Hospital financing reform and case-mix measurement: an international review

Health Care Financing Review, Summer, 1992 by Miriam M. Wiley

Introduction

As experience with Medicare's prospective payment system (PPS) matures and is the subject of extensive evaluation, questions arise regarding the lessons which may be drawn from this experience for future health care reform in the United States. In this article, it is proposed to broaden this perspective into the international arena and assess the influence that the implementation of PPS has had beyond the United States. Too often, technology transfer is taken to refer to items of capital equipment that can be crated and shipped overseas. Recent experience would suggest, however, that certain concepts, tools, and techniques may also travel well, particularly if they are amenable to adaptation to the local environment. One such experience will be presented here and will involve tracing the extensive journey taken by a technique developed and applied in the United States through the continents of Europe and Australia.

Two critical elements of PPS as introduced within the Medicare program can be differentiated: retrospective, charge-based reimbursement was replaced with a prospectively determined pricing system; the pricing system was applied within a standardized case-mix framework. These two components of the program were not mutually dependent. Prospective pricing could have been introduced using an alternative unit of measurement, like the discharge or the patient bed day. Similarly, the application of a standardized case-mix measure did not have to take place within a reimbursement program, but could have been applied as part of a program like utilization review, as originally intended.

Although an indepth evaluation of the rationale behind the combination of both of these elements within PPS is beyond the scope of this article, it seems reasonable to conclude that, at its most simplistic, the decisionmaking sequence would have recognized that: * A pricing system works best if based on a transparent

and comprehensive definition of the product. * A case-mix classification system provides a means of

defining the product of the hospital. * A pricing system applied within a case-mix

framework offers the best opportunity for the

application of an administered pricing approach for

hospital services. Again, while these responses are interrelated, they are not necessarily interdependent.

This series of responses is not, however, unique to any one set of problems or, indeed, any particular health system. What we will try to show here is how different health systems have adopted a similar pattern of response within a variety of organizational settings to a range of problems. Because of the necessity to be selective in this review, only those health systems outside of North America that have come closest to implementing a reform incorporating a case-mix adjustment have been included. The specific reforms, proposed or implemented, will therefore provide the focus of interest, while comprehensive accounts of the overall economic performance and organizational framework of these health systems are available elsewhere (Schieber and Poullier, 1989; Schieber, Poullier, and Greenwald, 1991; Organization for Economic Cooperation and Development, 1992, to be published [a]).

In the next section, a brief summary will be provided of initiatives in the area undertaken by the major international bodies with interests in health policy. The relevant reforms proposed or implemented in the countries of Europe and Australia will then be reviewed. The discussion that follows draws together common trends emerging from this review with the concluding section identifying directions for future development indicated by international experience.

Initiatives by international organizations

The adoption of the diagnosis-related groups (DRGs) by the U. S. Medicare program as the case-mix measure for application within PPS was an important factor in focusing international interest in case-mix measures and applications in general on DRGs, in particular. The essence of the DRG approach is effectively summarized by Fetter, Thompson, and Averill (1981) as identifying in the acute care setting "a set of case types, each representing a class of patients with similar processes of care and a predictable package of services (or product) from an institution."

The factors influencing the choice of DRGs for use by Medicare, including stage of development, ease of application, data requirements, validity, reliability, etc., also came to feature as important issues in research outside of the United States on the range of available case-mix measures.

In 1985, the Organization for Economic Cooperation and Development (OECD) was the first to publish international comparisons of mean lengths of stay by DRG (Organization for Economic Cooperation and Development, 1985). This practice has been continued by the Organization, and in a forthcoming publication average lengths of stay for selected DRGs will be published, where available, for member countries for the 1984-89 period (Organization for Economic Cooperation and Development, 1992). To illustrate the type of information available in this international data base, Figure 1 presents mean lengths of stay for eight OECD member countries for six DRGs in 1988: DRG 39 (lens procedures); DRG 60 (tonsillectomy and/or adenoidectomy, age 0- 17); DRG 70 (otitis media and upper respiratory infection, age 0-17); DRG 88 (chronic obstructive pulmonary disease); DRG 98 (bronchitis and asthma, age 0-17); and DRG 119 (vein ligation and stripping).