundheitswesen: Was können wir aus den internationalen Erfahrungen lernen?

In contrast to Germany, several other countries started to develop methods for setting priorities in health care more than 20 years ago. This paper provides an overview of the experiences in Norway, Sweden, the Netherlands, the United Kingdom and the US state of Oregon. Acknowledging the fact that - due to the increasing discrepancy between medical demand and publicly available financial resources--it is inevitable to set limits in health care, these countries initiated a public discourse on resource allocation in health care and established national committees to develop methods for the prioritisation of health care services. In most countries, priorities were implemented by practice guidelines defining clinical indications for medical interventions. In addition to this explicit allocation of scarce health care resources most countries also rely on implicit cost-containment measures (e.g., prospective reimbursement systems). Finally the article will highlight the conclusions that may be drawn from these international experiences for the German health care system.

Reimbursement of New Health Technologies in a DRG-System

Rationale: A prospective reimbursement system based on Diagnosis Related Groups (DRGs) has been recently introduced in several European countries for acute inpatient treatment, e.g. in Germany in 2003. To enable the application of new health technologies a special reimbursement process has been developed for those technologies. Objectives: To present how new technologies can be reimbursed under DRG-conditions, using Germany as a case example. Methods: Material of the official German DRG-Institute (InEK - Institut fur das Entgeltsystem im Krankenhaus gGmbH), the German hospital society (DKG - Deutsche Krankenhausgesellschaft) and the biggest German health insurance (AOK - Allgemeine Ortskrankenkasse) was screened manually and electronically. In addition, interviews with experts of those organisations were conducted. Results: New technologies causing higher costs for hospitals are not adequately compensated within the current G- (German) DRG-system. Since 2005, they can be reimbursed with a special add on (NUB - Neue Untersuchungs- und Behandlungsmethode). Each hospital has to apply for a NUB individually by the end of October at the InEK which decides by the end of December whether the respective hospital will get a NUB for one year. This decision is based on the submitted evidence on the medical effectiveness and economic impact of the new technology on the hospital. The NUB will not be granted if there is not enough medical or economic evidence or if the new technology does not lead to a specific increase of costs. The value of this threshold is only known by the InEK. The amount of the NUB depends on negotiations between the individual hospital and the sick funds and can differ between hospitals. When there is enough data of resource use and costs for the new technology the InEK will determine either (1) a national add on (Zusatzentgelt) which is applicable for all hospitals or (2) adjust the payments for the existing DRGs which include the new technology or (3) even create a new DRG. The number of NUBs substantially increased from 26 in 2005 to 54 in 2006 while the number of national add ons increased from 71 to 82 in the same time period indicating that the system enables the dissemination of technologies causing higher costs for the hospital. Conclusions: The G-DRG-system seems not to substantially hinder the introduction and adaptation of new technologies causing substantially higher costs for the hospital. However, there are no incentives to implement new technologies that are rather inexpensive for the hospital. Clearly, this problem should be addressed by the InEK.

Wound Care in the Age of PPS: Tools for Survival

Successfully providing wound care to patients under the prospective payment reimbursement system can be considered a challenge or an opportunity. Home care organizations are seeking methods to provide cost-effective wound care with optimal clinical outcomes. This article will discuss specific strategies for surviving the upcoming changes while simultaneously meeting the goals of providing wound care in a cost-conscious environment.

Transition from housestaff to nonphysicians as neonatal intensive care providers: cost, impact on revenue, and quality of care.

Nonphysician providers (NPP) increasingly fill roles traditionally performed by housestaff. Downsizing of a pediatric residency program prompted phased replacement of housestaff in a 26-bed neonatal intensive care unit (NICU). Subsidized education for neonatal nurse-practitioners, recruitment of physician assistants, and NPP leadership took place over 18 months, at which time all housestaff functions were assumed by NPP. Cost to establish the program, impact on hospital revenue under New York's prospective reimbursement system, and quality of care were evaluated. The net startup cost for the NPP program was $441,000 ($722,000 for education, salaries, staff replacement, and recruitment, partially offset by a New York State workforce demonstration project grant). Ongoing costs of the program are $1.2 million/yr (including salaries, off-hours medical backup, recruitment, administrative overhead, and loss of indirect and direct medical education reimbursement, partially offset by recaptured housestaff salaries and ancillary expense reductions). Access to care was maintained. Quality of care was assessed during the last 6 months of housestaff and the first 6 months of full NPP staffing, revealing similar weight-specific survival, and improvement in documentation and compliance with immunization and blood utilization guidelines during the NPP period. NPP are expensive in comparison to housestaff. Revenue is minimally adversely affected, but access to NICU services and quality of care was preserved and in some cases enhanced with NPP. In the context of graduate medical education reform, staffing problems such as ours will be encountered increasingly in inpatient subspecialty settings.

