James C. Vertrees

Bundling Post-Acute Care Services into MS-DRG Payments

OBJECTIVE A bundled hospital payment system that encompasses both acute and post-acute care has been proposed as a means of creating financial incentives in the Medicare fee-for-service system to foster care coordination and to improve the current disorganized system of post care. The objective of this study was to evaluate the statistical stability of alternative designs of a hospital payment system that includes post-acute care services to determine the feasibility of using a combined hospital and post-acute care bundle as a unit of payment. METHODS The Medicare Severity-Diagnosis Related Groups (MS-DRGs) were subdivided into clinical subclasses that measured a patients chronic illness burden to test whether a patients chronic illness burden had a substantial impact on post-acute care expenditures. Using Medicare data the statistical performance of the MS-DRGs with and without the chronic illness subclasses was evaluated across a wide range of post-acute care windows and combinations of post-acute care service bundles using both submitted charges and Medicare payments. RESULTS The statistical performance of the MS-DRGs as measured by R(2) was consistently better when the chronic illness subclasses are included indicating that MS-DRGs by themselves are an inadequate unit of payment for post-acute care payment bundles. In general, R(2) values increased as the post-acute care window length increased and decreased as more services were added to the post-acute care bundle. DISCUSSION The study results suggest that it is feasible to develop a payment system that incorporates significant post-acute care services into the MS-DRG inpatient payment bundle. This expansion of the basic DRG payment approach can provide a strong financial incentive for providers to better coordinate care potentially leading to improved efficiency and outcome quality.

Hospital Groups and Case-Mix Measurement for Resource Allocation and Payment

In Europe and most developed and developing countries of the world, increasing levels of resources are required to fund health care. This is due to a variety of fundamental causes, including the aging of populations, which leads to increasing per capita use of health care services, the fact that higher per capita income also leads to increasing use of health care services, and technical advances which allow physicians to treat previously unbeatable diseases and conditions. This has increased interest in defining equitable methods for resource allocation and payment for health care services. This chapter focuses on inpatient hospital services, although taking ambulatory care or long-term care (LTC) into account may be equally important over the long-term.

Using Case Mix for Resource Allocation

The purpose of this paper is to provide an overview of the use of diagnosis related groups (DRGs) for allocating resources for inpatient hospital care. The paper outlines a general approach and raises some of the issues which will be encountered in designing a DRG-based resource allocation system. The most useful resolution of these issues will depend on the ultimate goals of the system and the context in which it is expected to operate. In other words, there is no “correct” solution for all circumstances. In addition, since the use of DRGs (or any other case mix system) to influence financing will result in much cleaner case mix related data as well as a political constituency for further improvement, a reasonable strategy is to focus first on what is feasible to implement and to plan on improvements as time passes.

Adjusting Medicaid managed care payments for changes in health status.

Risk adjustment of managed care organization (MCO) payments is essential to avoid creating financial incentives for MCOs adopting enrollee selection strategies. However, all risk-adjustment methods have an inherent structural flaw that rewards preventable deterioration in enrollee health status and improved coding of disease burden. We propose a payment adjustment to offset this flaw. We use a database of 1,237,528 continuously enrolled beneficiaries to quantify the payment impact of change in enrollee health status over time for enrollees with two common chronic illnesses, hypertension and diabetes. The payment impact caused by the change in enrollee health status across MCOs ranged from +3.67% to −7.27% for enrollees with diabetes and from +5.25% to −7.69% for enrollees with hypertension. The MCO payment impact for diabetes and hypertension ranged from +0.19% to −0.31%. This difference can be used as the basis for creating payment incentives for MCOs to reduce the long-term costs of chronically ill enrollees.

Evaluation of Long-Term Care: Estimation of Health Transitions in Frail Populations

A problem in developing long-term care (LTC) insurance and service systems is the complexity of the relation between the personal and health characteristics determining LTC needs, and the observed use of services. Factors related to the need for LTC are medical conditions, behavioral problems, loss of function, lack of informal care, and loss of spouse, income, and education. Each may be represented by several measures; for example, medical status may be represented by diagnoses; functional ability by scores on activities of daily living (ADL; Katz and Akpom, 1976), or instrumental activities of daily living (IADL; Lawton and Brody, 1969); informal care may be represented by family relations—their duration, level, and kind. If the population were cross-classified on all these measures, the number of cells would be large and, in any practically sized sample, the average number of observations in a cell would be small.