Paying a premium: how patient complexity affects costs and profit margins. (9/126)

OBJECTIVE AND BACKGROUND: Tertiary medical centers continue to be under extreme pressure to deliver high-complexity care, but paradoxically there is considerable pressure within these institutions to reduce their emphasis on tertiary care and refocus their efforts to develop a more community-like practice. The genesis of this pressure is the perceived profitability of routine surgical activity when compared with more complex care. The purpose of this study is to assess how the total cost and profit (loss) margin can vary for an entire trauma service. The authors also evaluate payments for specific trauma-related diagnostic-related groups (DRGs) and analyze how hospital margins were affected based on mortality outcome. MATERIALS AND METHODS: The authors analyzed the actual cost of all trauma discharges (n = 692) at their level I trauma center for fiscal year 1997. Data were obtained from the trauma registry and the hospital cost accounting system. Total cost was defined as the sum of the variable, fixed, and indirect costs associated with each patient. Margin was defined as expected payments minus total cost. The entire population and all DRGs with 10 or more patients were stratified based on survival outcome, Injury Severity Score, insurance status, and length of stay. The mean total costs for survivors and nonsurvivors within these various categories and their margins were evaluated. RESULTS: The profit margin on nonsurvivors was $5,898 greater than for survivors, even though the mean total cost for nonsurvivors was $28,821 greater. Within the fixed fee arrangement, approximately 44% of transfers had a negative margin. Both survivors and nonsurvivors become increasingly profitable out to 20 days and subsequently become unprofitable beyond 21 days, but nonsurvivors were more profitable than survivors. CONCLUSIONS: There is a wide variance in both the costs and margins within trauma-related DRGs. The DRG payment system disproportionately reimburses providers for nonsurvivors, even though on average they are more costly. Because payers are likely to engage in portfolio management, patients can be transferred between hospitals based on the contractual relationship between the payer and the provider. This payment system potentially allows payers to act strategically, sending relatively low-cost patients to hospitals where they use fee-for-service reimbursement and high-cost patients to hospitals where their reimbursement is contractually capped. Although specific to the authors' trauma center and its payer mix, these data demonstrate the profitability of maintaining a level I trauma center and preserving the mission of delivering care to the severely injured.  (+info)

Differences between generalists and mental health specialists in the psychiatric treatment of Medicare beneficiaries. (10/126)

OBJECTIVE: To examine differences between the general medical and mental health specialty sectors in the expenditure and treatment patterns of aged and disabled Medicare beneficiaries with a physician diagnosis of psychiatric disorder. DATA SOURCES: Based on 1991-1993 Medicare Current Beneficiary Survey data, linked to the beneficiary's claims and area-level data on provider supply from the Area Resources File and the American Psychological Association. STUDY DESIGN: Outcomes examined included the number of psychiatric services received, psychiatric and total Medicare expenditures, the type of services received, whether or not the patient was hospitalized for a psychiatric disorder, the length of the psychiatric care episode, the intensity of service use, and satisfaction with care. We compared these outcomes for beneficiaries who did and did not receive mental health specialty services during the episode, using multiple regression analyses to adjust for observable population differences. We also performed sensitivity analyses using instrumental variables techniques to reduce the potential bias arising from unmeasured differences in patient case mix across sectors. PRINCIPAL FINDINGS: Relative to beneficiaries treated only in the general medical sector, those seen by a mental health specialist had longer episodes of care, were more likely to receive services specific to psychiatry, and had greater psychiatric and total expenditures. Among the elderly persons, the higher costs were due to a combination of longer episodes and greater intensity; among the persons who were disabled, they were due primarily to longer episodes. Some evidence was also found of higher satisfaction with care among the disabled individuals treated in the specialty sector. However, evidence of differences in psychiatric hospitalization rates was weaker. CONCLUSIONS: Mental health care provided to Medicare beneficiaries in the general medical sector does not appear to substitute perfectly for care provided in the specialty sector. Our study suggests that the treatment patterns in the specialty sector may be preferred by some patients; further, earlier findings indicate geographic barriers to obtaining specialty care. Thus, the matching of service use to clinical need among this vulnerable population may be inappropriate. The need for further research on outcomes is indicated.  (+info)

Managed behavioral health care: a Medicaid carve-out for youth. (11/126)

