Developing a medicare prospective payment system for inpatient psychiatric care

Health Affairs

Volumn 22, Issue 5, 2003, Pages 97-109

  Lave, Judith R ^a,b,c  

^a Department of Health Policy and Management ^*

^b UNIVERSITY OF PITTSBURGH SCHOOL OF MEDICINE   (United States)

^c HARVARD UNIVERSITY   (United States)

Author keywords

[No Author keywords available]

Indexed keywords

AGED; ARTICLE; CLASSIFICATION; DIAGNOSIS RELATED GROUP; ECONOMICS; FEE; GOVERNMENT; HEALTH SERVICES RESEARCH; HUMAN; LEGAL ASPECT; MEDICARE; MENTAL DISEASE; MENTAL HOSPITAL; ORGANIZATION AND MANAGEMENT; PROSPECTIVE PAYMENT; PSYCHIATRIC DEPARTMENT; UNITED STATES;

AGED; DIAGNOSIS-RELATED GROUPS; HEALTH SERVICES RESEARCH; HOSPITALS, PSYCHIATRIC; HUMANS; MEDICARE; MENTAL DISORDERS; PROSPECTIVE PAYMENT SYSTEM; PSYCHIATRIC DEPARTMENT, HOSPITAL; RATE SETTING AND REVIEW; UNITED STATES; UNITED STATES DEPT. OF HEALTH AND HUMAN SERVICES;

EID: 1542680589     PISSN: 02782715     EISSN: 02782715     Source Type: Journal    
DOI: 10.1377/hlthaff.22.5.97     Document Type: Review

References (48)

