In preceding weeks, we've talked about the problems of a free-market health care system. The two big problems are:
Teaching economics and its critique simultaneously.
Does history matter?
Economists tend to ignore history. They imagine that this is a Newtonian world, a world of particles in which all you need to know is a particle's current make-up, its current position, and its velocity to tell what it's going to do. Market forces mold everything for the greatest possible efficiency.
The problem of hill climbing. If competitive assumptions don't hold, local optimization is not global optimization.
Why no turn in the US socialized medicine, unlike Europe and, later, Canada, and, recently, Taiwan?
Ideology shapes policy. Lack of strong labor movement, or farmer-labor movement? Presence in US of huge area of politically backwardness and racism? Canada: contrary to little house on the prairie, cooperation as well as individualism. A country that's New York + Minnesota.Left out of Paying for Health Care article: charity
In Bodenheimer and Grumbach's old days scenario, care is a house call visit by a doctor
Hospitals -- where the poor went to die, like Mother Teresa's in India in recent times
Dispensaries in big cities, supported by philanthropists and religious organizations, did give primary care for the poor.
With the development of the germ theory of disease and aseptic surgery, and later antibiotics, the hospital became a place for progressively more expensive care, which they could no longer afford to give away.
Medicare and Medicaid sought to solve the second of those problems, by extending insurance to the elderly and some of the poor. Medicare has been very successful at this. Medicaid, somewhat. These programs aggravated the provider profiteering problem, however. Both were designed to fit with existing professional relations and insurance systems.
This changed in the early 1980s, when Medicare took the lead in overthrowing the fee-for-service payment method, by introducing payment to hospitals by each patient's diagnosis-related group (D.R.G.). There were HMOs operating at the time, but, except in some special localities, they had not cracked the providers' power to set prices and terms of payment. Medicare had that power, and started a revolution in the industry by using it in this way.
Each DRG has a "weight" that represents the cost of treating such a patient relative to the average of all patients. A dollar figure is multiplied by the weight to give the payment level.
Here are some examples of weights for the SC Medicaid system:
(Payment is based on average unit payment for SC hospitals in May 1987,
$1263.)
DRG | Description | Weight | Avg. LOS | Outlier LOS | Payment |
3 | Craniotomy age<18 | 2.45 | 6.4 | 37.4 | $3096 |
33 | Concussion age<18 | 0.33 | 1.8 | 9.1 | $417 |
106 | Coronary bypass with
cardiac cath |
8.92 | 10.9 | 25.8 | $11272 |
371 | C-section without
complicating condition |
1.59 | 5.2 | 11.1 | $2009 |
373 | Vaginal delivery | 0.69 | 2.3 | 5.8 | $872 |
Some diagnoses and corresponding DRGs for full-term newborns:
391 | Normal newborn | 0.2883 |
390 | Neonate with other significant problems | 0.8347 |
389 | Full term neonate with major problems | 1.1672 |
OBS DRG DIAG1 DIAG2 1 391 V3000 2 391 V3001 3 391 V310 4 391 V3000 605 5 391 V3000 7661 6 391 V3000 7 391 V3001 8 391 V3001 7661 9 391 V3000 605 10 391 V3000 11 391 V3001 21 391 V3000 22 391 V3000 23 391 V3000 7746 24 391 V3101 27 391 V3000 7746 28 391 V3000 7661Typical 391 diagnoses:
OBS DRG DIAG1 DIAG2 DIAG3 DIAG4 DIAG5 1 390 V3000 7525 2 390 7786 7660 3 390 V301 7526 V718 4 390 V3000 7526 5 390 V3101 7784 6 390 V3000 4279 7 390 V3000 37205 8 390 V3000 76408 9 390 V3000 7526 10 390 V3000 7706 11 390 V3001 71965 7706 7746 12 390 V3000 7661 74910 13 390 V3000 7793 14 390 V3000 7706 15 390 V3000 75501 16 390 V3001 7526 17 390 V3001 V718Some 390 diagnoses:
OBS DRG DIAG1 DIAG2 DIAG3 DIAG4 DIAG5 1 389 V3000 7701 2 389 V3001 7731 3 389 7701 7718 V3001 0389 7792 4 389 7718 5 389 V3001 7708 5531 6 389 V3000 76408 7731 7 389 V3000 7661 7731 8 389 V3101 7731 9 389 V3000 7731 10 389 V3000 7731 11 389 V3000 7454 12 389 V3000 7708 13 389 V3001 7731 14 389 7756 7824 15 389 V3001 7708 7718 75462 7746 16 389 V3001 7795 7863 7706 17 389 7732 7526Some 389 diagnoses:
Incentives, desired and undesired, in DRG-based payment:
Not on reading list. Hsia, D.C., Krushat, W.M., Fagan, A.B., Tebbutt, J.A., Kusserow, R.P.,
"Accuracy of Diagnostic Coding for Medicare Patients Under the Prospective-Payment
System," N Engl J Med, February 11, 1988, 318(6), pp. 352-355.
