Good quality care increases hospital profits under prospective payment

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

Sensitivity analysis

For each input variable, hospital profits increased throughout their confidence intervals. While measurement variation could have slightly increased or decreased profitability, it could not have caused unprofitability. The proportion of skimping, revised DRGs, and positive tests had low [beta]s, so that large changes in their values had little effect on payment. Rate of poor quality care, payment changes, and test costs had high [beta]s, meaning that changes in their values strongly influenced the final results. Fortunately, the latter two variables depended exclusively upon objective, reproducible billing records, and published measurements provided a comparison for the rate of poor quality care (Table 8).

A sensitivity analysis also tested previously reported values for the study's variables, where available. Input to the model, these ranges confirmed that good quality care consistently increased profits. They also corroborated the relative magnitudes of the [beta]s (Table 9).

Discussion

Quality

The previous literature infers the quality of care from the properties of structure, process, or outcome (Donabedian, 1966; Donabedian, 1982). Structure refers to inherent provider characteristics, e.g., does the attending physician have a current medical license? (Donabedian, 1968). Process describes provider actions, e.g., does the physician order a medically indicated test? Outcome pertains to the effect of provider actions, e.g., mortality, morbidity (Donabedian, 1980). The literature vigorously debates the merits of each type of measure, generally proposing outcome measures as a theoretical ideal and process measures as the practical reality (American Medical Association Council on Medical Science, 1986). Peer review organizations and malpractice litigation both utilize process measures as established by implicit, judgemental techniques.

The present study uses implicit process measures to classify inpatient care as either good or poor. Process measures have higher variance than structure or outcome measures, but most closely approximate the [TABULAR DATA OMITTED]

physician's reasoning process (Brook, 1974). The National DRG Validation Study's finding of 5.5-percent poor quality care falls in between the 4.7 (Mills, 1977) and 7.2 percent reported in previous studies (Health Care Financing Administration, 1986; Piltch, 1988). These similar rates of poor quality care indicate the judgmental methodology to be reproducible and valid. Upon sensitivity analysis, the previous literature's proportions do not affect this article's conclusion that good quality increases hospital profits from Medicare.

Skimping

Confirming congressional concerns, skimping on services proves to be the most common type of poor quality care. Indeed, previous literature discusses the use of skimping as a profit maximizing strategy (Hobler et al., 1985; Stern and Epstein, 1985; Kahkonen, 1985). Unfortunately, no studies establish the national proportion of skimping prior to 1983. Accordingly, this article cannot prove that skimping increases under prospective payment. In any event, because of its low [beta], variation in the rate of skimping has little effect on prospective payment profits.