Summary of prospective quantification of reimbursement recovery from inpatient acute care outliers

The purpose of this study is to identify and quantify inpatient acute care hospital cases that are eligible for additional financial reimbursement. Acute care hospitals are reimbursed by third-party payers on behalf of their patients. Reimbursement is a fixed amount dependent primarily upon the diagnostic related group (DRG) of the case and the service intensity weight of the individual hospital. This method is used by nearly all third-party payers. For a given case, reimbursement is fixed (all else being equal) until a certain threshold level of charges, the cost outlier threshold, is reached. Above this amount the hospital is partially reimbursed for additional charges above the cost outlier threshold. Hospital discharge information has been described as having an error rate of between 7 and 22 percent in attribution of basic case characteristics. It can be expected that there is a significant error rate in the attribution of charges as well. This could be due to miscategorization of the case, misapplication of charges, or other causes. Identification of likely cases eligible for additional reimbursement would alleviate financial pressure where hospitals would have to absorb high expenses for outlier cases. Determining predicted values for total charges for each case was accomplished by exploring associative relationships between charges and case-specific variables. These variables were clinical, demographic, and administrative. Year-by-year comparisons show that these relationships appear stable throughout the five-year period under study. Beta coefficients developed in Year 1 are applied to develop predictions for Year 3 cases. This was also done for year pairs 2 and 4, and 3 and 5. Based on the predicted and actual value of charges, recovery amounts were calculated for each case in the second year of the year pairs. The year gap is necessary to allow for collection and analysis of the data of the first year of each pair. The analysis was performed in two parts. First, cases of myocardial infarction were examined to prove feasibility and then a sample of strata of all cases were subjected to the same analytical procedure to provide support for the postulation of universal applicability. Approximately 85,000 cases could be audited annually in New York State, and possibly 1.3 million in the entire United States. Estimated recovery from all inpatient cases is approximately $230 million per year in New York State and roughly $3.6 billion per year from these payers on a national basis. The cost-benefits ratio was estimated at 3.6:1. These are considered to be conservative estimates.