Niccie L. McKay

An Econometric Analysis of Costs and Scale Economies in the Nursing Home Industry

This paper examines costs in the nursing home industry, an issue of concern to policymakers because Medicaid pays about half of the expenditures on nursing home care. The paper estimates two cost functions for a sample of Texas nursing homes in 1983: one assumes that all homes provide the same quality of care, the other considers quality differences. The results indicate that there are economies of scale in the production of nursing home care. This suggests that many states could serve the same number of Medicaid patients at a lower total cost if occupancy rates were higher, and that a fixed rate reimbursement policy could lower costs.

Exit and Inefficiency: The Effects of Ownership Type

This study uses data on hospital closures to examine the relation between exit and inefficiency in an industry where for-profit, not-for-profit, and government firms coexist. The likelihood of hospital exit over the period 1986-91 is estimated as a function of hospital relative inefficiency, ownership type, and other factors, where hospital relative inefficiency is measured using residuals from estimation of a stochastic frontier cost function. We find that less efficient hospitals were more likely to exit when ownership was for-profit or not-for-profit, but that relative inefficiency did not have a significant effect on the probability of exit for government hospitals.

Comparing high- and low-performing hospitals using risk-adjusted excess mortality and cost inefficiency.

Abstract: This study examines characteristics associated with high- and low-performing hospitals, where performance is defined in terms of both mortality outcomes and efficiency. In particular, we use data for Florida hospitals in 1999-2001 to classify hospitals into performance groups based on both risk-adjusted excess mortality and cost efficiency. The results indicate that hospitals in the high-performing group were more likely to be for-profit, had higher occupancy rates, had proportionately more Medicare and proportionately fewer Medicaid and self-pay patients, used fewer patient-care personnel per admission, and had higher operating margins than all other hospitals. Hospitals in the low-performing group, on the other hand, were less likely to be for-profit, had more beds, used more patient-care personnel per admission, had lower pay per patient-care personnel, had higher average costs, and had lower operating margins than all other hospitals. Interestingly, managed care presence, measured by proportion of HMO-PPO admissions, was not a significant factor in differentiating hospital performance groups.

Medicare Non-Payment of Hospital-Acquired Infections: Infection Rates Three Years Post Implementation

BACKGROUND Medicare ceased payment for some hospital-acquired infections beginning October 1, 2008, following provisions in the Medicare Modernization Act of 2003 and the Deficit Reduction Act of 2005. OBJECTIVE We examined the association of this policy with declines in rates of vascular catheter-associated infections (VCAI) and catheter-associated urinary tract infection (CAUTI). DATA Discharge data from the Florida Agency for Healthcare Administration from 2007 to 2011. STUDY DESIGN We compared rates of hospital-acquired vascular catheter-associated infections (HA-VCAI) and catheter-associated urinary tract infections (HA-CAUTI) before and after implementation of the new policy (January 2007 to September 2008 vs. October 2008 to September 2011). This pre-post, retrospective, interrupted time series study was further analyzed with a generalized hierarchical logistic regression, by estimating the probability of a patient acquiring these infections in the hospital, post-policy compared to pre-policy. PRINCIPAL FINDINGS Pre-policy, 0.12% of admitted patients were diagnosed with CAUTI; of these, 32% were HA-CAUTI. Similarly, 0.24% of admissions were diagnosed as VCAI; of these, 60% were HA-VCAI. Post-policy, 0.16% of admissions were CAUTIs; of these, 31% were HA-CAUTI. Similarly, 0.3% of admissions were VCAIs and, of these, 45% were HA-VCAI. There was a statistically significant decrease in HA-VCAIs (OR: 0.571 (p < 0.0001)) post-policy, but the reduction in HA-CAUTI (OR: 0.968 (p < 0.4484)) was not statistically significant. CONCLUSIONS The results suggest Medicare non payment policy is associated with both a decline in the rate of hospital-acquired VCAI (HA-VCAI) per quarter, and the probability of acquiring HA-VCAI post- policy. The strength of the association could be overestimated, because of concurrent ongoing infection control interventions.

Factors affecting productive efficiency in primary care clinics

This study examines factors affecting the productive efficiency of primary care clinics. The empirical analysis uses a single-stage stochastic frontier regression model, in which factors affecting productive efficiency are specified as part of the inefficiency error component and estimated simultaneously with the production function. The study population includes primary care clinics in the US Military Health System from 1999 through 2003; the analytical data set is an unbalanced panel of 442 observations. The studys main results were that primary care clinics not associated with medical centres had significantly higher levels of productive efficiency than those associated with medical centres and that having proportionately more civilian staff (and thus less turnover) had a positive impact on productive efficiency. Due to their nature, these findings would be expected to also be applicable to the production of primary care in other settings. A key implication of the results is that improvements in productive efficiency should be a top priority, given the possibility for providing more primary care visits without increases in cost.

