Comparing hospital costs : continuing the dialogue for improvement

64 Pages·1996·2.6 MB·English

by  Massachusetts Rate Setting Commission

^
UMASS AMHERST I
f
comparing
Hospital Costs:
Continuing the
Improvement
Dialogue for
July 1995
OCT
7
, igg?
/I Report ofthe
Massachusetts Rate Setting Commission
William F. Weld, Governor
Argeo Paul Cellucci, Lt. Governor Gerald Whitburn, Secretary
Commonwealth of Massachusetts Executive Office of Health & Human Services
Digitized by the Internet Archive
2014
in
https://archive.org/details/comparinghospita00mass_1
Comparing Hospital Costs:
Continuing the Dialogue for Improvement
Summary
Executive
future, inpatient care remains the focus of
this report. The report describes full inpa-
tient costs, which include the capital and
operatingexpenses associatedwith deliver-
ing care. In Fiscal Year 1993, full inpatient
costsperdischargerangedfromabout$3,000,
toover$11,900,withamediancostof$4,479
(see Figure 1 on page 2). Comparedtofiscal
year 1992,2 the full cost per discharge in-
creased at 71 hospitals and decreased at 17,
The
MassachusettsRateSettingCommis- and the median cost grew 4.2%. Although
sion presents ComparingHospitalCosts: manycomponents playa role in the variation
Continuing the Dialoguefor Improve- incosts,certainfactorsstandbeyondtheshort
ment as a successor to the Commission's term control hospital clinicians and admin-
August 1994 report, Comparing Hospital istrators. These elements may instead illus-
Costs. Beginning a Dialogue For Improve- tratethecompositionofthepatientpopulation,
ment. Like the earlier version, this publica- the mission ofthe hospital or its location.
tion seeks to highlight variation in acute1
hospital inpatient costs. While the report Case Mix
does not explore comparisons with other Estimates of the relative resources re-
states, such differences are probably not quired to treat patients with different ill-
atypical of the experience elsewhere. By nesses. Case mix does not account for all
looking beyond this report to identify the clinicaldifferencesincasetypeandseverity.
causes of cost variation in the Common-
wealth, providersandpurchasersofhospital (Indicesvariedfrom 0. 70to2. 71 with
services may recognize opportunities to a median of 1.0022;from 1992 to 1993,
deliver health care more efficiently. both the low and the high ends of the
In December of 1991, the hospital distribution increased, and the median
accessandfinancinglaw,commonlyknown grew by 2.0%)
asChapter495, freedmarketforcestostimu-
late the delivery ofquality hospital services Capital
at affordable prices. Through this document Major movable equipment and fixed
and its other reports, the Commission seeks capital (buildings, fixed equipment and
to make accurate and appropriate informa- borrowing costs). Since these assets have
tion available to promote value in this more useful lives oflongerthan a year, theircosts
competitive health care delivery system. may reflect a hospital's investment cycle,
credit rating or other factors more than the
appropriateness of its strategic decisions.
Full Inpatient Costs
(Costs rangedfrom $126 to $833per
While the Commission plans to ex- discharge with a median of$344; the me-
plore other aspects of hospital care in the dian capital costper CMADfell by 0.7%)
Full and Comparable Inpatient Costs
79 Hospitals, Fiscal Year 1993
35
30
a
25
w
o
X Full
20
15
Comparable
E
10
5
0
2,500 5,000 7,500 10,000 12,500
Cost per Discharge
Figure 1 Fullandcomparablecostsperdischargeatacutehospitals.2Althoughcomparablecostshave
a narrower range, the variation may still reflect opportunity for improved efficiency.
Source Massachusetts RateSettingCommission
MedicalEducation median cost rose from $71 to $83 per
Direct and indirect expenses some CMAD)
hospitals incur to train medical profession-
als. Costs may vary due to program size or Geographic Wage Variation
focus of training. In 1993, the Health Care Finance Ad-
ministration (HCFA) classified Massachu-
(Costs rangedfrom $0 to $1,839 per settshospitalsintosevendistinctwageareas.
discharge; medical education expenses de- Because labor represents a large portion of
clinedatmajorteachinghospitals, with me- total hospital costs, regional differences in
dian costsfalling 2.7% to $809perCMAD) wage ratesmaystronglyinfluenceoperating
costs.
Hospital-Based Physicians
Some hospitals directly employ many (Standardizing hospital wages to the
physicians for both patient treatment and nationalaveragewagerate reducescostsby
department supervision. Others primarily amountsextendingupto$543perdischarge)
employ physicians as supervisors, meeting
most or all of their patient care needs Extraordinary Share ofMedicaid