Private payers of health care in Brazil: characteristics, costs and coverage.

The private sector is the predominant provider of health care in Brazil, particularly for inpatient services, and financing is a mix of public (through a prospective reimbursement system) and private. Roughly a quarter of the population has private insurance coverage, reflecting rapid growth in the past decade fuelled by the crisis in the public reimbursement system and the perceived deterioration of publicly provided care. Four major forms of insurance exist: (1) prepaid group practice; (2) medical cooperatives, physician owned and operated preferred provider organizations; (3) company health plans where employers ensure employee access to services under various types of arrangements from direct provision to purchasing of private services; and (4) health indemnity insurance. Each type of plan includes a wide variety of subplans from basic individual/family coverage to comprehensive executive coverage. The paper discusses the characteristics, costs and utilization patterns of all types of privately financed care, as well as the major problems associated with private financing: the limited package of benefits and low payout ceilings, inadequate consumer information and virtually no regulation.

Possible influence of the prospective payment system on the assignment of discharge diagnoses for coronary heart disease.

The prospective payment system, under which diagnosis-related groups (DRGs) are used to reimburse hospitals for the care of Medicare patients, replaced the fee-for-service method of payment in Rhode Island in 1983 and in Massachusetts in 1985. Changes in financial incentives resulting from the use of the DRG system may have influenced the assignment of discharge diagnostic codes away from those with lower reimbursement toward codes with higher reimbursement. We collected data from the hospital records of patients 35 through 74 years of age who were discharged with codes 410 through 414 (representing various categories of coronary heart disease) of the International Classification of Diseases, 9th Revision, Clinical Modification (ICD-9-CM). The patients were discharged from seven hospitals in two New England communities (one in Rhode Island and one in Massachusetts) between 1980 and 1988. The rates of diagnosis of various forms of coronary heart disease were determined by studying ICD-9-CM hospital discharge codes (codes 410 and 411 for acute forms of coronary heart disease and codes 412, 413, and 414 for chronic forms) and by using a computerized diagnostic algorithm designed to detect definite myocardial infarction and fatal coronary heart disease. The rates of definite coronary events diagnosed by the algorithm and by the study of ICD-9-CM codes 410 through 414 were constant or increased slightly during the study period. However, the frequency of assignment of codes for the acute forms of coronary heart disease (which entail higher reimbursement) rose from 35.2 percent to 48.4 percent among discharged patients with cardiac disease after the institution of DRGs. The majority of this increase was associated with the code for unstable angina pectoris. The frequency of assignment of codes for the chronic forms of coronary heart disease (which entail lower reimbursement) decreased reciprocally, from 64.8 percent to 51.6 percent (P < 0.001). Our data are consistent with the hypothesis that the prospective reimbursement system has influenced the assignment of hospital discharge codes in a way that would increase payment to hospitals. However, the data do not permit us to distinguish whether hospitals began to assign more precise diagnoses with the advent of the DRG system, or whether they began to favor diagnoses of acute conditions solely for financial reasons.

