Good quality care increases hospital profits under prospective payment

Health Care Financing Review, Spring, 1992 by David C. Hsia, Cathaleen A. Ahern

Under this analysis, a DRG sequence of increasing diagnostic specificity may increase profits. Conversely, skimping on medically indicated services maximizes hospital profits in other DRG sequences. This article gauges which trend has the greater economic effect. Overall, does prospective payment reward or penalize good quality care? Obviously, multiple factors influence medical workup and treatment decisions. In this article, we consider only the economic [TABULAR DATA OMITTED]

consequences of poor quality. Non-economic behaviors such as altruism, professionalism, or fear of malpractice litigation are not measured in this study.

Methods

The National DRG Validation Study employed a stratified two-stage sample design based on hospitals and discharges (Delaney, 1987). In the first stage, the Office of Inspector General (OIG), U.S. Department of Health and Human Services, used simple random sampling without replacement to select 80 hospitals from each of three bed-size strata: hospitals with fewer than 100 beds, 100 to 299 beds, and 300 beds or more. If quality of care varied by hospital size, as expected, this stratification maximized the statistical information. The design excluded specialty institutions (e.g., pediatric, rehabilitation, and psychiatric hospitals), facilities in States not using Federal prospective payment during the period studied (i.e., New York, New Jersey, Massachusetts, and Maryland), and hospitals not contributing data to the calculation of the initial relative weights assigned to DRGs. One sample hospital terminated its Medicare eligibility between the study period and actual collection of medical records, leaving a first-stage sample of 239 from a population of 4,913 acute care hospitals (Table 3).

The second stage used systemic random sampling to select up to 30 Medicare discharges (including patients who transferred to other hospitals or died) from each of the 239 hospitals for the first half of Federal fiscal year 1985: October 1, 1984 to March 31, 1985. If the hospital had fewer than 30 such discharges during this period, the sample selected all available discharges. OIG then requested a complete copy of each of the 7,076 selected medical records. With careful followup and selective use of subpoenas, it ultimately obtained 7,050 charts (99.6 percent) representing 6,900 different patients. Comparison of the records' demographic characteristics demonstrated that the sample accurately represented the population of all Medicare beneficiaries in PPS jurisdictions (Hsia, 1988).

OIG contracted with the Baxter-Health Data Institute of Lexington, Massachusetts for registered records analysts and accredited records technicians to perform a blinded reabstraction of the ICD-9-CM disease codes supported by the chart (Ahern, 1988). In addition, specially trained registered nurses screened each record for quality of care using the Appropriateness Evaluation Protocol, a chart audit instrument of [TABULAR DATA OMITTED]

proven utility (Siu, 1986). Cases failing quality screening underwent judgmental review by contractor physicians using implicit criteria to identify care clearly failing to meet "professionally recognized standards," the statutory criterion for peer review organizations (United States Code, 1989). The reviewing physicians had instructions to ignore borderline problems or legitimate differences in medical judgment as to appropriate management (Delaney and Hsia, 1987).