Related Experiment Videos
Assessing the FY 1989 change in Medicare PPS outlier policy
1RAND, Santa Monica, CA 90407.
Abstract:
In fiscal year (FY) 1989, Medicare changed its rules for paying for extremely long or expensive hospital stays called "outliers." We compared outlier payments in FYs 1989 and 1988, after adjusting for other simultaneous policy changes. We found that the new policy succeeded in targeting more outlier payments to the most expensive cases and to the hospitals suffering larger prospective payment system (PPS) losses and in reducing hospital financial risk. Using time-series analyses, we show that the policy change had no measurable effect on the timing of discharges or on the concentration of expensive cases in urban government-owned hospitals.
Insights
Medicare's 1989 outlier payment policy change successfully targeted expensive hospital cases and reduced financial risk. The policy did not affect discharge timing or case concentration in urban government hospitals.
Area of Science:
- Health economics
- Healthcare policy
- Hospital administration
Background:
- Medicare's prospective payment system (PPS) utilizes outlier payments for unusually long or costly hospital stays.
- Previous outlier payment rules in fiscal year (FY) 1988 may not have optimally targeted the most expensive cases or mitigated hospital financial risk.
- Simultaneous policy changes in FY 1989 necessitate careful analysis to isolate the impact of the outlier payment rule modification.
Purpose of the Study:
- To evaluate the impact of Medicare's revised outlier payment policy implemented in fiscal year (FY) 1989.
- To determine if the new policy effectively directed payments to the most expensive hospital cases and hospitals with significant PPS losses.
- To assess the effect of the policy change on hospital financial risk and case distribution.
Main Methods:
- Comparative analysis of Medicare outlier payments between FY 1988 and FY 1989.
- Adjustment for other concurrent policy changes to isolate the effect of the outlier payment rule modification.
- Time-series analyses to examine effects on discharge timing and case concentration.
Main Results:
- The FY 1989 policy change successfully increased outlier payments for the most expensive hospital cases.
- Hospitals experiencing larger prospective payment system (PPS) losses received a greater proportion of outlier payments under the new policy.
- The revised policy was effective in reducing overall hospital financial risk.
- Time-series analyses indicated no significant impact on the timing of patient discharges.
- No measurable effect was observed on the concentration of expensive cases within urban government-owned hospitals.
Conclusions:
- Medicare's 1989 outlier payment policy revision effectively improved payment targeting for high-cost hospitalizations.
- The policy successfully reduced financial vulnerability for hospitals facing substantial PPS losses.
- The policy change did not alter patient discharge patterns or the distribution of high-cost cases in specific hospital types.