Better outcomes, lower costs: palliative care program reduces stress, costs of care for children with life-threatening conditions

This policy brief examines the Partners for Children (PFC) program­California's public pediatric community-based palliative care benefit to children living with life-threatening conditions and their families. Preliminary analysis of administrative and survey data indicates that participation in the PFC program improves quality of life for the child and family. In addition, participation in the program resulted in a one-third reduction in the average number of days spent in the hospital. Shifting care from a hospital setting to in-home community-based care resulted in cost savings of $1,677 per child per month on average­an 11% decrease in spending on a traditionally high-cost population. As the three-year pilot program draws to an end, policymakers are considering the advisability of extending the program beyond the 11 counties that now participate. This policy brief provides recommendations that policymakers, families and advocates should consider to ensure sustainability and successful expansion of the program.

Examining the effect of hospital-level factors on mortality of very low birth weight infants using multilevel modeling.

OBJECTIVE: The objective of this study was to examine the effect of hospital-level factors on mortality of very low birth weight infants using multilevel modeling. STUDY DESIGN: This is a secondary data analysis of California maternal-infant hospital discharge data from 1997 to 2002. The study population was limited to singleton, non-anomalous, very low birth weight infants, who delivered in hospitals providing neonatal intensive care services (level-2 and higher). Hierarchical generalized linear modeling, also known as multilevel modeling, was used to adjust for individual-level confounders. RESULT: In a multilevel model, increasing hospital volume of very low birth weight deliveries was associated with lower odds of very low birth weight mortality. Characteristics of a particular hospital's obstetrical and neonatal services (the presence of residency and fellowship training programs and the availability of perinatal and neonatal services) had no independent effect. CONCLUSION: Using multilevel modeling, hospital volume of very low birth weight deliveries appears to be the primary driver of reduced mortality among very low birth weight infants.

Medicare's disproportionate share adjustment and the cost of low-income patients.

We investigated whether or not hospitals have higher costs for inpatient care provided low-income Medicare patients, after controlling for other cost differences already accounted for by Medicare payments. We estimated differences in Prospective Payment System-adjusted costs and outlier-adjusted length of stay for low-income patients relative to matching non-low-income cases from the same hospital in 85 high-volume diagnosis-related groups (N = 1,247,670). Low-income Medicare patients do not have costlier hospital stays, although their stays are 2.5% longer. We conclude that disproportionate share payments are not justified on grounds of higher treatment costs.

Use of diagnosis-related groups by non-Medicare payers.

Medicare's prospective payment system (PPS) for hospital cases is based on diagnosis-related groups (DRGs). A wide variety of other third-party payers for hospital care have adapted elements of this system for their own use. The extent of DRG use varies considerably both by type of payer and by geographical area. Users include: 21 State Medicaid programs, 3 workers' compensation systems, the Civilian Health and Medical Program of the Uniformed Services (CHAMPUS), more than one-half of the Blue Cross and Blue Shield Association (BCBSA) member plans, several self-insured employers, and a few employer coalitions. We describe how each of these payers use DRGs. No single approach is dominant. Some payers negotiate specific prices for so many combinations of DRG and hospital that the paradigm that payment equals rate times weight does not apply. What has emerged appears to be a very flexible payment system in which the only constant is the use of DRGs as a measure of output.

Should insurers pay the same fees under an all-payer system?

Medicare's use of diagnosis-related groups (DRGs) and the resource-based relative value scale (RBRVS) has led to interest in developing a national all-payer system in which insurers use the same payment methods and payment rates. Using data for 81 high-volume DRGs from 457 California hospitals, we conclude that a single set of rates for hospital care would not be appropriate. On average, Medicare patients were 11.7 percent more expensive than commercially insured patients, but less expensive in many DRGs. Further research is needed to determine if Medicare patients require more physician resources compared with non-Medicare patients, particularly for surgical procedures.

Panel processes for revising relative values of physician work. A pilot study.

In this study, a set of meetings was conducted to pilot a group-discussion-based method anchored by a reference set of services with agreed-on values for revising the Medicare Resource-Based Relative Value Scale (RBRVS). The authors focused on the method as it evolved over the sequence of meetings, rather than on whether the relative values of work obtained were more or less valid than relative values of work obtained elsewhere. Four pilot panels, composed of 46 physicians from different specialties (including primary care), were conducted to rate total physician work. One panel examined 80 urologic services, another panel examined 80 ophthalmologic services, and the last two panels considered the merit of appeals from five specialty and subspecialty societies to 68 and 48 services, respectively. Rather than using the method of ratio estimation relative to a standard service, panelists were asked to estimate magnitudes relative to an established multispecialty reference set of values. Prominent members of that reference set were graphically displayed to panelists on a "ruler." Measures included physicians' preliminary and final ratings and detailed notes of the group discussions conducted between the ratings. The authors found that a panel process for refining relative values of work is practical, provided that panelists are provided with a valid reference set for comparison purposes and provided that care is taken that all members feel comfortable engaging in the discussion. In Summer 1992, the Health Care Financing Association conducted a series of multispecialty panels based on the methods presented here to produce the 1993 RBRVS; in addition, the RBRVS Update Committee of the American Medical Association is employing group processes and a reference set in determining the relative work values of new Current Procedural Terminology codes.

