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FinalReport ANANALYSISOFTHEVALIDITYOFTHEDISCRETIONARYCOMPONENTOF DIAGNOSTICCOSTGROUPADJUSTERS FrankW.Porell,Ph.D. DataChronHealthSystems,Inc.and UniversityofMassachusettsatBoston LeonardGruenberg,Ph.D. DataChronHealthSystems,Inc. DataChronHealthSystems,Inc. Cambridge,MA02139 July,1997 Acknowledgments ThisresearchwassupportedbyaCooperativeAgreementNo.17-C-90295\01fromtheHealth CareFinancingAdministration.Theviewsandopinionsexpressedinthereportaretheauthorsanddo notnecessarilyrepresentthoseofHCFA. Theaudiorswouldliketoacknowledgetheassistanceof AlanMalboninanalyticfileconstructionandRobertBoutwellforhisguidanceinissuesconcerningthe clinicalinterpretationsofdiagnosticcodes. ThanksareextendedtoLevShlimovichandMaryWhelan fortheirtediousworkassociatedwithmappinggeographicunits.WearegratefultoConnieTaiforher helpinthestatisticalanalysis,andtoPriyanthiSilva,XiaopingZhou,TerriSahnons,andDianne Clearyfortheireditorialhelpandassistanceinproductionofthereport. Finally,wearegratefulto MichealKendixforhispatienceandforhiscommentsuponearlieranearlierdraftofthisreport. ANANALYSISOFTHEVALIDITYOFTHEDISCRETIONARYCOMPONENT OFDLVGNOSTICCOSTGROUP(DCG)RISKADJUSTERS EXECUTIVESUMMARY BACKGROUND TheobjectiveofthisstudyistoinvestigatethevalidityofthediscretionarycomponentoftheDCGrisk classificationsystemofEllisandAsh(1995). ThediscretionaryratingsemployedintheDCGmodelofEllisandAsh (1995)potentiallyserveaveryimportantfunctionsinceincreasedcapitationrates(overabasegrouplevel)arenot madeforpriorhospitalizationswithdiagnosesthatareinonemanneroranotherdeemedtobe"discretionary." A primaryreasonforexcludingsuchdiscretionaryadmissionsintheprioruseDCGriskadjustersisthebeliefthata significantpartoftheobservedlowerhospitalutilizationratesofHMOsmaybeattributedtoHMOsbeingmore effectivethantheEPSsectorinavoidingsuchadmissions. Thefailuretoremovediscretionaryadmissionsassociated withHMO-FEShospitalizationpracticepatternswouldpenalizeHMOsthatweresuccessftilincontrollingdiscretionary hospitaluse. ThisstudyteststhevalidityoftheDCGdiscretionaryratingsbyassessing: • theextenttowhichdiscretionaryhospitaladmissionsaccountfordifferencesinthehospitaladmission ratesofMedicarehealthmaintenanceorganization(HMO)enroUeesandMedicarefee-for-service beneficiaries; • theextenttowhichdiscretionaryhospitaladmissionsaccountforgeographicvariationsinthehospital admissionratesofMedicarefee-for-servicebeneficiaries. Todate,therehasnotbeenanempiricalappraisaloftheeffectivenessofthediscretionarycomponentofthe DCGriskclassificationmodelofEllisandAsh(1995)insinglingouthospitalizationsmorelikelytobereducedby MedicareriskHMOs. Suchanappraisalisimportantgiventherecentdevelopmentof"hierarchicalco-existing condition"(HCC)modelsbyEllis,et.al(1995)asarefinementtoearlierDCGmodels. WhereastheearlierDCG modelsofAsh,etal.(1989)andEllisandAsh(1995)addresstheproblemofpotentialbiasesassociatedwithHMO- EFSdifferencesinmedicalpracticestylesbylimitingpriorhospitalizationstonondiscretionaryones, Elliset.al(1995) strivetoavoidsuchpotentialbiasesinHCCmodelsbyexpandingthesourcesofpriorusediagnosticinformationto i includeallrecordeddiagnosticcodes,includingsecondaryhospitaldiagnoses,anddiagnosesrecordedonambulatory outpatientandphysicianclaimsdata. Whilethequestionofwhetheruseofallrecordedpatientdiagnosesforriskclassificationisabetterwayto dealwithsuchpotentialpaymentratebiasesthantheexclusionofhighlydiscretionaryhospitalizationshasobvious importance,theprosandconscannotbemeaningfullyevaluatedwithoutanempiricalappraisaloftheeffectivenessof theDCGdiscretionaryclassificationsindistinguishing"highdiscretion"hospitalizations.Thissttidyprovidessuchan