Nonpatient revenues in hospitals.

BACKGROUND Health management studies of hospital revenues have tended to focus on patient-service revenues, with little attention to the magnitude and the nature of nonpatient revenues. OBJECTIVES This study (a) examines the size and sources of nonpatient revenues in hospitals, (b) analyzes the impact of nonpatient revenues on hospital profit margins, and (c) investigates variations in nonpatient revenues by ownership and bed size. DATA AND METHODS The data source for this study is the Florida Hospital Uniform Reporting System. The unit of observation is a private, acute care hospital, with the data being averaged over the period 2003-2005 (n = 143). Descriptive statistics and nonparametric tests of differences between groups are the primary methods of analysis. FINDINGS During the period 2003-2005, on average, other operating revenues accounted for 1.3% and nonoperating revenues accounted for 4.1% of total revenues, although there was considerable variation across hospitals. Nonpatient activities contributed importantly to hospital profit margins. The average patient care margin was 3.1%, and the average total margin before tax was 4.8%. Thus, without nonpatient activities, total margin before tax would have been 1.7 percentage points lower. Nonpatient revenues tended to be more important for not-for-profit compared with for-profit hospitals, with little differences by bed size. PRACTICE IMPLICATIONS The key practice implication is that because nonpatient activities contribute importantly to hospital profit margins, they should constitute a core element in the organizations financial and operational planning. In particular, hospitals should consider treating nonpatient activities as profit centers.

Variations in hospital administrative costs.

Administrative costs in hospitals are substantial and can have a major effect on performance. Despite this fact, not much research has been done to better understand such costs. This study examined variations in hospital administrative costs using a data set of acute care hospitals in Florida over the period 2000 through 2004. Results indicated that inflation-adjusted total administrative costs increased from about

Evidence‐Based Imaging Guidelines and Medicare Payment Policy

22 million to

Analyzing administrative costs in hospitals.

28 million on average over this time period. However, the percentage of total operating costs devoted to administrative costs was quite stable over the period, averaging approximately 23 percent in each of the five years. Compared with those in rural areas, urban hospitals on average had higher administrative costs per adjusted admission but lower administrative costs as a percentage of total operating costs. Hospital administrative costs also differed by ownership: For-profit hospitals on average had higher administrative costs per adjusted admission than not-for-profit and government hospitals, but administrative costs as a percentage of total operating costs were highest for for-profit hospitals and lowest for not-for-profit hospitals, with government hospitals falling in the middle. For bed size, administrative costs as a percentage of total operating costs were highest for the smallest hospitals. Results of this study will be useful to healthcare managers searching for ways to reduce unnecessary administrative costs while continuing to maintain the level of administrative activities required for the provision of safe, effective, high-quality care.

Rural hospitals: organizational alignments for managed care contracting.

OBJECTIVE This study examines the relationship between evidence-based appropriateness criteria for neurologic imaging procedures and Medicare payment determinations. The primary research question is whether Medicare is more likely to pay for imaging procedures as the level of appropriateness increases. DATA SOURCES The American College of Radiology Appropriateness Criteria (ACRAC) for neurological imaging, ICD-9-CM codes, CPT codes, and payment determinations by the Medicare Part B carrier for Florida and Connecticut. STUDY DESIGN Cross-sectional study of appropriateness criteria and Medicare Part B payment policy for neurological imaging. In addition to descriptive and bivariate statistics, multivariate logistic regression on payment determination (yes or no) was performed. DATA COLLECTION METHODS The American College of Radiology Appropriateness Criteria (ACRAC) documents specific to neurological imaging, ICD-9-CM codes, and CPT codes were used to create 2,510 medical condition/imaging procedure combinations, with associated appropriateness scores (coded as low/middle/high). PRINCIPAL FINDINGS As the level of appropriateness increased, more medical condition/imaging procedure combinations were payable (low = 61 percent, middle = 70 percent, and high = 74 percent). Logistic regression indicated that the odds of a medical condition/imaging procedure combination with a middle level of appropriateness being payable was 48 percent higher than for an otherwise similar combination with a low appropriateness score (95 percent CI on odds ratio=1.19-1.84). The odds ratio for being payable between high and low levels of appropriateness was 2.25 (95 percent CI: 1.66-3.04). CONCLUSIONS Medicare could improve its payment determinations by taking advantage of existing clinical guidelines, appropriateness criteria, and other authoritative resources for evidence-based practice. Such an approach would give providers a financial incentive that is aligned with best-practice medicine. In particular, Medicare should review and update its payment policies to reflect current information on the appropriateness of alternative imaging procedures for the same medical condition.