Prospective payment to encourage system wide quality improvement

Area of Science:

• Health economics
• Hospital payment systems
• Clinical quality improvement

Background:

• Current casemix-based prospective payment systems offer limited incentives for improving patient outcomes.
• The Centers for Medicare & Medicaid Services have begun excluding some avoidable complications from payment systems.

Purpose of the Study:

• To model an inpatient prospective payment system that excludes complication diagnoses from the funding process.
• To incorporate diagnosis-related group (DRG)-specific average complication payments.

Main Methods:

• Estimated complication-averaged cost weights using patient-level cost data from Victorian public hospitals (2006-07).
• Excluded secondary diagnoses coded as post-admission and conditions representing complications.
• Regrouped patient episodes to DRGs and developed new complication-averaged cost weights.

Main Results:

• Excluding complication codes from 1.2 million discharges resulted in 1.37% ungroupable cases and 14.86% with complication codes.
• 1.56% of cases regrouped to different DRGs.
• Modeled funding redistribution for Victorian metropolitan hospitals ranged from -2.5% to 1.8%.

Conclusions:

• The developed cost weights account for average costs of preventable and unpreventable complications.
• This approach has the potential to incentivize improvements in clinical care quality.
• Differs from prior studies by estimating funding impact rather than solely focusing on complication prevention.