appraisal. RESEARCHAPPROACH TheempiricalanalysisofthevalidityoftheDCGdiscretionclassificationsisfoundedonempiricaltestsoftwo mainhypotheses. UnderthegeneraltheoreticalexpectationthatHMOsshouldbemoresuccessfulthantheFFSin reducingdiscretionaryhospitaladmissions,itisformallyhypothesizedthat: • "highdiscretion"hospitaladmissionswillaccountforasignificantpartofthehigheroverallhospital admissionratesofFFSMedicarebeneHciariesrelativetoMedicareriskHMOenrolleesinthesame geographicmarkets. InadditiontoHMO-FFScomparisons,thediagnosticcompositionofMedicareFFShospitalizationswillbe comparedamonggeographicareaswithhigherandlowerratesofMedicarehospitaluse. Themostwidelyheldviewis thatwidelydocumentedgeographicvariationsinmedicalcareusearelargelytheresultofmedicalpracticestyle differences(Wennberget.al1982;Wennberg1985,1987; Wennberget.al1987,Wennberget.al1989). Employing logicsimilartothatraisedaboveaboutHMO-FFSpracticestyledifferences,geographicdifferencesinmedicalpractice stylesandthepropensitytohospitalizeshouldalsobereflectedinobservablegeographicdifferencesinthediagnostic compositionofinpatienthospitalizations.Itisformallyhypothesizedthat: • "higherdiscretion"hospitaladmissionswillaccountforasignificantlygreaterpartofoverallhospital admissionratesinhigh-usegeographicmarketsthaninlow-usegeographicmarkets. ii TheempiricalperformanceoftheDCGdiscretionaryratingsarecomparedwiththeperformanceofseveral alternativediscretionclassificationsfoundinthehealthservicesresearchliterature. Andersonet.al(1989)developed twodiscretionclassificationsystemsderivedfromphysicianratingsofdiagnosesinwhichthegeneralconceptof variationinthelikelihoodofapatientwithcertainmedicalconditionstobehospitalizedwasdistinguishedasresulting fromvariationintheseveritylevelofthepatientandphysiciandiscretiontowardalternativetreatmentofthemedical conditions. Inordertoprovidesomeinsightaboutthepotentiallimitsofusingdiagnosticinformationtoclassify hospitalizationsintodiscretionclasses,theempiricalperformanceoftheDCGandAndersondiscretionclassifications arecomparedtotheindexofdiscretiondevelopedbyRooset.al(1988). Incontrasttotheaprioriphysicianratingsof discretionintheDCGmodelofEllisandAsh(1988)anddioseofAndersonet.al(1989)basedonclinicaljudgement, thediscretionindexofRooset.al(1988)wasempiricallyderivedbasedonconsistentpatternsinthegeographic variabilityofhospitaldischargeratesamonggeographicinseveralstates. Accordingly,theempiricalperformanceof theRoosindexofdiscretionmaybeviewedasalikelyupperlimitfordiscretionclassificationsbasedondiagnostic information. PRINCIPALFINDINGS HMO-FFSDifferencesinDiscretionaryHospitalizations Descriptiveanalysesofthediagnosticcompositionofover2.6millionMedicareHMOandFFShospitalizations forfourstatesprovidedlittleempiricalsupportforthemainstudyhypothesis,namely,thatasignificantportionof lowerMedicareriskHMOhospitaluseratesareassociatedwiththeirsuccessinreducingdiscretionaryhospitalizations asdefinedbytheDCGdiscretionclasses. Rather,thediagnosticcompositionofMedicareriskHMOandFFS hospitalizationsappeartoberelativelyinvariantwithrespecttobothDCGriskclassanddiscretionscore classifications. AssimilarresultswerefoundusingthealternativediscretionclassificationsofAnderson,etal.(1989) andRoos,etal.