Payment changes require integrating records

Healthcare Financial Management, June, 1990 by Michael A. Palley

Hospitals located in states that are considering all-payer diagnosis related group DRG)-based payment systems should take steps to prepare for potential changes.

In states that have enacted new payment systems, hospitals have contended with demands on record keeping, volume of data processed, and the complexity and uncertainty of administrative procedures. The changes can throw hospitals' information processing functions into disarray.

DRG payment procedures affect a critical aspect of hospital finances: accounts receivable. A hospital's survival is not based on the popularity of a product. it survives by providing cost-effective quality care and by converting patient charges into cash in a timely and efficient manner. The most significant effect of DRGs on payment processing lies in the need to integrate medical records and patient accounts systems, which historically have been independent. Outpatient DRGs would require similar integration.

On the whole, DRGs can disrupt areas of a hospital's financial structure that require stability. They also can bring uncertain procedures to receivables processing. In a 1987 study of 1,330 hospitals, patient accounts managers gave their lowest satisfaction ratings to "ease of modification' (mean of 5.2 on a 10-point scale) among 12 issues related to patient accounting systems. Flexibility was the factor most often named as primary when selecting a new system.,

The findings are consistent with problems currently facing hospital information systems. After years of stability, more flexible applications are being sought. This need is especially strong for hospitals that face broad changes in patient accounting systems, such as the addition of DRG-based payment systems by third-party payers. Three experiences

By January 1988, virtually ail hospital billing in New York was placed on a DRG system. While the hospitals' experience with Medicare's 1986 implementation of DRGs offered some insight, the latest round of changes proved far more costly and complex.

Experiences at three New York City area hospitals may provide lessons for other hospitals facing allpayer DRG-based systems. The hospitals reported 1987 patient days ranging from 200,000 to 360,000, and each undertook a major reworking of its information system because of the payment changes.

HOSPITAL ONE. The first institution studied had 600 staffed beds and recorded 200,000 patient days during 1987. Its revenues for the year stood at $130 million.

To handle patient billing, the hospital used a software package it installed in the 1950s. It was maintained by a staff of three programmers. The system was burdened by limitations, including the fact that each receivables account was limited to less than $100,000 by a field size in the program. While the limit seemed sensible when the system was installed, it could not keep pace with increases in healthcare costs. Similarly, the individual charge for a test was limited to 999.

These limitations could not be modified in the program because the account balance variable referred to a large number of routines within application programs. For this reason, changes in variables triggered side effects in other programs. External software links were written in house to connect multiple limited-size sub-accounts, forming a parent account. The hospital's software was modified dramatically in 1986 to accommodate Medicare's DRG payment system' Several sub-routines were installed within its software framework, and as many as seven full-time programmers worked on needed modifications. The hospital's inpatient and emergency room charges had an on-line interface with the billing system, but clinic registrations (about 100,000 annually) continued to be processed in batch mode from manual input forms.

Cash transactions and charges for ancillary services (such as physical and occupational therapy, urology, and others) were entered in the same manner. Meanwhile, laboratory and radiology services independently batched their transactions to tape, and tape transactions were merged with other patient accounts charges. In addition to inefficiency and potential for mistakes, batch processing causes a lag of several days in processing charges. The delay adversely affected the hospital's financial performance.

DRG values were computed by the information system, then submitted in raw form to the patient accounts department. Bills were produced in a way that required manual intervention.

Rather than simply converting Medicare patients to DRGs in 1986, the hospital made its DRG calculations for all patients, anticipating the statewide 1988 changes. This decision produced an added benefit, because if a patient was midsclassified at admission and later found to be eligible for Medicare benefits, reprocessing was minimal.

The major limitation of the hospital's sting system centered on its dollar limit constraints and the need for extensive manual intervention. The hospital had agreed to a contract for installing a fully automated on-line system, with a budget of approximately $1.5 million that likely will approach $2 million.