This DataWatch assesses the impact of a public sector-managed Medicaid mental health carve-out pilot for North Carolina youth. Access to, volume of, and costs of mental health/substance abuse services are reported. We compared a pilot managed care program, with an incentive to shift hospital use and costs to community-based services, with usual fee-for-service Medicaid. Aggregate data from Medicaid claims for youth (from birth to age seventeen) statewide are reported for five years. We found dramatic reductions in use of inpatient care, with a shift to intensive outpatient services, and less growth in mental health costs. These findings demonstrate that public sector-managed care can be viable and more efficient than a fee-for-service model.  (+info)

Outpatient-based bone marrow transplantation for hematologic malignancies: cost saving or cost shifting? (12/126)

PURPOSE: To determine whether a shift in care from an inpatient-based to an outpatient-based bone marrow transplantation (BMT) program decreased charges to payers without increasing clinical complications or out-of-pocket costs to patients. PATIENTS AND METHODS: This nonrandomized prospective cohort study compared clinical and economic outcomes for 132 consecutive BMT patients with hematologic malignancies who received either inpatient- or outpatient-based BMT care. RESULTS: Seventeen of 132 BMT patients underwent outpatient-based BMT. Compared with the inpatient-based group, the outpatient-based group had a markedly lower mean number of inpatient hospital days (22 v 47; P <.001) and decreased mean inpatient facility charges ($61,059 less per patient; P <.0001) but had higher mean outpatient facility charges ($49,732 higher; P <. 0001). Total professional fees were similar for the groups. The mean total charge to payers was only 7% less ($12,652; P =.21) for outpatient-based BMT than for inpatient-based BMT, but total charge was 34% less for outpatient compared with inpatient BMT ($54,240; P = 0.056) in a subset of patients who had a standard rather than high risk of treatment failure. There was no significant difference between groups in out-of-pocket costs for transportation, lodging, meals, home nursing, household assistance, child care, medication expenses, or unreimbursed medical bills. There also was no significant difference between groups in reported income lost, involuntary unemployment, or months of disability. The two groups had similar rates of major complications, including death, significant acute graft-versus-host disease, and veno-occlusive disease of the liver. CONCLUSION: Increased use of outpatient-based BMT should produce substantial cost savings for payers without adverse effects on patients for those patients who do not have a high risk of treatment failure.  (+info)

The effect of a copay increase on pharmaceutical utilization, expenditures, and treatment continuation. (13/126)

OBJECTIVE: No research has evaluated the impact of an increase to a copay that is reflective of today's healthcare market. This study examined the effect of an increase from a $10 to $15 copay for brand drugs on key pharmaceutical utilization measures, including participation rates, treatment continuation, and expenditures, in an adult population. STUDY DESIGN: A quasi-experimental, pre-post design with control group was used. PATIENTS AND METHODS: Two different employer plans implemented an increase from $10 to $15 for brand copays in January of 1997. The utilization and expenditures of these plans were compared with those of a control group with a constant brand copay of $10 for 6 months preceding and 6 months following the copay increase. RESULTS: When other predictor variables were controlled for, the copay increase was not associated with a statistically significant difference in overall utilization compared with the control group, although brand utilization was significantly lower in the copay group. Savings to the payer were substantial, and resulted primarily from cost-shifting, reduction in brand utilization, and an increase in the generic fill rate. The rates of continuation with chronic medications in the 6 months following the copay increase were not reduced in the copay group compared with the control group. CONCLUSION: A copay increase can provide substantial savings to a payer without being a major deterrent to overall utilization or resulting in discontinuation of chronic medications.  (+info)

Costing interventions in primary care. (14/126)

Against a background of increasing demands on limited resources, studies that relate benefits of health interventions to the resources they consume will be an important part of any decision-making process in primary care, and an accurate assessment of costs will be an important part of any economic evaluation. Although there is no such thing as a gold standard cost estimate, there are a number of basic costing concepts that underlie any costing study. How costs are derived and combined will depend on the assumptions that have been made in their derivation. It is important to be clear what assumptions have been made and why in order to maintain consistency across comparative studies and prevent inappropriate conclusions being drawn. This paper outlines some costing concepts and principles to enable primary care practitioners and researchers to have a basic understanding of costing exercises and their pitfalls.  (+info)

