Feasibility of case-based payment for inpatient radiology, anesthesia, and pathology services

This paper evaluates a proposal to include inpatient radiology, anesthesia, and pathology (RAP) services in the Medicare PPS hospital payment rate. One hundred percent Medicare claims data from four states were used to simulate the potential redistributive effects of such a payment change on hospitals. The DRG classification system was found to explain more than half the variation in Part B charges for inpatient RAP services. Surgical cases caused most of the explained variation. Rural hospitals are the most likely to win, largely for three reasons: less seriously ill patients within-DRG; limited availability of less expensive technology; and greater use of nurse anesthetists in lieu of anesthesiologists. Teaching hospitals, on the other hand, would lose money, principally because of the cost of extra diagnostic testing for teaching purposes. Redistributive effects could be minimized by making outlier and indirect medical education adjustments.