Factors affecting the labor efficiency of hospital-based blood bank laboratories.

BACKGROUND: A variety of financing mechanisms and managerial innovations have been developed in the past decade to control hospital costs. Some evidence suggests that those changes have not produced substantial improvements in labor efficiency among employees in the hospital's technical level, such as in the blood bank laboratories. STUDY DESIGN AND METHODS: This study measured labor efficiency in 40 hospital-based blood bank laboratories in Southern California during the year from July 1989 to June 1990 and explored the impact of financial, managerial, and operational factors on labor efficiency. RESULTS: With standardized output measures used in all blood bank laboratories, a wide variation of labor efficiency was found. Multivariate analyses indicate that the labor efficiency of blood bank employees was not influenced by organizational financial incentives, but was affected by the managerial styles of blood bank managers. CONCLUSION: Interpretation of the findings suggests that labor efficiency is affected by operational designs intended to improve responses to variable workloads and reduce slack time.

Alternative volume performance standards for Medicare physicians' services.

The Omnibus Budget Reconciliation Act of 1989 (OBRA89) established volume performance standards (VPSs) as a key element in Medicare physician reform. This policy requires making choices along three dimensions: the risk pool, the scope and nature of the standard, and the application of the standard. VPSs have most effectively controlled expenditures and changed physician behavior when they use states as the risk pool, are composed entirely of Medicare Part B services, and establish per capita utilization targets. The institution of separate standards for voluntarily formed physician groups would pose substantial administrative challenges and has the potential to effect adverse outcomes. Instead, Congress should continue to encourage prepaid plans for the purpose of lowering health care use. Under current law, VPSs will be used to adjust future price increases. Congress may not wish to emulate the example of countries that have imposed expenditure ceilings to control costs unless the current method of using VPSs proves unsuccessful.

An examination of the Resource-Based Relative Value Scale cross-specialty linkage method.

The Resource-Based Relative Value Scale (RBRVS) was developed by surveying panels of physicians from single specialties, then merging the specialty-specific results into a common work scale. The merging process involved two steps: 1) specification of links or equivalent services across specialties: and 2) use of links to align work values from each specialty onto a common scale. This study examines the sensitivity of physician relative values of work (RVWs) to changes in both the specification of links and in the method for aligning specialties. Using the same survey data employed in developing the RBRVS, we calculated new RVWs based on an alternative specification of links and an alternative method for aligning specialties. Total RVWs declined by almost 50% for anesthesiology, and increased by more than 20% for allergists, neurologists, and thoracic surgeons. Most of this change was attributable to our specification of links. We conclude that future use of the linkage procedure employed in developing the RBRVS is not warranted without further research. Instead, efforts to update and revise work values could be based on a common scale of work developed by cross-specialty panels, thus eliminating the need for a linkage procedure.

Trends in length of stay for Medicare patients: 1979-87.

Hospital length of stay (LOS) declined steadily during the 1970s, then rapidly during the early years of the Medicare prospective payment system (PPS). In this article, the authors examine trends in hospital LOS for Medicare patients from 1979 through 1987 for all cases combined, for medical and surgical cases separately, and for different geographic regions. The increase in LOS for surgical cases from 1985 through 1987 represented two offsetting trends. Continuing declines in LOS for most procedures were offset by an increased shift toward complex, long LOS procedures.

Changes in follow-up care for Medicare surgical patients under the prospective payment system.

In this study, changes in the number, site, and source of follow-up visits and allowed charges were examined for follow-up visits provided to Medicare surgical patients between 1984 and 1986. Among the 21 surgical procedures studied, follow-up visits decreased by 5.2%, after adjusting for case mix. Despite the physician fee freeze during the most of the study period, total allowed charges increased by 8.1%, indicating that the average intensity of visits increased by 14.0%. Inpatient visits decreased 6.7%, while outpatient visits increased 3.9%. Thus, while some substitution of outpatient for inpatient visits occurred, prospective payment system-related reductions in inpatient length of stay were associated with reductions in both the total visits and total allowed charges. Holding other factors constant, the 9.5% overall reduction in length of stay produced a 6.4% reduction in total allowed charges. The authors concluded, then, that prospective payment system had a significant effect in reducing the growth of Medicare expenditures for physician visits. The reduction in submitted claims for inpatient follow-up visits and the absence of a strong substitution effect suggest that some inpatient visits may not have been necessary. These results also raise several issues concerning Medicare's global fee for surgical procedures, and provide additional evidence in support of a uniform global fee policy under the new Medicare fee schedule.