through non-salaried staff positions. and Free Care (ESMFC)
Someprovidersderiveaverylarge part
(Costs variedfrom $0 to $535 per oftheir revenue from serving Medicaid and
discharge; between 1992 and 1993 the uninsured patients. Among numerous is-
2
Comparing Hospital Costs:
Continuing the Dialogue for Improvement
sues which confront these hospitals, they By working together to reduce the
must cope with generally older facilities, variation in comparable inpatient costs, cli-
more rigid hiring and purchasing rules, nicians and administrators from both hospi-
greater difficulty discharging patients to ap- tals and purchasers can create meaningful
propriate settings, and inadequate primary improvements in the efficiency of hospital
care among their uninsured patients. The service delivery. Utilizing the 1993 data
ESMFC adjustment, however, may mask alongside the earlier report, may enable
inefficiencies which do not relate directly to usersofthe reporttodirecttheirattentionto
the composition of the patient populations the effect of changes already underway in
at these hospitals. the system.
Tocreatetheinformationinthisreport,
the Commissionuseddata fromtheRSC-403
Comparable Inpatient Costs hospitalcostreportandfrommergedbilling
and discharge records ('case mix tapes').
To facilitate the comparison of other- Differences in how hospitals maintain data
wise unique hospitals, the Commission has and report ittothe Commissionmayexplain
calculated a comparable cost per case mix- some ofthe variation between hospitals. As
adjusted discharge (CMAD) foreach institu- a result of these reporting differences and
tion. These amounts consider the effect of other unique characteristics of hospitals,
the case mix, medical education programs, users of this document will find the report
hospital-basedphysicians,geographicwage most beneficial if they communicate with
variation, and ESMFC. Ofcourse, these ele- individual providers to understand their data.
ments may themselves reflect efficient or Readers of Comparing Hospital Costs:
inefficient hospital decisions. Continuing the Dialoguefor Improvement
Like the full inpatient costs, compa- should not construe it as an account of the
rable costs spanned a broad distribution. performanceofindividual hospitals. Rather,
Costs ranged from about $2,600 to more aided by it, the Commission hopes that
than $4,500 perdischarge, with a median of purchasers and providers will engage in
$3,581. Between 1992 and 1993, two-thirds dialogue beginning with a common source
of the hospitals demonstrated increases in ofhospitalcostinformation. Throughcontrib-
comparable costs per CMAD, and the me- uting to these discussions the Commission
dian grew 2.5%. hopes to foster value in the hospital market.
Executive Summary
3
i
Comparing
Hospital Costs:
Continuing the
Dialogue for Improvement
July 1995
Barbara Erban Weinstein, Chairman
Louis Freedman, Commissioner
I.
Margaret Long Randle, Commissioner
ii
Comparing Hospital Costs:
Continuing the Dialogue for Improvement
Acknowledgments
The Commission is thankful for the
significant contributions ofthe external ad-
visors who served on the project advisory
committee: Jim Bruer of Travelers Health
Network, Debra BrussofNewton-Wellesley
Hospital, Donna CaseyofBeth Israel Hospi-
tal, Grace Chao and Wendy Goodwin of
Tufts Associated Health Plans, Chris Collins
of the City of Springfield, Jan Costa and
Andrea Kao of Harvard Community Health
Comparing Hospital Costs: Continuing Plan, Katy Coughlin ofMount Auburn Hos-
theDialogueforImprovementreflects pital, Rick Elwell of the Medical Center of
thecoordination, consultationandvery Central Massachusetts, Sonia Hadley ofAsso-
hard work of individuals both inside and ciated Industries of Massachusetts, and Rich-
outsidethe Massachusetts Rate SettingCom- ard Silveria of Lawrence General Hospital.
mission. In preparing this report, one ofthe Invaluable assistance was provided by
primary goals of the Commission was to Hilary Cooklin and Andrew Dreyfus of the
produce accurate and useful information Massachusetts Hospital Association.
whichpromotescollaborativeeffortsamong Elizabeth Greene and Elizabeth
hospitals, health plans and employers. For Pressman ofthe Massachusetts Department
this reason, a great deal of effort went into of Medical Assistance read a draft of the
solicitingadvice andcomments frompoten- report and provided substantive comments.
tial readers and future users ofthis informa- Many others contributed to the
tion. It should be noted, however, that this development of this report, but are not
report does not necessarily reflect theviews named here.
or opinions of the individuals acknowl-
edged here. Thanks to all.
in
iv