Risk adjustment and hospital cost-based resource allocation, with an application to El Salvador

Area of Science:

• Health economics
• Public health policy
• Hospital finance

Background:

• Healthcare spending reform is hindered by a lack of data on hospital costs, case loads, and case mixes in developing countries.
• National (tertiary) hospitals typically receive higher per-patient budgets than lower-level (district) hospitals.
• Differential funding is often justified by the assumption that national hospitals manage more complex and severe cases.

Purpose of the Study:

• To investigate the validity of the assumption that national hospitals manage more complex cases than district hospitals.
• To analyze public hospital expenditures in El Salvador over a 12-year period.
• To determine if district hospitals are underfunded relative to national hospitals when controlling for patient morbidity and other factors.

Main Methods:

• Analysis of public hospital expenditures in El Salvador.
• 12-year longitudinal data collection.
• Statistical controls for patient morbidity, hospital outputs, and other relevant characteristics.

Main Results:

• District hospitals are substantially underfunded compared to national hospitals.
• This underfunding persists even after controlling for patient morbidity and other hospital characteristics.
• The widely held belief about national hospitals treating more severe cases is challenged.

Conclusions:

• Existing funding disparities between national and district hospitals are not justified by case complexity.
• District hospitals require increased funding to ensure equitable healthcare delivery.
• Policy options to address this underfunding are proposed and examined.