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Unrecognized redistributions of revenue in diagnosis-related group-based prospective payment systems.

Kominski GF, Williams SV, Mays RB, Pickens GT - Health Care Financ Rev (1984)

Bottom Line: One artifact results from the use of labor market indexes to adjust costs for the different prices paid by hospitals in different labor markets.The other artifact results from the use of averages that are based on the number of hospitals, not the number of patients, to calculate payment rates from average costs.The effects of these artifacts in a sample data set have been measured, and it was concluded that they lead to discrepancies between costs and payments that may affect hospital incentives--the overall payment for each diagnosis-related group--and Medicare's total payment.

View Article: PubMed Central - PubMed

ABSTRACT
The Medicare prospective payment system, which is based on the diagnosis-related group patient-classification system, identifies previously unrecognized redistributions of revenue among diagnosis-related groups and hospitals. The redistributions are caused by two artifacts. One artifact results from the use of labor market indexes to adjust costs for the different prices paid by hospitals in different labor markets. The other artifact results from the use of averages that are based on the number of hospitals, not the number of patients, to calculate payment rates from average costs. The effects of these artifacts in a sample data set have been measured, and it was concluded that they lead to discrepancies between costs and payments that may affect hospital incentives--the overall payment for each diagnosis-related group--and Medicare's total payment.

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Matrix for simulating the structure of costs, payments, and profits of the New Jersey and Medicare prospective payment systems
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Related In: Results  -  Collection


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f1-hcfr-84-supp-057: Matrix for simulating the structure of costs, payments, and profits of the New Jersey and Medicare prospective payment systems

Mentions: To demonstrate that the artifacts in the hypothetical example are real, two simulations of the prospective rate-setting process were performed by using actual hospital cost data. The goal of these simulations was to generate payment rates, and subsequently profits and losses, for every DRG and hospital combination in the data base. The data consisted of hospital-specific summary statistics for 26 New Jersey hospitals that participated in the State's DRG-based prospective payment system in 1980. Figure 1 shows the matrix used to perform each simulation, along with the summary statistics for each cell of the matrix. Our sample of 26 hospitals and 383 DRG's yielded 9,369 observations, including empty cells. Each observation contained the number of patients treated and the average variable cost per discharge for each DRG. The data were collected in 1978, which was before the new classification system with 467 DRG's came into use. The data included only those patients who were actually classified into DRG's in 1978, and length-of-stay outliers were excluded. Finally, each hospital's labor market adjustment factor was included.


Unrecognized redistributions of revenue in diagnosis-related group-based prospective payment systems.

Kominski GF, Williams SV, Mays RB, Pickens GT - Health Care Financ Rev (1984)

Matrix for simulating the structure of costs, payments, and profits of the New Jersey and Medicare prospective payment systems
© Copyright Policy
Related In: Results  -  Collection

Show All Figures
getmorefigures.php?uid=PMC4195108&req=5

f1-hcfr-84-supp-057: Matrix for simulating the structure of costs, payments, and profits of the New Jersey and Medicare prospective payment systems
Mentions: To demonstrate that the artifacts in the hypothetical example are real, two simulations of the prospective rate-setting process were performed by using actual hospital cost data. The goal of these simulations was to generate payment rates, and subsequently profits and losses, for every DRG and hospital combination in the data base. The data consisted of hospital-specific summary statistics for 26 New Jersey hospitals that participated in the State's DRG-based prospective payment system in 1980. Figure 1 shows the matrix used to perform each simulation, along with the summary statistics for each cell of the matrix. Our sample of 26 hospitals and 383 DRG's yielded 9,369 observations, including empty cells. Each observation contained the number of patients treated and the average variable cost per discharge for each DRG. The data were collected in 1978, which was before the new classification system with 467 DRG's came into use. The data included only those patients who were actually classified into DRG's in 1978, and length-of-stay outliers were excluded. Finally, each hospital's labor market adjustment factor was included.

Bottom Line: One artifact results from the use of labor market indexes to adjust costs for the different prices paid by hospitals in different labor markets.The other artifact results from the use of averages that are based on the number of hospitals, not the number of patients, to calculate payment rates from average costs.The effects of these artifacts in a sample data set have been measured, and it was concluded that they lead to discrepancies between costs and payments that may affect hospital incentives--the overall payment for each diagnosis-related group--and Medicare's total payment.

View Article: PubMed Central - PubMed

ABSTRACT
The Medicare prospective payment system, which is based on the diagnosis-related group patient-classification system, identifies previously unrecognized redistributions of revenue among diagnosis-related groups and hospitals. The redistributions are caused by two artifacts. One artifact results from the use of labor market indexes to adjust costs for the different prices paid by hospitals in different labor markets. The other artifact results from the use of averages that are based on the number of hospitals, not the number of patients, to calculate payment rates from average costs. The effects of these artifacts in a sample data set have been measured, and it was concluded that they lead to discrepancies between costs and payments that may affect hospital incentives--the overall payment for each diagnosis-related group--and Medicare's total payment.

Show MeSH