George R. Palmer

Evaluation of the performance of diagnosis-related groups and similar casemix systems: methodological issues

With the increasing recognition and application of casemix for managing and financing healthcare resources, the evaluation of alternative versions of systems such as diagnosis-related groups (DRGs) has been afforded high priority by governments and researchers in many countries. Outside the United States, an important issue has been the perceived need to produce local versions, and to establish whether or not these perform more effectively than the US-based classifications. A discussion of casemix evaluation criteria highlights the large number of measures that may be used, the rationale and assumptions underlying each measure, and the problems in interpreting the results. A review of recent evaluation studies from a number of countries indicates that considerable emphasis has been placed on the predictive validity criterion, as measured by the R 2 statistic. However, the interpretation of the findings has been affected greatly by the methods used, especially the treatment and definition of outlier cases. Furthermore, the extent to which other evaluation criteria have been addressed has varied widely. In the absence of minimum evaluation standards, it is not possible to draw clear-cut conclusions about the superiority of one version of a casemix system over another, the need for a local adaptation, or the further development of an existing version. Without the evidence provided by properly designed studies, policy-makers and managers may place undue reliance on subjective judgements and the views of the most influential, but not necessarily best informed, healthcare interest groups.

The Health Workforce

Policies concerning health personnel are of immediate significance to all employees in the health care system because they shape educational opportunities, registration requirements and employment prospects. Workforce policy influences both the supply of, and the demand for, health personnel. For example, the medical profession has expected the Commonwealth government to balance the supply and demand for medical practitioners in Australia. If the Australian Medical Association has decided that there are insufficient doctors to meet the demand for medical services it has requested that universities, with additional government funding, should produce more medical graduates. On the other hand, if the profession wishes to maintain its members’ incomes, in the face of a looming surplus of doctors, it has recommended that the government slow the growth in the doctor-to-population ratio by cutting back on medical education, and by limiting the licensing of medical practitioners with overseas qualifications. As we discuss below, the ability of governments to expand the numbers of medical specialists has been restricted in the past.

Under-coding in Australia limits the performance of DRG groupers.

The Diagnosis Related Group (DRG) system is now used extensively in Australia to classify acute inpatients for many applications, including payments to hospitals. The quality of the inpatient separation data affects the performance of the DRG version, especially its predictive validity. Data from the State of Maryland, in the United States, contain more secondary diagnosis and procedure codes than Australian data. A comparison of the performance of DRG versions using data from Australia and Maryland allowed us to answer the following research question: What impact did these additional codes have on the performance of the DRGs? The best performance in predictive validity (R2) was obtained using the Maryland data no matter which DRG version was used. Casemix-adjusted code counts showed that more diagnoses were coded in Maryland. The most plausible reason for this was that conditions were not being recorded comprehensively by doctors in the medical record in Australia.

Casemix funding of hospitals: objectives and objections.

Reform of the funding of hospitals and other health services has been one of the most important health policy initiatives undertaken by governments in recent years. A number of countries have adopted the casemix approach to payment, or are currently exploring the feasibility of its introduction. Under casemix arrangements hospitals are funded on the basis of the numbers and types of patients they treat. This paper analyses, and finds inadequate, various objections to casemix funding, including those which appeal to considerations of ethics and equity.

Organising Health Care Services

This chapter explains how the main aspects of the health care system are organised. These include public and private hospitals, nursing homes, community health services, and pharmaceuticals. Emphasis is placed on the policies developed by governments to influence the organisation and delivery of these services.

Perspectives on Health Policy

In this chapter we examine several perspectives and sets of generalisations about health, sickness and health care services that are designed, taken in conjunction with our discussion in Chapter 2, to facilitate understanding of the nature of policy and policy making, and to assist in the critical analysis of the Australian health care system and of the public policies with which it is associated.

Prevention and Health Promotion

There are two main reasons for the increasing popularity of disease prevention and health promotion on the health policy agendas of Commonwealth and State governments during the current decade. The first stems from the fact that the therapeutic approach to health problems may be subject to the law of diminishing returns, that is, increased resources devoted to treatment produce progressively smaller increases in health status.

Reorganising Health Policy Making, Delivery and Financing

The review of health policy, and the characteristics of the Australian health care system, presented in the previous chapters indicate the presence of many major problems. These include: the fragmentation of responsibilities between Commonwealth, State, and private organisations; the heavy emphasis on institutional treatment and care; large differentials in health status between the various socio-economic and ethnic groups; the relative neglect of prevention and health promotion; rates of provision of some medical services suggesting the presence of over-servicing; the proliferation of untested technologies; continuing conflicts between governments, the medical profession and others about health insurance; the absence of information about the quality of care; and frequent reorganisations of health administrations, and innumerable reports on the system, but little evidence of improvements as a consequence. A perception of widespread demoralisation among doctors, nurses and other health professionals, and of extensive deskilling in departments of health, are further issues that could be added to this formidable list.

Health Insurance and the Financing of Health Services

The most distinctive aspect of any country’s health care system is the set of arrangements in operation that reduce or eliminate the financial burden of illness experienced by individuals. All developed and many developing countries have implemented systems for meeting the medical and hospital expenses of members of their populations. The details of these arrangements, however, vary widely from country to country. For example, the government in Britain via the National Health Service provides directly most health services to the entire resident population without charges; the expenditure incurred is financed out of government revenue.

Health Policy Analysis

The examination of Australia’s health care system in Chapter 1 revealed that two of the most important health policy issues are the appropriate roles for public and private interests, and for the different levels of government. Much of the political controversy about health care arises from the fact that the Federal government is responsible for financing a medical care system in which the majority of services are provided by private practitioners. Since the Federal government pays for a high proportion of the total cost of health care, should it also have a major responsibility for policy making and the overall planning of health services? Or should planning take place at State, regional, or community level?