Toward a prospective payment system for ambulatory surgery

Health Care Financing Review, Spring, 1990 by Joanna Lion, James Vertrees, Alan Malbon, Ann Collard, Peter Mowschenson

Briefly, one surgical DRG--lens procedures (DRG 39)--accounts for about one-quarter of the volume of visits for surgery and for more than one-half of all billed charges for surgery in the hospital OPD. The lens procedures DRG had a mean billed charge of $1,534 for the hospital component of the surgery for 1985 and a coefficient of variation that was quite narrow--only 0.48 untrimmed. The remainder of hospital-based ambulatory surgery procedures were fragmented among a number of other DRGs, none of which accounted for even 5 percent of the billed charges for ambulatory surgery. Digestive system endoscopies (DRG 182) were in second place. Although coded in the ICD-9-CM surgical range, considerable controversy exists as to whether scoping is a surgical procedure. For example, digestive system scopes are performed primarily by medical subspecialists, rather than by surgeons.

Arguments for diagnosis-related groups

With this as background, the arguments in favor of the DRG approach as a prospective payment system for hospital-based ambulatory care can be stated as follows:

* Hospital OPD charges are still less tightly regulated than inpatient charges; the regulation that does exist tends to be on a piecemeal basis rather than by viewing all of the components of a visit together, as has been done for a hospital stay.

* Some types of surgery--such as cataract removal and lens implantation--were done in 1989 in both an inpatient and a same-day surgery setting.

* A substantial majority of hospital outpatient department surgery was done on an inpatient basis as recently as 5 years ago and, thus, fell into the original design of the DRG system.

* The DRG system is both familiar to hospitals and well entrenched politically for inpatient care.

If it could be demonstrated that the weights currently in use for inpatient surgery DRGs have the same relative resource use in a same-day surgery setting, a complete mechanism for a prospective payment system for ambulatory surgery would already be in place. This system would require only relatively minor changes in hospital reporting, that is, the treatment of ambulatory surgery as a "zero day" stay and its transfer, for reimbursement purposes, to Part A of the Medicare Provider Analysis and Review (MEDPAR) file from the Part B hospital outpatient department file. Even given the arguments against the use of DRGs for this purpose, this approach would, because of its simplicity, have great appeal. Using this methodology, zero day stays could simply have the inpatient weights assigned by HCFA discounted to accommodate the room and board portion of hospital inpatient expenses.

In the following section, the key issue of weighting surgical DRGs on an inpatient as opposed to an outpatient basis is further explored. The hypothesis is that the ratio of inpatient-to-outpatient service use is constant across DRGs for those DRGs that now contain substantial amounts of outpatient surgery.

How diagnosis-related groups perform

The results of a first attempt to use weights for DRGs formed by visits for ambulatory surgery without alteration from the inpatient standards are presented in Tables 4 and 5. As is immediately apparent from the ratio of weight to total billed charges in Table 4, this key ratio varies by a factor of 10. Thus, the idea that outpatient DRGs could be reimbursed using a simple ratio of outpatient to inpatient DRGs is not feasible, and the appealingly simple process of using DRGs as a prospective payment mechanism for hospital-based ambulatory surgery must be rejected.