1. Many health insurance plans impose limits on the number of covered days (both annual and lifetime). Medicare has a 190-day lifetime limit for care provided in freestanding psychiatric hospitals.
2. The statutory language is found in Section 124 of the BBRA, P.L. 106-113.
3. See T.G. Thompson, "Report to Congress: Prospective Payment System for Inpatient Services in Psychiatric Hospitals and Exempt Units" (Washington: HHS, 2002).
4. The term "units" refers to psychiatric units that are exempt from the PPS. For both units and psychiatric hospitals, the 1988 data come from the 1988 HCFA annual statistics and were provided by Philip Cotterill of the CMS; the 1994, 1998, and 2002 data are from the Provider of Services File and were provided by Sally Kaplan of MedPAC.
5. National Association of Psychiatric Health Systems, Trends in Behavioral Healthcare Systems: A Benchmarking Report, The NAPHS 2001 Annual Survey Report (Washington: NAPHS, 2002).
6. For a general review of this literature, see R.G. Frank and J.R. Lave, "Economics," in Managed Mental Health Services, 2d ed., ed. S. Feldman (Springfield, Ill.: Charles C. Thomas, 2003), 146-165.
7. See, for example, T.M. Wicker and D. Lessler, "Effects of Utilization Management on Patterns of Hospital Care among Privately Insured Adults," Medical Care 36, no. 11 (1998): 1545-1554.
8. National Conference of State Legislatures, 2003 State Health Care Priorities Survey Report, Health Tracking Series (Washington: NCSL, 2003).
9. K.S. Heller and C. Vaz, "Inpatient Psychiatric Prospective Payment System A Model Classification and Payment Methodology" (Paper prepared for the American Psychiatric Association Committee on Reimbursement for Psychiatric Care in partnership with the Health Economics and Outcomes Research Institute [THEORI], Greater New York Hospital Association, 6 December 2001).
10. Statement of the APA to the House Ways and Means Subcommittee on Health, 15 February 1983.
11. See H.H. Goldman, C.A. Taube, and S.F. Jencks, "The Organization of the Psychiatric Inpatient Services System," Medical Care 25, no. 9, Supplement (1987): S6-S21.
12. See, for example, C.A. Taube, E.S. Lee, and R. Forthoffer, "Diagnosis Related Groups for Mental Disorders, Alcoholism, and Drug Abuse: Evaluation and Alternatives," Hospital and Community Psychiatry 55, no. 5 (1984): 452-455;
13. and R.G. Frank and J.R. Lave, "The Psychiatric DRGs: Are They Different?" Medical Care 23, no. 11 (1985): 1148-1155.
14. Cancer hospitals, long-term care hospitals, children's hospitals, and rehabilitation hospitals and units were also initially exempted from the PPS.
15. The change in setting baseline costs was implemented because originally new providers' baseline costs were set at their first year's costs. This gave them an incentive to inflate their costs in their first year to establish high target amounts, setting the stage for receiving bonus payments in subsequent years.
16. MedPAC, Medicare Payment Policy: Report to the Congress (Washington: MedPAC, March 1999), 74.
17. Thompson, "Report to Congress," 12.
18. MedPAC, Medicare Payment Policy: Report to the Congress (Washington: MedPAC, March 2002), chap. 1;
19. and M. Hornbrook, "Hospital Case-Mix: Its Definition, Measurement, and Use, Part 1: The Conceptual Framework," Medical Care Review 39, no. 1 (1982): 1-4.
20. Frank and Lave, "The Psychiatric DRGs"; and R.P. Ellis and T.G. McGuire, "Insurance Principles and the Design of Prospective Payment Systems," Journal of Health Economics 7, no. 3 (1988): 215-238.
21. For a review of this literature, see C. Horgan and S. Jencks, "Research on Psychiatric Classification and Payment Systems," Medical Care 25, no. 9, Supplement (1987): S22-S36.
22. M.P. Freiman et al., A Study of Patient Classification Systems for Prospective Rate-Setting for Medicare Patients in General Hospital Psychiatric Units and Psychiatric Hospitals, Final Report, NIMH Pub. no. 278-84-0011 (Silver Spring, Md.: Macro Systems Inc., 1985);
23. and J.T. English et al., "Diagnosis-Related Groups and General Hospital Psychiatry: The APA Study," American Journal of Psychiatry 142, no. 3 (1986): 131-139.
24. S.D. Horn et al, "Psychiatric Severity of Illness, a Case-Mix Study," Medical Care 27, no. 1 (1989): 69-84.
25. M.L. Ashcraft et al., "A Psychiatric Patient Classification System: An Alternative to Diagnosis Related Groups," Medical Care 27, no. 5 (1989): 543-557.
26. Horgan and Jencks, "Research."
27. MedPAC, Medicare Payment Policy (March 1999), 77.
28. The payment will vary with factors such as area wage rates or hospital teaching status.
29. See, for example, J.R. Lave and R.G. Frank, "The Effect of the Structure of Hospital Payment on Length of Stay," Health Services Research 25, no. 2 (1990): 327-347.
30. MedPAC, Medicare Payment Policy (March 2002), chap. 1;
31. and Morgan and Jencks, "Research."
32. M.P. Freiman, J.B. Mitchell, and M.L. Rosenbach, "Simulating Policy Options for Psychiatric Care in General Hospitals under Medicare's PPS," Archives of General Psychiatry 45, no. 11 (1988): 1032-1036.;
33. B.E. Fries et al., "A Comprehensive Payment Model for Short- and Long-Stay Psychiatric Patients," Health Care Financing Review 15, no. 2 (1993): 31-50;
34. R.P. Ellis and T.G. McGuire, "Hospital Response to Prospective Payment: Cost Sharing and Supply," Journal of Health Economics 5, no. 2 (1996): 129-151;
35. and R.G. Frank and J.R. Lave, "Per Case Prospective Payment for Psychiatric Inpatients: An Assessment and an Alternative," Journal of Health Politics, Policy and Law (Spring 1986): 83-96.
36. Frank and Lave, "Per Case Prospective Payment for Psychiatric Inpatients."
37. Thompson, "Report to Congress."
38. J. Cromwell, "Report on the Feasibility of a Per Diem Prospective Payment System for Psychiatric Facilities Excluded from PPS," Draft Report (Waltham, Mass.: Health Economics Research, September 2001).
39. J.P. Hirdes et al., "A System for Classification of In-Patient Psychiatry (SCIPP): A New Case-Mix Methodology for Mental Health" (Paper prepared for the Psychiatric Working Group, Joint Policy and Planning Committee, University of Waterloo, March 2002).
40. The RAI-MH is an instrument similar to the Minimum Data Set (MDS) that is used to collect information on nursing home residents but that has been adapted for patients with psychiatric disorders.
41. The results discussed here are those found in Heller and Vaz, "Inpatient Psychiatric Prospective Payment System." After the CMS submitted its Report to Congress, THEORI continued to update its initial regression model to include facility type as an independent variable, among other changes. Christopher Vaz, THEORI, personal communication, 24 February 2003.
42. 2 is not comparable to those reported for the other studies. Both the dependent and independent variables are quite different.
43. There are a number of reasons for this redistribution. Other things equal, relative to a case-based system (such as TEFRA), a per case system will redistribute resources to hospitals with longer lengths-of-stay. In 2000 the average covered length-of-stay for Medicare patients was 7.0 days in scatter beds, 11.2 days in psychiatric units, 11.4 days in nongovernment psychiatric hospitals, and 17.0 days in government-owned psychiatric hospitals. In addition, other things equal, as one moves from a cost-based system to a prospective payment system, costs will be redistributed toward facilities with the lower costs. THEORI estimated a per diem cost regression that included facility type as well as the payment variables. Relative to freestanding private hospitals, other things equal, the per diem costs of units were higher by about $122 and those of freestanding government hospitals were lower by $7.
44. Thompson, "Report to Congress," 39.
45. MedPAC, Medicare Payment Policy (March 2002).
46. When units and other facilities were exempted from the PPS, hospitals had financial incentives to allocate costs to cost centers that were covered under TEFRA cost-based payment systems.
47. Ancillary charges represent about 15 percent of total charges of patients discharged from psychiatric hospitals and 25 percent of total charges of patients discharged from units. Exploring these differences could lead to increased understanding of the reasons for the differential costs. It might be possible to determine whether patients discharged from units have more medical burden (which could account for higher costs) by examining the past year's Medicare costs, psychiatric and nonpsychiatric, separately.
48. A hospital would game the system if it admitted a patient to the setting with the expected highest payment rate rather than the setting that was most suitable for the patient.