A comparison of hospital performance under the partial-payer Medicare PPS and state all-payer rate-setting systems.

Although the passage of PL 98-21 was accompanied by a flurry of interest in all-payer rate regulation, the popularity of all-payer systems has waned recently. This article attempts to determine if the move away from all-payer systems constitutes a lost opportunity. The performance of the partial-payer Medicare PPS is contrasted with that of the all-payer systems in Maryland and New Jersey. The analysis suggests that all-payer systems not only control costs more effectively than partial-payer systems, but also have inherent structural features conductive to limiting cost shifting and to funding uncompensated care. Analysis of data suggests that from the perspectives of payers, providers, and patients, all-payer rate-setting is more equitable than partial-payer systems.

Developing payment refinements and reforms under Medicare for excluded hospitals.

Four classes of specialty hospitals (children's, psychiatric, rehabilitation, and long-term) and two types of distinct-part units in general hospitals (psychiatric and rehabilitation) have been excluded from the Medicare hospital prospective payment system since it was enacted by Congress in 1983. The number of these facilities and the Medicare dollars expended have more than doubled in less than 5 years, prompting renewed policy interest in developing payment reform. In this context, the substantial research and policy development efforts to refine case-mix classification and payment policies for these facilities are reviewed and examined. Findings are discussed relative to possible legislative and regulatory directions.

Trends in hospital labor and total factor productivity, 1981-86.

The per-case payment rates of Medicare's prospective payment system are annually updated. As one element of the update factor, Congress required consideration of changes in hospital productivity. In this article, calculations of annual changes in labor and total factor productivity during 1981-86 of hospitals eligible for prospective payment are presented using several output and input variants. Generally, productivity has declined since 1980, although the rates of decline have slowed since prospective payment implementation. According to the series of analyses most relevant for policy, significant hospital productivity gains occurred during 1983-86. This may justify a lower update factor.

Does one national prospective payment system market basket make sense?

For the first 4 years of Medicare's prospective payment system (PPS), one national market basket of cost weights and price proxies has been used to update payment rates. Previous evidence for a single rate is reviewed, and more recent data are presented that show definite regional differences in input price inflation, resulting in systematic gains or losses for some regions. However, as long as the Health Care Financing Administration continues to periodically update its hospital wage index, the net impact on hospitals is minor. Nevertheless, large differences in PPS-excluded hospital cost shares indicate the need for two sets of cost weights.

Are the diagnosis-related group case weights compressed?

One problem noted recently with the diagnosis-related group payment system is that the distribution of Medicare case weights and case-mix indexes are compressed; that is, the payment rates for high-cost procedures are too low and those for low-cost procedures are too high. Despite the attention compression has received, there are no direct estimates of its magnitude or importance. Presented in this article are an empirical test for compression and a suggestion for a simple correction to decompress the relative prices.

Simulating policy options for psychiatric care in general hospitals under Medicare's PPS.

Psychiatric hospitals and certain distinct part psychiatric units of general hospitals are currently exempt from diagnosis related group (DRG)-based payment under Medicare's prospective payment system (PPS), in large part due to concern about the degree to which such payment would match historical costs for these facilities. This communication simulates DRG-based payments for psychiatric admissions to general hospitals under the PPS and also under a modified version of the PPS. Two major types of modifications are made: (1) an increase in the role of outlier payments and (2) a restructuring of the DRG classification to allow for a difference in the basic payment rate, depending on whether or not care is provided in a facility that is currently exempt. When compared with cost data from just before the start of the PPS, the simulation results show the degree to which these hypothetical modifications will decrease the systematic risk of general hospitals with exempt units from receiving payments that fall short of costs.

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.

Toil and trouble over outpatient prospective payment.

PACs, AVGs, EDGs--the health care alphabet soup is burbling as HCFA considers a mandate for a Medicare outpatient PPS. And some third-party payers are devising their own outpatient PPSs for non-Medicare enrollees in the interest of curbing high ambulatory care costs. Here is a report on the status and timing of all these efforts from a variety of participants and observers.

DRGs as a basis for prospective payment.

Hospital care in Europe has for a number of years been changing towards prospective payment systems. The mechanisms of implementing PPS varies between countries and between health care systems. In the United States prospective payment for hospital care under Medicare was jointly introduced with DRGs being the basis for payment. The combined power of both techniques seems to surpass significantly the individual power of independent applications of PPS and DRGs. The DRG classification system is now the subject of experimentation and research in approximately 16 European countries. The prospects for case-mix measurement and prospective payment in Ireland are discussed in more detail.

Reimbursement of sole community hospitals under Medicare's prospective payment system.

Under the prospective payment system (PPS), designated sole community hospitals (SCH's), usually smaller than other rural hospitals but offering comparable services, have had higher average cost levels, in part because of underutilization of plant and equipment. This has resulted in negative operating margins on patient revenues, although local financial support and other revenue sources bring margins on total revenues into the positive range. The PPS legislation has also provided SCH's temporary protection from volume declines. SCH's are more likely than other rural hospitals to experience large volume swings, but only for declines greater than the threshold specified under PPS.