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.

A reconsideration of economies of scale in the health care field.

The Health Care Financing Administration has demonstrated an interest in the economies of scale phenomenon as it might apply to reimbursement methodologies. This paper provides a critical evaluation of the economies of scale research methodology and a critical review of both the analytical (LRAC estimates) and the implied economies of scale (spreading fixed costs) literature. Given that estimates of Minimum Optimum Scale are based on individual coefficients generated by a regression model, this work illustrates the danger inherent in this approach and examines the volatility of the coefficient values and their dependence upon model specification. The ambiguity present in the literature addressing the LRAC estimates is thereby explained. An evaluation of the implied economies of scale literature reveals that average fixed costs decrease with increasing levels of output. This should not be a surprise to anyone. The notion of economies of scale is implied in this literature but never addressed. It is suggested in this work that the means to better standardize the output of the hospital industry, the sine qua non of economies of scale research, is now available in various methodologies of patient grouping.

Three case-type classifications: suitability for use in reimbursing hospitals.

This study compared three case-type classifications--the cross-classification of the Commission on Professional and Hospital Activities, Diagnosis-Related Groups (DRGs) and Staging--with respect to per cent of variance in total patient charges accounted for. The purpose was to assess the relative usefulness of the classifications for application in hospital reimbursement schemes. The sample consisted of 50 hospitals. A nested analysis of variance was performed with case type nested within hospital. Per cent of variance accounted for was calculated for each of three data sets: the full data set, a truncated version of that set and a logarithmically transformed version. Results support the contention that none of the currently available classifications accounts for enough variance to permit straightforward use of case-type standard costs in a reimbursement mechanism. New developments in case-type classification may result in a classification that is more suitable for this use.

Case mix complexity differences between teaching and nonteaching hospitals.

In the study reported here, the authors measured the differences between teaching and nonteaching hospitals in case mix complexity and provided some detail concerning the differences. They measured case complexity in a sample of 200 short-term general hospitals by the Resource Need Index (RNI) using a cross-classification of 3,490 case types with weights compiled from patient charges. Median RNI values were moderately higher for teaching than for nonteaching hospitals both for the hospital as a whole and for each clinical service except obstetrics-gynecology. The most resource-intensive case type were relatively more frequent in the teaching hospitals, but the least resource-intensive types were of about equal relative frequency in the two hospital groups. The results show that teaching hospitals could be expected to cost somewhat more per patient even if case mix were the only factor.