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PubMed2005

Providing systematic guidance in pharmacoeconomic guidelines for analysing costs.

BACKGROUND: Despite the considerable amount of work that has gone into the standardisation of costs, a recent survey indicated that there is still a wide variation in methods used in costing studies in the published literature. Part of the answer to the lack of standardisation may lie in pharmacoeconomic guidelines themselves. OBJECTIVE: The purpose of this paper is to categorise the current recommendations for the analysis of costs within an economic evaluation, and to use these categories to assess variations in guidelines. DESIGN: Based on identified costing methodology, we developed a detailed categorisation. We then surveyed existing guidelines to determine similarities and differences in the guidelines. RESULTS: Our framework had five categories: general design items; resource identification and classification; resource measurement; resource valuation; and overall reporting. We noted differences in perspective, some of which were due to methodological uncertainty and differences in the purposes of the studies covered by the guidelines. There was very little guidance in how to put the basic cost measure into operation. In addition, the preferred concept for resource utilisation was that of resource use under actual (rather than experimental) conditions, and there was very little guidance as to how to achieve this measure. CONCLUSION: There are still large variations, as well as gaps, in guidelines in the costing area. This is due, in part, to wide-ranging objectives for studies, methodological uncertainty and a neglect of the fundamentals of costing. We recommend that the contents of the basic measure of 'average cost' should be explained in more detail, with recurring, capital and allocated overhead costs being reported separately. A target capacity level (e.g. 80%) should be reported, even if in a sensitivity analysis. More guidance should be provided regarding the translation of utilisation under experimental care to that under routine care. For resource valuation, adjustments to the 'average cost' measure should be made explicit. There should be more guidance on how to project system-wide costs from the costs of one hospital. The manner in which overall results are reported should be addressed, including the identification of how costs should be categorised.

Costs and Cost Analysis↗
PubMed1986

The ethics of resource allocation in critical care.

Increasingly, the ethics of resource allocation is becoming one of the most critical ethical problems faced by critical care decision makers; what is lacking is a framework for analyzing the ethics of decisions in resource allocation. This article examines the four ethical principles--patient-centered beneficence, autonomy, full beneficence, and justice--that can contribute to cost containment/resource allocation.

Beneficence↗
PubMed1996

Uncompensated hospital care. Will it be there if we need it?

The debates over health care system reform continue, but they rarely mention the enduring need for free or reduced-cost hospital care as a safety net for uninsured and underinsured individuals. Policy changes on numerous fronts threaten the ability or willingness of hospitals to provide uncompensated care. These changes include the decline of Hill-Burton funds, the closings or mergers of not-for-profit and public hospitals, the dominance of competitive forces, and the redirection of funds intended for disproportionate share hospitals or uncompensated pools. Federal and state governments lack coordinated approaches toward uncompensated care, and health system reforms may not have the expected effects on reducing hospitals' burden of paying for services to indigents. Furthermore, measurement of uncompensated care is inconsistent. In light of the persistent growth in the number of persons with inadequate health insurance coverage and the central role that uncompensated care will continue to play in ensuring access to care for the poor and uninsured, these policies need to be reexamined. Guidelines for policy based on past experience are presented herein.

Cost Allocation↗
PubMed1988

Resource allocation in multifacility emergency medical service systems.

As instruments of public policy, Emergency Medical Service Systems must not only make effective use of the available resources but also ensure that those resources are shared equitably by the systems' facilities. This paper develops a multifacility EMS system resource allocation model that enables its user to evaluate the equitability of resource allocation schemes. Recognizing and objectively defining the relationships between the consumption of system resources and the provision of EMS System services, this model is appropriate for use in both prospective and retrospective EMS System resource allocation analyses.

Cost Allocation↗
PubMed2001

Using computerised patient-level costing data for setting DRG weights: the Victorian (Australia) cost weight studies.

Casemix-funding systems for hospital inpatient care require a set of resource weights which will not inadvertently distort patterns of patient care. Few health systems have very good sources of cost information, and specific studies to derive empirical cost relativities are themselves costly. This paper reports a 5 year program of research into the use of data from hospital management information systems (clinical costing systems) to estimate resource relativities for inpatient hospital care used in Victoria's DRG-based payment system. The paper briefly describes international approaches to cost weight estimation. It describes the architecture of clinical costing systems, and contrasts process and job costing approaches to cost estimation. Techniques of data validation and reliability testing developed in the conduct of four of the first five of the Victorian Cost Weight Studies (1993-1998) are described. Improvement in sampling, data validity and reliability are documented over the course of the research program, the advantages of patient-level data are highlighted. The usefulness of these byproduct data for estimation of relative resource weights and other policy applications may be an important factor in hospital and health system decisions to invest in clinical costing technology.

Accounting↗
PubMed1997

Cost-variance analysis by DRGs; a technique for clinical budget analysis.