Potential economic impact of applying DRG-based prospective payment categories to inflammatory bowel disease patients

New incentives regarding delivery of inpatient care by physicians and administrators have resulted from Medicare's DRG-based prospective reimbursement system. As these payment systems become widely adopted by other third-party payors, implications for adequate hospital reimbursement and quality inpatient care will intensify. This study of inflammatory bowel disease inpatients examines discharge data for 300 patients comprising 507 admissions from 1983 to 1987 at a large tertiary center hospital. While only 10.8% of these discharges were Medicare patients, all discharges were assigned a diagnosis-related-group reimbursement to derive a theoretical monetary loss or gain for the hospital. Overall hospital losses averaged $127.24 per case for this patient population, in which the medical and pediatric cases were adequately reimbursed, and the surgical admissions represented greater losses. The average length of stay for all patients decreased from 11.9 to 7.4 days over the study period, mostly a result of reductions in surgical hospital stays. We conclude that reimbursement for medical and pediatric discharges under DRG 179 appear adequate for this hospital, while surgical inflammatory bowel disease reimbursement is not. These data will be useful for comparison of future trends of inpatient utilization for inflammatory bowel disease patients as prospective reimbursement practices become more widespread.

Impact of Medicare Prospective Reimbursement System on Nutritional Support Service Patients: The Importance of Pass Throughs

The financial data of all patients (535) admitted to the Nutritional Support Service (NSS) during 1985, including charges, true care costs, and actual reimbursement including pass-through payments (which are Medicare funds given directly to hospitals for education and capital equipment, and vary significantly from hospital to hospital), were analyzed. The NSS Medicare patients fell into 98 diagnostic related groups (DRGs). All 3,939 Medicare patients admitted in 1985 with the same DRGs as the NSS patients were also identified and their financial data analyzed. The NSS patients lost $999,643 because of the 266 medicare reimbursed NSS patients sustained high losses which overwhelmed the modest profits of the 269 non-Medicare patients. When data from all Medicare patients (which includes both NSS and non-NSS patients) with the same DRGs are analyzed, large profits are realized. These profits are totally due to pass-through payments received. Without pass throughs the loss for all 3,939 Medicare patients in these 98 DRGs would have been $1,641,273. The impact of eliminating pass throughs in the next few years needs to be determined. NSS patients represent a group that generates high financial losses under the federal prospective reimbursement system. However, present Medicare reimbursement of other less seriously ill patients with similar DRGs more than compensate these losses if pass throughs are used in determining reimbursements.

Hospital performance under the medicare prospective reimbursement system

Hospital performance under the medicare prospective reimbursement system

Reliability of reporting nosocomial infections in the discharge abstract and implications for receipt of revenues under prospective reimbursement.

Proper reporting of discharge diagnoses, including complications of medical care, is essential for maximum recovery of revenues under the prospective reimbursement system. To evaluate the effectiveness of abstracting techniques in identifying nosocomial infections at discharge, discharge abstracts of patients with nosocomial infections were reviewed during September through November of 1984. Patients with nosocomial infections were identified using modified Centers for Disease Control (CDC) definitions and trained surveillance technicians. Records which did not include the diagnosis of nosocomial infections in the discharge abstract were identified, and potential lost revenues were estimated. We identified 631 infections in 498 patients. On average, only 57 per cent of the infections were properly recorded and coded in the discharge abstract. Of the additional monies which might be anticipated by the health care institution to assist in the cost of care of adverse events, approximately one-third would have been lost due to errors in coding in the discharge abstract. Although these lost revenues are substantial, they constitute but a small proportion of the potential costs to the institution when patients acquire nosocomial infections.

RUGs and equity of access to nursing home care.

Case-adjusted prospective reimbursement systems, such as resource utilization groups (RUGs), may promote nursing home cost containment, but they may do no better than existing systems at encouraging homes to admit the more dependent and thus costlier Medicaid patients, if the homes' reluctance to admit these patients is due to a shortage of nursing home beds. Using 1983 data on Wisconsin nursing homes, this paper presents evidence that suggests that the presence of excess demand, rather than low reimbursement rates, causes nursing homes to exclude the more costly Medicaid patients. Consequently, to benefit fully from RUGs, it is necessary either to eliminate excess demand (by increasing supply or decreasing demand) or to decide which patients have priority for admission and assign reimbursement payments to these patients that significantly favor these patients. Otherwise, access to nursing home care under RUGs is left to chance.(ABSTRACT TRUNCATED AT 250 WORDS)

Physician awareness of cost under prospective reimbursement systems.