Contributions of case mix and intensity change to hospital cost increases.

The 28-percent change in average Medicare inpatient cost per case between 1984 and 1987 is decomposed into three components: input price inflation, changes in average cost within diagnosis-related groups (DRGs) (intensity), and changes in the distribution of cases across DRGs (case mix). We estimate the contributions of technology diffusion and outpatient shifts to within-DRG and across-DRG cost changes. We also use California data to estimate the contribution of changes in the quantity of services provided during a stay. The factors examined account for approximately 80 percent of the real increase in average cost per case.

Improving payments for Medicare patients with unrelated surgical procedures.

The Medicare prospective payment system (PPS) pays hospitals a fixed payment for patients in 474 categories of diagnosis-related groups (DRGs). Since the beginning of PPS, many DRGs have been modified to improve the accuracy of patient classification and the equity of hospital payments. There are continuing problems, however, in classifying surgical patients who have no procedure related to their reason for admission. Until recently, these patients were classified into a single miscellaneous category (DRG 468) and paid the same amount, despite considerable variation in their clinical conditions and resource use. Three options for improving the payment and classification of such cases were examined. Improvements are possible using each of the options examined. The greatest improvement, however, was achieved by reassigning patients to existing surgical DRGs, because patients with the same surgery tend to have similar costs, regardless of their original reason for entering the hospital. This change in assignment methodology would increase payments to teaching hospitals, where the most costly DRG 468 cases are concentrated. It also would remove potential incentives to deny access to or withhold appropriate treatments from patients needing high-cost surgical procedures. It was concluded that this change should be implemented for hospital payment under PPS.

Modified DRGs as evidence for variability in patient severity.

The authors were interested in exploring the extent to which differences in the complexity of patients could be determined by modifications in combinations of the ICD-9-CM codes used to define DRGs. The 150 most common medical and surgical DRGs in one teaching hospital were studied. With clinical experts they identified 41 DRGs that were believed to have subgroups reflecting quite different types of patients, one group sicker and costlier than the other. Using a national data set, the authors then showed that 24 of these DRGs showed significant differences in standardized charges. In 11 of these 24 DRGs the higher cost subgroups were seen proportionately more often in major teaching hospitals compared with other types of hospitals. Results suggest that clinical modifications of a few DRGs would lead to clinically more meaningful case-mix groupings. These same results can also serve as the basis for a discussion on the implication of DRG payments for those DRGs with distributional differences among the higher-cost subgroups.

Using patient age in defining DRGs for Medicare payment.

Major changes were recently implemented in the diagnosis related groups (DRGs) used for payment under Medicare's prospective payment system (PPS). As of October 1987, patient age was no longer used in combination with the presence of a complication or comorbidity (CC) to define DRGs. We present the results of one of the studies that led to this change. We analyzed inpatient charges for 1984 and found that the use of age in combination with CC is inappropriate for grouping Medicare patients. The original DRGs resulted in an underpayment for CC patients and an overpayment for patients 70 years or older without a CC.

Methodological limitations in case mix hospital reimbursement, with a proposal for change.

We have found five methodological limitations in the creation and implementation of the diagnosis related group (DRG) patient classification system, which is used to define a hospital's case mix. There are four methodological limitations in the system that Klastorin and Watts have proposed to identify hospital peer groups. We conclude that the effects of these limitations should be sought, and we propose studies to measure their extent. We also propose that these two approaches can be combined to create an improved hospital reimbursement program that accurately measures differences between hospitals caused by case mix and peer group characteristics.

Unrecognized redistributions of revenue in diagnosis-related group-based prospective payment systems.

The Medicare prospective payment system, which is based on the diagnosis-related group patient-classification system, identifies previously unrecognized redistributions of revenue among diagnosis-related groups and hospitals. The redistributions are caused by two artifacts. One artifact results from the use of labor market indexes to adjust costs for the different prices paid by hospitals in different labor markets. The other artifact results from the use of averages that are based on the number of hospitals, not the number of patients, to calculate payment rates from average costs. The effects of these artifacts in a sample data set have been measured, and it was concluded that they lead to discrepancies between costs and payments that may affect hospital incentives--the overall payment for each diagnosis-related group--and Medicare's total payment.