In this article it is shown how a cost accounting system based on DRGs can be valuable in determining changes in clinical practice and explaining alterations in expenditure patterns from one period to another. A cost-variance analysis is performed using data from the orthopedic department from the fiscal years 1993 and 1994. Differences between predicted and observed cost for medical care, such as diagnostic procedures, therapeutic procedures and nursing care are analyzed into different components: changes in patient volume, case-mix differences, changes in resource use and variations in cost per procedure. Using a DRG cost accounting system proved to be a useful technique for clinical budget analysis. Results may stimulate discussions between hospital managers and medical professionals to explain cost variations integrating medical and economic aspects of clinical health care.

Accounting↗
PubMed1999

Trauma services: a profit center?

BACKGROUND: Previous studies have demonstrated inadequate reimbursement for severely injured patients with a resultant negative economic impact for the trauma service and hospital. The purpose of this study was to assess the total cost of care for all injured patients discharged from the trauma service in fiscal year 1997, and to determine the proportion of costs for the most severely injured on total cost. In addition, we assessed the total service costs and the revenue for treatment of the most severely ill. The final result was the determination of the profit (loss) margin for the entire service. STUDY DESIGN: All patients discharged from our Level I Trauma Center in fiscal year 1997 were included (n = 696). The population was then stratified into 2 subgroups using the Injury Severity Score (ISS). Patient grouping was facilitated by integration of the trauma registry with the hospital cost accounting system. The population was sub-divided into 2 distinct groups. Group A represented all patients with an ISS >15 (n = 192). Group B contained all patients with an ISS <15 (n = 504). Length of stay and mortality of each group was recorded. Cost of care was determined by the hospital cost accounting system TSI (Transition System Incorporated, Boston, MA), which is designed to generate cost center data on a cost per patient basis. Total costs were determined for the entire population and Groups A and B. The proportion of costs consumed by each group was then calculated. Reimbursement was determined by calculating expected payments for each patient. These calculations are based on previously agreed upon allowances from each insurer and are reconciled at the end of each fiscal year to ensure accuracy. RESULTS: The average length of stay for the population and Groups A and B were 7.5, 9.8, and 6.7 days respectively. Mortality in each group was 9.7%, 19.3%, and 6%. Over 92% of the population sustained blunt mechanism injury and only 8% were penetrating. When controlled for length of stay, the profit margin for Group A is $1,242/day and for Group B is $519/day. Comparison of mean cost/patient between Group A and Group B was $35,727 versus $17,623, respectively. CONCLUSION: Trauma centers can be profitable. Group A is responsible for 44% of the total service cost while accounting for only 28% of the discharges. Moreover, this group is responsible for 57% of the profit, and yields the greatest return. The ability to care for the sickest patients, while enormously costly, is essential to the economic viability of the trauma center and its future growth.

Cost Allocation↗
PubMed1996

Implications of the introduction of fixed reimbursement rates in Germany.

The introduction of fixed reimbursement rates in Germany for cardiac surgery of adults, mainly coronary artery bypass grafting (CABG) and valve surgery, has shifted the financial risk from insurers to providers of medical care, namely hospitals. Costs in turn are closely related to the preoperative condition of a patient, implicating that surgery in high-risk patients may result in financial losses for the operating institution. Furthermore, reports from the Society of Thoracic Surgeons national database indicate a trend over time towards a higher proportion of patients with adverse risk factors for the United States. To determine whether these trends are holding true for Germany, we conducted an analysis of the data from two institutions with the following questions: 1. Is there a trend over time towards unfavourable risk factors, and 2. Is there a relation between preoperative risk factors and postoperative length of stay? From 1987 to 1995, 3872 patients underwent CABG at the Departments of Cardiovascular Surgery of Justus-Liebig University Giessen and German Heart Center Munich. Medical history, preoperative condition, intra-, and postoperative course were recorded for these patients according to the protocol of the German quality assurance program. Preoperative condition of the patient was summarized with an additive risk score. The correlation between postoperative length of stay in the intensive care unit (ICU) and preoperative risk was investigated. For a subgroup of 30 patients, detailed cost analysis was performed and the relationship to preoperative risk examined. For all risk factors examined, a significant increase in prevalence between 1987 and 1995 was observed. A close correlation between preoperative risk and postoperative length of stay in the ICU was found. A similar correlation existed between preoperative risk and actual costs of treatment. In addition, high-risk patients had a significantly higher likelihood of being discharged directly from our ICU to the ICU of other hospitals. Postoperatively, high-risk patients suffer more often from morbidity with subsequent prolonged intensive care and are, therefore, a financial burden for the operating institution in a reimbursement system with fixed rates. This is aggravated by the fact that a trend towards adverse risk profiles among patients undergoing cardiac surgery can be observed. Both factors combined may result in a scenario where those who would benefit most are denied surgical treatment.

Aged↗
PubMed2005

Combining DRGs and per diem payments in the private sector: the Equitable Payment Model.