The failure of some strategies to reduce physician use of costly hospital services has been attributed in part to retrospective reimbursement systems. However, anticipation of changes in the reimbursement structure has led to speculation that a different environment might lead to increased cost awareness by physicians. To measure the impact of prospective reimbursement systems on physician awareness of cost, the authors surveyed 46 medicine residents and faculty at a medical center. Data show that only 34% were able to correctly estimate common charges and 24% less common charges. In the early stages of prospective reimbursement, there has been no increased physician awareness of cost.

Satelliting physical therapy into the community-an alternative approach to outpatient care

Changes in third-party reimbursement patterns such as the prospective reimbursement system recently implemented for Medicare patients, coupled with the rapid emergence of health maintenance organisations and preferred provider groups, have caused a shift in the location and under what provisions physical therapy is provided. Emphasis has been placed on outpatient services to some extent due to a mandated decrease in length of stay in acute care settings.For the past 7 years, McLaren General Hospital has operated three satellite units, providing a multi-disciplinary program to patients in their communities. This established network has provided our department with an alternative in appropriately addressing shifts in health care. At the same time, it has significantly increased our patient services.Criteria is presented to assist the therapist in evaluating the need for and placement of such a satellite unit, and the methodology, structure, and staffing patterns we have found necessary to appropriately addr...

Planning Alternative Delivery Systems

The tendency to react to circumstance rather than to initiate on its own agenda has been a prevalent response of the nursing profession, in particular, and the health care industry, in general. With retrospective reimbursement, hospitals were reimbursed for what they spent, one of the factors that fostered a reactive mode of analysis and management. With the advent of the prospective reimbursement system--a system that implies the need for forecasting--the mandate for nurse executives to take a proactive stance in managing their product line is clear. The resulting economically constrained environment has challenged nurse executives to devise strategies for efficient patient care delivery without sacrificing commitment to quality. These strategies must be planned to respond to the current changing environment and adapted to meet future changes.

Future nursing considerations for the acutely ill cancer patient.

I T HAS BEEN SAID that “nurses could change and direct the whole health system if they would only get united and all work together. ” ’ As manifested by the large attendance at the 10th Annual Oncology Nursing Society Congress in Houston, Tex, recently, it is apparent that nurses have the tools with which to be united to influence the future of health care. As health care policy is changing so rapidly, so too is our nursing practice in the field of oncology. We have advanced our levels of sophistication through further education, extending our clinical practice skills, developing research models, and implementing our findings in practice. At the same time, oncology nursing administrators are developing systems to incorporate new health care policy changes for enhancing the quality of care provided. As we all know, the federal government prospective reimbursement systems for Medicare and Medicaid patients, including diagnosis-related groups (DRGs), have already influenced, and will continue to influence, delivery of care for our cancer patients. The DRG system of reimbursement for patient services is here to stay, at least in the foreseeable future. Insurance companies and state funding agencies are already adopting, or seriously considering, similar systems for health care reimbursement . Some state agencies require precertification prior to elective admission for Medicaid patients. The trends are definite, and procedures to limit the costs of health care are much needed. It is clear that the country could not have gone on with the previous system of retrospective reimbursement with its accompanying escalating health care costs. One of the advantages of the old system was that all patients were entitled to every facet of health care provided they had money, insurance, or federal government benefits, eg, Medicare or

The adoption and diffusion of CT and MRI in the United States. A comparative analysis.

This study examines and compares the rates and patterns of diffusion of computerized tomography (CT) and magnetic resonance imaging (MRI) over the first 4 years of their availability. Although early diffusion of CT was more rapid than that of MRI, adoption of MRI in nonhospital settings equaled that of CT. Analysis of attributes of the technologies and attributes of the regulatory, reimbursement, and market environments surrounding the early diffusion of these technologies provides insight into their different diffusion patterns. In particular, the technical and financial uncertainties surrounding MRI have inhibited its diffusion compared with that of CT. Medicare's DRG-based prospective reimbursement system and certificate-of-need (CON) regulation by states have reduced overall MRI diffusion and stimulated purchases of MRI by nonhospital organizations. The FDA's premarket approval (PMA) program has changed marketing strategies and influenced the diffusion of MRI to a lesser degree. This analysis identifies problems in how the present health care system evaluates and adopts new, expensive, diagnostic technologies and suggests changes to make the system more responsive to present needs.