When does regionalization of expensive medical care save money?

Regionalization of expensive, high-technology medical care is often proposed as a way to reduce medical costs. Most empirical estimates of the cost implications of regionalization suffer from methodological shortcomings. Here, we discuss all the factors that must be taken into account to produce an accurate assessment of how regionalization changes costs. These factors include the following: (1) The extent of resource sharing among different services; (2) The extent of unused capacity; (3) Whether regionalized facilities have high, low or average costs; (4) Costs of a regionalized system, including transporting patients to the regionalized facilities, coordinating care between the referring and regionalized providers, and out-of network care; (5) The effect of regionalization on the volume of care; and (6) whether a short- or long-term view is taken.

Clinical and socioeconomic determinants of health care use among HIV-infected patients in the Department of Veterans Affairs.

This study estimates the impact of clinical and socioeconomic characteristics on health care use for HIV-infected patients. Data come from the Department of Veterans Affairs (VA) HIV Registry, which electronically extracts data from patients' automated medical records, and from patient interviews. Unlike prior studies, this analysis includes a staging system incorporating CD4 count and AIDS-defining diagnoses. Results showed that clinical factors were the most important determinants of health care use; socioeconomic variables were seldom significant. These findings were expected, since the VA is an equal access system, providing care regardless of socioeconomic status.

Rates of health services utilization and survival in patients with heart failure in the Department of Veterans Affairs medical care system.

The objective of this study was to describe patterns of hospital and clinic use and survival for a large nationwide cohort of patients with heart failure. A retrospective cohort study of patients treated in the Veterans Affairs medical care system was conducted using linked administrative databases as data sources. In 1996, the average heart failure cohort member had 1-2 hospitalizations, 14 inpatient days, 6-7 visits with the primary physician, 15 other visits for consultations or tests, and 1-2 urgent care visits per 12 months. The overall risk-adjusted 5-year survival rate was 36%. Hospital use rates in the cohort fell dramatically between 1992 and 1996. One-year survival rates increased slightly over the period. Patients with heart failure are heavy users of services and have a very poor prognosis. Utilization and outcome data indicate the need for major efforts to assure quality of care and to devise innovative ways of delivering comprehensive services.

Evaluation of the VA mobile clinics demonstration project.

In 1988 the Veterans' Benefits and Services Act attempted to solve the problem of the lack of adequate VA healthcare facilities in rural areas by establishing a demonstration program using mobile clinics. Six clinics operated in areas that were at least 100 miles from a VA healthcare facility during the time period between October 1, 1992 and May 28, 1994. This article evaluated the effect of the mobile clinics' structural limitations on clinical care, the increased number of sites on VA usage, and cost. Limited space for storage of medical records and the unavailability of laboratory, electrocardiographic, or radiographic facilities significantly affected clinical practice. However, even with these space limitations, veterans' use of healthcare in the areas served by the mobile clinics increased significantly in comparison to reference areas. The direct costs per visit averaged more than three times what the VA would have reimbursed the private sector.

Cost implications of regionalizing open heart surgery units.

This study calculated the potential change in costs from regionalizing open heart surgery units in a geographic network of the Department of Veterans Affairs (VA). It used data from the VA's cost accounting system, and the authors conducted a sensitivity analysis. Under consolidation, savings from closing an open heart surgery unit would be partially offset by the costs of treating nonemergency cases at other VAs, treating emergency cases at non-VA hospitals, and transporting patients to regionalized facilities. Nevertheless, the potential savings from consolidation would exceed $3 million, or 18% of the network's costs of treating open heart surgery patients.

Determining costs in VA: research design problems and solutions illustrated with case studies.

BACKGROUND: Department of Veterans Affairs (VA) administrative cost data bases contain inaccuracies and do not provide patient-level data. OBJECTIVE: To describe methods of VA cost determination that are appropriate for specific types of studies and to exemplify these methods with case studies. RESEARCH DESIGN: VA utilization and cost data sources are described, and their limitations highlighted. Strategies for determining costs are discussed for health care that is critical to the study, for other types of health care, and for new programs or interventions. Three case studies are presented to illustrate cost-finding methods. RESULTS: A hybrid approach to determining VA costs is discussed. For health care that is critical to the study, administrative data can be replaced or supplemented with primary data, information from the fiscal or other services, or non-VA data. Primary data are also needed to evaluate new programs or interventions. Less intensive data gathering methods can be used for health care that is not central to the study. The first case study illustrates cost determination for a randomized controlled trial, using an example of alternative ways of maintaining hemodialysis access graft patency. The second case study illustrates the determination of costs for all outpatient procedures to use in billing for veterans with private health insurance. The third case study describes the estimation of cost savings from regionalizing open heart surgery. CONCLUSIONS: Despite problems with VA administrative cost data, accurate VA costs can be determined.