Physician impact on the total cost of care. (15/126)

BACKGROUND AND OBJECTIVES: Physicians' efforts at cost containment focus on decreased resource utilization and reduced length of stay. Although these efforts appear to be appropriate, little data exist to gauge their success. As such, the goal of this study is to determine trauma service cost allocations and how this information can help physicians to contain costs. MATERIALS AND METHODS: The authors analyzed the costs for 696 trauma admissions at a level I trauma center for fiscal year 1997. Data were obtained from the hospital costing system. Costs analyzed were variable direct, fixed direct, and Indirect costs. Together, the fixed and indirect costs are referred to as "hospital overhead." Total Cost equals variable direct plus fixed direct plus indirect costs. RESULTS: The mean variable, fixed, and indirect costs per patient were $7,998, $3,534, and $11,086, respectively. Mean total cost per patient was $22,618. CONCLUSION: The 35% variable direct cost represents the percentage of total cost that is typically under the immediate influence of physicians, in contrast to the 65% of total cost over which physicians have little control. Physicians must gain a better understanding of cost drivers and must participate in the operations and allocations of institutional fixed direct and indirect costs if the overall cost of care is to be reduced.  (+info)

Academic health systems management: the rationale behind capitated contracts. (16/126)

OBJECTIVE: To determine why hospitals enter into "capitated" contracts, which often generate accounting losses. The authors' hypothesis is that hospitals coordinate contracts to keep beds full and that in principal, capitated contracts reflect sound capacity management. SUMMARY BACKGROUND DATA: In high-overhead industries, different consumers pay different prices for similar services (e.g., full-fare vs. advanced-purchase plane tickets, full tuition vs. financial aid). Some consumers gain access by paying less than total cost. Hospitals, like other high-overhead business enterprises, must optimize the use of their capacity, amortizing overhead over as many patients as possible. This necessity for enhanced throughput forces hospitals and health systems to discount empty beds, sometimes to the point where they incur accounting losses serving some payors. METHODS: The authors analyzed the cost accounting system at their university teaching hospital to compare hospital and intensive care unit (ICU) lengths of stay (LOS), variable direct costs (VDC), overhead of capitated patients, and reimbursement versus other payors for all hospital discharges (n = 29,036) in fiscal year 1998. The data were analyzed by diagnosis-related groups (DRGs), length of stay (LOS), insurance carrier, proximity to hospital, and discharge disposition. Patients were then distinguished across payor categories based on their resource utilization, proximity to the hospital, DRG, LOS, and discharge status. RESULTS: The mean cost for capitated patients was $4,887, less than half of the mean cost of $10,394 for the entire hospitalized population. The mean capitated reimbursement was $928/day, exceeding the mean daily VDC of $616 but not the total cost of $1,445/day. Moreover, the mean total cost per patient day of treating a capitated patient was $400 less than the mean total cost per day for noncapitated patients. The hospital's capitated health maintenance organization (HMO) patients made up 16. 0% of the total admissions but only 9.4% of the total patient days. Both the mean LOS of 3.4 days and the mean ICU LOS of 0.3 days were significantly different from the overall values of 5.8 days and 1 day, respectively, for the noncapitated population. For patients classified with a DRG with complication who traveled from more than 60 miles away, the mean LOS was 10.7 days and the mean total cost was $21,658. This is in contrast to all patients who traveled greater than 60 miles, who had an LOS of 7.2 days and a mean total cost of $12,569. CONCLUSION: The capitated payor directed the bulk of its subscribers to one hospital (other payors transferred their sicker patients). This was reflected in the capitated group's lower costs and LOS. This stable stream of relatively low-acuity patients enhanced capacity utilization. For capitated patients, the hospital still benefits by recovering the incremental cost (VDC) of treating these patients, and only a portion of the assigned overhead. Thus, in the short run, capitated patients provide a positive economic benefit. Other payors' higher-acuity patients arrive more randomly, place greater strains on capacity, and generate higher overhead costs. This results in differential reimbursement to cover this incremental overhead. Having a portfolio of contracts allows the hospital to optimize capacity both in terms of patient flows and acuity. One risk of operating near capacity is that capitated patients could displace other higher-paying patients.  (+info)