(1988),theDCGmodelfindingsareunlikelytobetheresultofthemisclassificationofafewdiagnoses amongdiscretionclasses. iii geographicVariationsinHospitalUseandDiscretionaryHospitalizations Geographicanalyseswereconductedtotestthemainstudyhypothesesregardingtherelativegeographic variabilityofhighversuslowdiscretionhospitalizations,andthedegreetowhichhigheroverallratesofhospitaluse areattributabletoexcessivehighdiscretionhospitalizations. CorrelationandregressionanalysisfindingsfortheDCG andalternativediscretionclassificationssuggesthigheruserategeographicareastendtohaveagreatershareof hospitalizationsclassifiedashighdiscretion,buthigheroverallhospitaluseratesarenotlargelyattributableto excessivediscretionaryhospitaluse. Ourempiricalanalysessuggestthathigheroverallhospitaluseratesamonggeographicareasaremorestrongly associatedwitharesidualgroupofhospitalizationsforallconditionsmiclassifiedas"lowdiscretion." Geographic areaswithhighorlowoverallhospitaluseratesappeartohaverelativelysimilarabsolutehospitaluseratesforlow discretionhospitalizations. Alowfractionof"lowdiscretion"hospitalizationsinageographicareasappearstoserveas amuchmoreeffectivemarkerfordistinguishinghighoveralluserategeographicareasthanahighfractionof"high discretion"hospitalizations. ComparisonsoftherelativeempiricalperformanceoftheDCGandAnderson,etal.(1989)discretion classificationsinthecorrelationandregressionanalysesofChapter4indicateonlyverymodestdifferencesamong alternativediscretionclassificationsderivedfromphysicianaprioriratingsofprinciplediagnosesofhospitalizations. Theempirically-derivedRoos,etal.(1988)indexofdiscretionstoodapartfromtheDCGandAndersondiscretion classificationsintermsofsuperiorempiricalperformance. Nevertheless,theempiricalfmdingsfromtheRoosindexof discretioncouldhardlyleadonetoconcludethathigheroverallhospitaluserateswerepredominantlytheresultof highlydiscretionaryhospitaluse. Therelativegeographicinvarianceofthecompositionofhospitalizationsunderthe Roosindexofclassificationsuggeststhattherearesignificantlimitationsassociatedwithdistinguishingthediscretion levelofhospitalizationsfromtheprincipaldischargediagnosticinformation. iv I POLICYIMPLICATIONSFORPRIORUSEMODELRISKCLASSIFICATION ThestudyfindingshavedirectimplicationstowardtheapproachEllisandAsh(1995)tookforreducingthe potentialbiasesofmedicalpracticestyledifferencesonprioruseriskclassifications. Ourempiricalanalysesindicate thatitisverydifficulttodistinguishwell-definedsubgroupsofhospitalizationswhichaccountforsignificantportionsof observedHMO-FFSandgeographicdifferencesinhospitaluseratesonthebasisofdiagnosticinformationfromclaims data. Ingeneral,thestudyfindingssuggestthatthediscretionarycomponentoftheDCGmodelofEllisandAsh (1995)isunlikelytoserveitsoriginalintendedpurpose. ItappearsthateithersystematicHMO-FFSpracticestyle differenceshavelittleimpactondiagnosticriskclassificationsofMedicarebeneficiariesderivedfrominpatient hospitalizationdata,orthemeasurementofphysiciandiscretionintheDCGmodelofEllisandAsh(1995)andother existingalternativediscretionclassificationsystemsdonothavesufficientvaliditytowarranttheexclusionofcertain "highdiscretion"hospitalizationsforpurposesofhigherriskclassification. Ourfindingsprovideempiricalsupportfor Ellis,etal.'s(1995)abandonmentoftheconceptofphysiciandiscretionforexcludingcertainhospitalizationsfor assignmentofenrolleestohigherriskcellsintheirdevelopmentofHCCmodels. However,theydonothaveany directimplicationstowardthemeritsofexpandingsourcesofdiagnosticinformationinHCCriskclassificationto ambulatoryclaims. PotentialconcernsoverbiasesassociatedwithHMO-FFSpracticestyledifferencesorprovider gamingbehaviorwithrespecttoHCCmodelsshouldbefocusedondiagnosticassignmentderivedfromoutpatient and/orphysicianutilizationclaims. IMPLICATIONSFORSMALLAREAANALYSISOFGEOGRAPHICVARIATIONS Thestudyfindingshavesomeimportantbroaderimplicationsforstudiesofgeographicvariationsinhospital useaswell. Whileconcernsoverthereliabilityofprimarypayerfieldsinthehospitaldischargedataprecludeddirect analysesofMedicareriskHMOandFFSdifferencesinhospitalutilizationrates,ourlimiteduseofMedicarerisk