Toward better care and improved payment - hospitals and prospective pricing - column

Physician Executive, July-August, 1989 by Hugh W. Long, Richard M. Lauve

Current medical-business literature often suggests that the rule for hospitals' economic survival under Medicare's prospective pricing system (PPS) is delivery of minimally acceptable care. Extensive investigation of, or care for, illness not related to the primary cause of admission may erode margins or even generate losses. in at least some diagnostic groupings, however, more rather than less investigation can be not only beneficial to the patient but also fiscally advantageous to the hospital.

Since Medicare began to phase in PPS in 1983 for Part A, hospitals have attempted to shift services to Medicare's Part B. This is because Part B still makes payment on a per-line-item-of-service basis, and generally Part B services are excluded from the fixed payment per episode of illness under Part A. Hospital utilization review committees have become more active, encouraging physicians to investigate only the inpatient's principal diagnosis and to avoid unnecessary testing during the patient's hospital stay. Attending physicians have also responded to demands for shortened lengths of stay.1

Although utilization changes have arguably led to improved payment-to-cost ratios for hospitals, concerns remain that because patients are being discharged earlier, they are "sicker" (i.e., at an earlier stage of convalescence) at discharge and perhaps payment-to-outcome ratios are less improved. While evidence on this point is primarily anecdotal one can clearly hypothesize that without investigations of all complaints, a patient might be improperly diagnosed and treated, leading to premature readmission with a resultant Medicare rejection of subsequent billings.2 A delicate balance exists, therefore, between the necessary and the unnecessary investigation and subsequent treatment of illness under PPS.

Both medical and economic forces demand a focused approach to the Medicare patient. The physician is bound to "primium non nocere" while illuminating the patient's problems and initiating a treatment plan. The manager monitoring expenses linked to the care for the Medicare patient must demand uniformly proper care, while questioning consistently early readmissions (i.e., premature discharges) and excessive lengths of stay.

It is important to recall that the principal diagnosis under the Medicare prospective pricing system is "the diagnosis established after study to be chiefly responsible for occasioning the admission of the patient to the hospital for care."3 The diagnosed condition must have received significant treatment while the patient was hospitalized, and, in the instance of a Medicare chart audit, objective evidence must be present in the medical record to substantiate:

The primary diagnosis.

A severity of illness warranting admission, or necessity of services unavailable without admission.

In some cases, evidence of outpatient treatment failures.4

Retrospective gaming of PPS is common practice in many hospitals. As an example, for patients in some DRG categories that have often been viewed by hospitals as economic losers, the primary diagnosis is sometimes interchanged with the secondary diagnosis to convert the case to another higher paying DRG. Legitimate primary diagnosis conversion, however, can be achieved prospectively with the aid of carefully managed medical investigations. Furthermore, such investigations are usually beneficial to the patient and cost effective for the provider.

Consider, for example, three DRGS that often account for significant contractual adjustments in many hospitals providing general medical care. For medium-sized hospitals (about 100 beds), bronchitis with coexisting complications (coded within DRG 96), pneumonia without organism specified but with comorbidity (included under DRG 89), and congestive heart failure (billed under DRG 127) can represent an annual gap between actual Medicare payments and corresponding billed charges of as much as one-half million dollars.5 (This gap is the amount of payment forgone by caring for Medicare patients compared to payment expected for identical care delivered to private-pay patients. See table 1, page 30, for average Medicare per-case payments for these and two related DRGs.)

Medically, these diagnoses represent some of the most difficult patients to treat. Early intervention, aggressive care, minimizing unnecessary testing, and early discharge to "convalescent facilities" have been emphasized in many medical centers to reduce the payment gap, generally on the dubious theory that the gap correlates with accounting or economic loss.* For some of these patients, however, additional diagnostic investigation that allows more specific treatment is indicated, both medically and financially.

Patients with bronchitis and an underlying complication such as emphysema or chronic hypoxia fall under DRG 96. Medicare payment for these patients may fall below the long-run average total cost (including allocation of overhead and multiperiod direct fixed costs) of the care provided in most hospitals. Simple and minimal risk investigations can frequently shift patients' discharge diagnoses into other, higher paying DRGS without incurring offsetting additional costs.