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Linear programming models for cost reimbursement.

G Diehr1, H Tamura

  • 1Department of Management Science, Graduate School of Business Administration, University of Washington, Seattle 98195.

Health Services Research
|August 1, 1989
PubMed
Summary
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This study introduces linear programming (LP) as an alternative to multiple regression for developing nursing home cost reimbursement formulas. LP minimizes absolute error, offering better protection against unusual data and greater policy control for rate-setting.

Area of Science:

  • Health Services Research
  • Operations Research
  • Health Economics

Background:

  • Traditional cost reimbursement formulas for long-term care facilities often rely on least-squares methods.
  • Multiple regression approaches, like that of Tamura, Lauer, and Sanborn (1985), have been used to determine these formulas.
  • Existing methods may be sensitive to outliers and offer limited flexibility for policy implementation.

Purpose of the Study:

  • To propose an alternative approach for developing cost reimbursement (rate-setting) formulas for long-term care facilities.
  • To utilize linear programming (LP) with an absolute-error criterion instead of least-squares.
  • To incorporate policy controls and enhance formula robustness.

Main Methods:

  • Employed linear programming (LP) as the mathematical tool for formula derivation.

Related Experiment Videos

  • Utilized an absolute-error criterion to minimize deviation, contrasting with the least-squares criterion.
  • Incorporated various side constraints to model policy controls and desirable formula characteristics.

    • Main Results:

    • Linear programming effectively minimizes absolute error deviation, providing robustness against unusual data points.
    • LP offers significant modeling flexibility for imposing policy controls within the rate-setting formula.
    • The proposed LP approach facilitates easier modeling and computation compared to traditional regression methods.

    Conclusions:

    • Linear programming presents a superior alternative for developing cost reimbursement formulas for nursing homes.
    • LP enhances the reliability of rate-setting by mitigating the impact of outliers.
    • The flexibility of LP allows for the integration of essential policy controls in healthcare reimbursement models.