HMOenrollmentdataintheempiricalgeographicanalysesofhospitaluseratesforcombinedMedicareriskHMOand FFSbeneficiarypopulationssuggeststhatestimationofdisaggregatedHMOandFFShospitaluseratemodelswouldbe V likelytoproducesomevaluableempiricalinsightabouttheimpactsofpopulationhealthstatusdifferencesonvariations inhospitalutilizationrates. OurdescriptiveanalysesindicatedthatriskHMO-FFSdifferencesinestimatedage-sex adjustedmortalityratesweremuchgreaterthangeographicdifferencesinmortalityratesforthecombinedHMOand FFSstudypopulations,particularlyinCaliforniaandNewYork. Giventhestrongcorrelationswefoundbetween hospitaluseratesandthemortalityratesforthecombinedHMOandFFSpopulationsofgeographicareas,thegreater dispersioninmortalityratesamongMedicareriskHMOversusFFSbeneficiariesmayprovideameansfor distinguishingpopulationhealthstatuseffectsongeographicvariationsinhospitaluseratesthataremutedbythe aggregationofHMOandFFSdata. vi ANANALYSISOFTHEVALroiTYOFTHEDISCRETIONARYCOMPONENT OFDIAGNOSTICCOSTGROUP(DCG)RISKADJUSTERS TABLEOFCONTENTS Page Chapter1 INTRODUCTIONANDBACKGROUND 111...132 ASINTNTUORDVOYEDGRUOVCAITLEISOWNAONFDCHHAYPPTOETRHSESOEFSTHEREPORT .3j6 Chapter2 ACOMPARISONOFDCGDISCRETIONLEVELSINMEDICARE RISKHMOANDFEE-FOR-SERVICEHOSPITALIZATIONS 222...123 2IBD.NAA2.TTC1RAKTOGhADeRNUODCDUCTMNIGEDORNTisHkOCDlaOssLifOiGcaYtionModel 17g2g 22222.....33333.....53142IAAADggCsaggstDrrai-eeg9SggnoaaCmutterMiincootennCsoooofdffHiTEonloslgtpiaisClthaaDalnindCzgaGAetssiDhoianssDncdCtroeAGtsHisoRMinigsOSnkcmvoCeerlnreatssssussetsoFDFSCGSecatnodr .................j1112765 DiscretionScoreClasses 2.4 2E.M3P.6IRReIsCeAarLchREApSpUrLoTaSch 2^0^ 2.4.1TheStudyPopulation 20 2.4.2HMO-FFSDifferencesinDemographicComposition 22 2.4.5 22H..M44O..34-HHFMMFOOS--DFFifFFfSSerDDeiinffcffeeesrreDenniccaeegssnoiisnntiHAcogseCp-oiSmtepalxosUAisdtjeiuosRnatteoedfsMHoosrptiatlailtiyzaRtaitoenss ................3....53.22074 2.5 DISCUSSION Chapter3 AHMOANDFFSDISCRETIONARYHOSPITALADMISSIONS: ACOMPARISONOFALTERNATIVEDISCRETIONCLASSIFICATIONS 3.1INTRODUCTION 3g 3.2 ALTERNATIVEDEFINITIONSOFDISCRETIONARYHOSPITALIZATIONS..........39 3.2.1PatientVariationandPhysicianDiscretionClassificationsofAnderson,etal.(1989) 3.3 D3.A2.T2AInAdeNxDofMDEisTcHreOtiDoOnLClOasGsiYficationofRoos,etal.(1988) .4426 33..33..12IDmaptaacStosuorfcelsCD-9CMCodingChanges ................4456 3.3.3Methodology 49 TABLEOFCONTENTS (continued) 3.4 EMPIRICALRESULTS 51 3.4.1AgreementBetweenDCGDiscretionandAlternativeClassification Systems 51 3.4.2HMO-FFSDifferencesinDistributionofDiscretionaryHospitalizations: AComparisonofAlternativeDiscretionClassificationSystems 57 3.5 DISCUSSION 59 Chapter4 GEOGRAPHICVARIATIONSINHOSPITALUSERATESANDDISCRETIONARY HOSPITALUSE: 4.1 INTRODUCTION 63 4.2 GEOGRAPHICVARIATIONSINHOSPITALUTILIZATION 64 4.3 DATAANDMETHODOLOGY 67 4.3.1StudyGeographicUnits 68 4.3.2StudyResearchHypotheses 76 4.3.3Methodology 78 4.4 4E.M4.P1IWReIiCgAhtLeRdECSoeUfLfiTcSientsofVariation ......8800 4.4.2CorrelationsbetweenOverallHospitalUseRatesandtheDiscretionaryCompositionof Hospitalizations 83 4.4.3MultipleRegressionModelResults 88 4.5 DISCUSSION 93 Chapter5 DISCRETIONARYHOSPITALUSEANDSUPPLYFACTORS 97 5.1 INTRODUCTION 97 5.2 HYPOTHESESANDMODELDEVELOPMENT 98 5.2.1Hypotheses 98 5.2.2GeneralModelSpecification 101 5.2.3VariableSpecification 102 5.2.4PooledEstimationofDiscretionaryandNondiscretionaryModels 105 5.3 EMPIRICALRESULTS 106 5.4 DISCUSSION 115 Chapter6 SUMMARYANDPOLICYIMPLICATIONS 6.1 OVERVIEW 117 66..23 PPROILNICCIYPIAMLPSLTIUCADTYIFOINNSDFIONRGSPRIORUSEMODELRISKCLASSIFICATION 111270 6.4 IMPLICATIONSFORSMALLAREAANALYSISOFGEOGRAPHICVARIATIONS..121 REFERENCES 123