Use of a cost accounting system to evaluate costs of a VA special program.

BACKGROUND: The Department of Veterans Affairs (VA) established six mobile clinics to provide care for rural veterans. Each was operated by a parent VA Medical Center (VAMC). OBJECTIVE: To describe the use of a cost-accounting system which does not provide costs at the service or patient level to determine the costs of the mobile clinics. RESEARCH DESIGN: Costs per visit were compared among the mobile clinics with the parent VAMCs and with simulated fixed-location clinics. Cost data came from VA's Centralized Accounting for Local Management (CALM) data. Utilization data came from VA's outpatient file. RESULTS: Information was obtained from the VAMCs' fiscal services to reallocate costs among the CALM subaccounts to generate cost data that was comparable among the mobile clinics. Costs per visit for the mobile clinics were twice as high as those of the parent VAMCs. Costs per visit would be lower at fixed-location clinics unless the volume were substantially less than that provided by the mobile clinics. CONCLUSION: Differences between cost allocations for accounting purposes and research are likely to necessitate adjusting cost accounting data for research purposes. Fortunately, information from the accountants or primary data can lead to a cost database which is appropriate for research evaluations. In the mobile clinics study, the analysis of cost accounting data led to the conclusion that mobile clinics were not a cost-effective way in which to provide care to rural veterans.

Geographic variations in utilization rates in Veterans Affairs hospitals and clinics.

BACKGROUND: In the United States, geographic variation in hospital use is common. It is uncertain whether there are similar geographic variations in the health care system of the Department of Veterans Affairs (VA), which differs from the private sector because it predominantly serves men with annual incomes below $20,000, has a central system of administration, and uses salaried physicians. Thus, it might be less likely to have geographic variations. METHODS: We used VA data bases to obtain information on patients treated for eight diseases (chronic obstructive pulmonary disease, pneumonia, congestive heart failure, angina, diabetes, chronic renal failure, bipolar disorder, and major depression). We analyzed their use of hospital and outpatient services by assessing the risk-adjusted numbers of hospital days (the average number of days a patient spent in the hospital per 12 months of follow-up, regardless of the number of hospital stays), hospital-discharge rates, and clinic-visit rates from 1991 through 1995 for the entire system and within the 22 geographically based health care networks. RESULTS: We found substantial geographic variation in hospital use for all eight cohorts of patients and all the years studied. Variations in the numbers of hospital days per person-year among the networks were greatest among patients with chronic obstructive pulmonary disease (ranging from a factor of 2.7 to a factor of 3.1) during a given year and smallest among patients with angina (ranging from a factor of 1.5 to a factor of 2.1). Levels of hospital use were highest in the Northeast and lowest in the West. The variation in the rates of clinic visits for principal medical care among the networks ranged from a factor of approximately 1.6 to a factor of 4.0; variations in the rates were greatest among patients with chronic renal failure and smallest among patients with chronic obstructive pulmonary disease. There was no clear geographic pattern in the rates of outpatient-clinic use. CONCLUSIONS: There are significant geographic variations in the use of hospital and outpatient services in the VA health care system. Because VA physicians are unable to increase their income by changing their patterns of practice, our findings suggest that their practice styles are similar to those of other physicians in their geographic regions.

Impact of an all-inclusive diagnosis-related group payment system on inpatient utilization.