Elaborate recoding effort on 7050 records from 239 hospitals. Federally
funded and enforced. 21% error rate in DRG coding. 62% of errors favored
hospitals.
Typology of coding changes:
Optimization
Creep (This appears to be a more limited notion than Simborg's, though they cite only Simborg.)
Hsia et al concentrated on what they called "Creep." Errors raised case
mix 1.9%.
Projecting to all Medicare gives extra creep cost of $300 million per
year. Reabstracting all Medicare medical records would cost $200 million
per year (8 million records at $25 each). Would that be cost-beneficial?
Baker, S.L., Kronenfeld, J.J., "Medicaid Prospective Payment: Case-Mix
Increase," Health Care Financing Review, Fall 1990, 12(1), pp. 63-70.
Closer to home, this article looks at DRG creep when South Carolina
Medicaid switched to DRGs in the mid-1980s. The newborn case mix value
rose 67% in three months!
Not on reading list. Russell, L.B., Manning, C.L., "The Effect of Prospective Payment on
Medicare Expenditures," N Engl J Med, February 16, 1989, 320(7):439-444.
Russell and Manning used Medicare's own expenditure data (actual and
projected) to see if DRG payment saved money.
Hospital Trust Fund: 1988's projected 1990 expenditures are less than
1979's projected 1990 expenditures, adjusted for inflation.
Supplemental fund (pays for outpatient care) projected not to grow
by enough to wipe out hospital cost savings.
Peer Review Organizations get much credit for decreasing admissions.
No attempt to separate PRO from DRG contributions to projected expenditure
decline.
Koescoff, J., et al, "Prospective Payment System and Impairment at Discharge,"
JAMA, October 7, 1990, 264(15), pp. 1980-1983.
Not on reading list:
Not on reading list: Kane, N.M., Manoukian, P.D.,
"The Effect of the Medicare Prospective Payment System on the Adoption
of New Technology," N Engl J Med, November 16, 1989, 321(20):1378-1383.
Some, but not huge (less than I had expected based on stories circulating),
increase in percent of patients discharged home in “unstable” condition.
Sager, M.A., Easterling, D.V., Kindig, D.A., Anderson, O.W., "Changes
in the Location of Death After Passage of Medicare's Prospective Payment
System," N Engl J Med, February 16, 1989, 320(7):433-439.
National mortality data from 1981-85.
More deaths in nursing homes (and relatively fewer in hospitals) after
DRG-based payment than before. Little change in states exempted from
DRG payment. Can't tell if transfers were medically appropriate.
Regression across states.
Reduction of hospital LOS big predictor of shift in deaths from hospital
to nursing home. Dumping sicker patients on nursing homes that already
have difficulty handling the patients they have.
States with high HMO enrollment had bigger increase in deaths in nursing
homes (but not a bigger decline in hospital deaths).
Bigger change was in 1984, rather than 1985. Hospitals anticipated
full implementation of PPS.
Cochlear implantation studied. DRG payment discourages new therapies
that increase cost but improve outcomes, unless HHS Secretary changes payment
or creates new DRG. Effort was made to get the change, but HCFA resisted.
Result: Few implants done. Firms have stopped making the devices.
Research and development stopped. When this article was assigned,
students said that the demise of this technology was probably for the better.
RBRVS is not really "DRGs for docs." Can you say why? (Before I tell you, let's look at ...)
RBRV = (TW)(1+RPC)(1+AST)
Resource-Based Relative Value = (Total Work)*(Specialty Practice Cost
Index)*(Specialized Training Cost Index)
Specialized training cost is opportunity cost of spending time in residency.
Total work = Time*(Complexity Index) for Pre- + Intra- + Post-service work based on surveys of physicians
If Medicare fees were adjusted to the RBRVS but total spending unchanged
("budget-neutral"), thoracic surgery, opthamology fees would drop >40%.
General surgery would drop about 15%.. Internal medicine would rise >30%.
Family practice would rise >60%.
Ontario's negotiated fee schedule more uniform relative to RBRV than
mean Medicare payment.
Some limitations of RBRVS, which Hsiao recognizes:
RVU category | US | SC adj | SC RVU |
Work RVU | 174.1 | 0.971 | 169.05 |
Overhead RVU | 120.3 | 0.874 | 105.14 |
Malpractice RVU | 20.0 | 0.457 | 9.14 |
Total | 314.4 | 283.33 |