OBJECTIVES: Although case-based payment is one of the main reimbursement mechanisms for hospitals, little is known about its effects in the general population. Prior studies have focused on Medicare or on all-payer systems in particular states. This study estimates the effect of a prospective payment system based on diagnosis-related groups (DRGs) nationwide in the Department of Veterans Affairs. METHODS: Multiple regression analysis was used to estimate the effect of Department of Veterans Affairs's diagnosis-related group system separately for 22 diagnoses. The dependent variables were length of stay, inpatient days per patient, and discharges per patient. Covariates included patient, hospital, and area characteristics. RESULTS: Department of Veterans Affairs's diagnosis-related group system reduced lengths of stay and inpatient days per patient. The largest impacts were for the psychiatric diagnoses and several surgical procedures. The magnitudes of the effects were generally moderate. Department of Veterans Affairs's case-based system had a negligible effect on discharges per patient. CONCLUSIONS: Per case reimbursement is a potentially useful tool for improving the efficiency of inpatient care for all types of diagnoses and age groups. The effect may be larger than estimated here because of institutional barriers and caps on financial impact.

The effect of chain membership on hospital costs.

OBJECTIVE: To compare the cost structures of hospitals in multihospital systems and independently owned hospitals. DATA SOURCES: The American Hospital Association's Annual Survey from 1990 for data on hospital costs and attributes. Area characteristics came from the Area Resource File, and the Medicare case-mix index came from the Health Care Financing Administration. Data on wages are from the Bureau of the Census' State and Metropolitan Area Data Book. The Guide to Hospital Performance from HCIA, Inc. provided data on quality of care. STUDY DESIGN: Separate cost functions were estimated for chain and independent hospitals. Hybrid translog cost functions included measures of outputs, input prices, and hospital and area characteristics. The estimation method accounted for the simultaneous determination of costs and chain membership, and for any nonrandom selection of hospitals into chains. Several economic cost measures were calculated to compare the cost structures of the two types of hospitals. DATA EXTRACTION METHODS: Data from all sources were merged at the hospital level to form the study sample. PRINCIPAL FINDINGS: Hospitals in multihospital systems were less costly than independently owned hospitals. Among independent hospitals, for-profits had the highest costs. There were no statistically significant differences in costs by ownership among chain members. Economies of scale were enjoyed in both types of hospitals only at high volumes of output, while economies of scope occurred at all volumes for chain hospitals, but only at low and medium volumes for independent hospitals. CONCLUSIONS: This study provides support for the idea that growth of the multihospital system sector can provide a market solution to the problem of constraining costs. It does not, however, support the property rights theory that proprietary hospitals are more efficient than nonprofit hospitals.

Research organizations in the Department of Veterans Affairs that focus on database analysis.

The Department of Veterans Affairs (VA) established several internal research organizations to analyze the many VA and non-VA databases. The information obtained assists VA in achieving its objective of providing cost-effective, high quality health care for veterans. Each group has a unique and well-defined function. All major informational inputs needed for VA planning are covered by the groups: resource allocation, workload requirements, population projections, and technology assessment, among others. Both managerial and academic research are conducted. The Department of Veterans Affairs has demonstrated flexibility in initiating new research center as the need arises, such as during the recent health care reform debates. The Department of Veterans Affairs has provided for the dissemination of information about research and databases by explicitly including this task as the focus of one group. A drawback to VA's research system is the minimal intercommunication among the groups. Learning about VA's internal research structure can assist other multihospital systems to identify their informational needs and establish suitable research organizations.

Changes in VA hospital use 1980-1990.

During the 1980s several changes occurred within and outside the Veterans Affairs medical system which may have affected levels of Veterans Affairs (VA) hospital use. We performed a secondary analysis of the 1980-1990 national VA hospital discharge database and Veteran Population Files to examine trends in VA hospital use and to assess effects of the aging of the veteran population. Between 1980 and 1990 discharges increased by 7% despite a 6% drop in the number of veterans. Overall the crude discharge rate increased by 13% and the user rate by 1%. Most of the change was attributable to the fact that as the decade progressed, the veteran population was comprised of proportionately older veterans, who are higher users of hospital care than younger veterans. The 11% increase in the multiple stay ratio was not attributable to aging. Examination of age-specific utilization rates showed that veterans younger than age 45 had consistent increases in use, whereas use by older veterans declined. Our findings indicate that change in the age composition of the veteran population is responsible for some but not all of the increase in VA hospital use in the last decade. The increase in use by young veterans may reflect increasing barriers to access to non-VA care. Declines in use by older veterans may indicate that VA has been successful in shifting the locus of care from the hospital to the ambulatory and long-term care settings.