The many types of payment models used in the Australian private sector are reviewed. Their features are compared and contrasted to those desirable in an optimal private sector payment model. The EPM(TM) (Equitable Payment Model) is discussed and its consistency with the desirable features of an optimal private sector payment model outlined. These include being based on a robust classification system, nationally benchmarked length of stay (LOS) results, nationally benchmarked relative cost and encouraging continual improvement in efficiency to the benefit of both health funds and private hospitals. The advantages in the context of the private sector of EPM(TM) being a per diem model, albeit very different to current per diem models, are discussed. The advantages of EPM(TM) for hospitals and health funds are outlined.

Acute Disease↗
PubMed1999

Benchmarking pathology services: implementing a longitudinal study.

This paper details the benchmarking process and its application to the activities of pathology laboratories participating in a benchmark pilot study [the Royal College of Pathologists of Australasian (RCPA) Benchmarking Project]. The discussion highlights the primary issues confronted in collecting, processing, analysing and comparing benchmark data. The paper outlines the benefits of engaging in a benchmarking exercise and provides a framework which can be applied across a range of public health settings. This information is then applied to a review of the development of the RCPA Benchmarking Project. Consideration is also given to the nature of the preliminary results of the project and the implications of these results to the on-going conduct of the study.

Australia↗
PubMed1997

Issues in cost function specification for neonatal care: the Fordham case.

BACKGROUND: Econometric techniques have been used to examine the relationship between costs of provision, case mix and unit size for health care providers. Estimation of cost functions in a health care context is complicated by poor understanding of the underlying production relationship and the constraints under which production takes place. Different results and policy implications can follow from different model specifications. This underscores the need for care in the construction of such functions and the interpretation of their results. METHODS: Cost and activity data from a study of neonatal care for an English Regional Health Authority are re-examined. Cost functions are estimated using alternative functional forms, and average cost per day is estimated and compared for two of these functions [one produced by Fordham et al. (J Publ Hlth Med 1992; 14(2): 127-130) and the other based more explicitly in economic and econometric theory]. RESULTS: It is shown that estimates of average cost per day are sensitive to model specification. Such are the differences in cost that significantly different policy implications could follow from the different models. CONCLUSION: We conclude that care must be taken in the construction and estimation of cost functions and that the assumptions upon which they rest be made explicit so that results can be properly interpreted.

Cost Allocation↗
PubMed1995

Estimating the hospital-wide cost differentials warranted for teaching hospitals. An alternative to regression approaches.

Under Medicare's Prospective Payment System, teaching hospitals receive additional reimbursements, vis-à-vis nonteaching hospitals, for both "direct" teaching expenses and for "indirect" expenses. They totaled $3.1 billion in fiscal year 1989. The authors propose and illustrate a non-regression-based, nonparametric method for viewing the total hospital-wide reimbursement differential warranted for teaching hospitals, a method utilizing a peer grouping of like hospitals to estimate two different "best practices" cost frontiers. The hospital's efficiently delivered cost to meet all of the hospital's actual service outputs, including its teaching mission, and delivered level of quality of care, is compared to the corresponding cost when only the teaching mission is excluded. The difference in these costs for a particular hospital can be used to estimate a suggested lump sum Medicare reimbursement add-on, in recognition of the hospital's teaching mission. The approach is illustrated using a subset of the Health Care Financing Administration's 1988 hospital data set, with comparisons of actual and suggested reimbursements provided.

Cost Allocation↗
PubMed1997

The financial impact of changes in personal health practices.

The impact of changes in health practices on medical claims costs between 1985-1987 and 1988-1990 was examined among 796 employees. Employees completed a health risk appraisal in 1985 and 1988 and were categorized into health risk levels. High-cost status and high-risk status were significantly associated at both times. The percentage of employees with high-risk status decreased from 31.8% to 25.3% between 1985 and 1988 (P < 0.01). Changes in average costs and the percentage with high-cost status followed the risk change. The largest increase in average costs occurred in employees who moved from low-risk to high-risk status. The greatest reduction in average costs occurred in employees who moved from high-risk to low-risk status. Median costs were not as sensitive to risk change. The findings provide strong evidence that improving individual health status is associated with financial benefits.

Absenteeism↗
PubMed2004

Making ends meet: a cost comparison of laparoscopic and open radical retropubic prostatectomy.

PURPOSE: We compared the perioperative costs of laparoscopic radical prostatectomy (LRP) and open radical retropubic prostatectomy (RRP) at a metropolitan hospital by developing a detailed computer model. MATERIALS AND METHODS: Our predictive model incorporates institutional cost centers for operative time, operating room consumables, professional fees, hospital room and board, oral analgesics, autologous blood banking, blood transfusion and cystography. Versions with and without pelvic lymphadenectomy (PLND) were evaluated using 1 and 2-way sensitivity analyses. Operative times, lengths of stay and transfusion rates were derived from published series. We also reviewed individual hospital charges for 172 consecutive prostatectomy cases for comparison and validation of model predictions. RESULTS: The model predicted cost premiums for LRP of 14.4% (without PLND) and 17.5% (with PLND). The actual hospital charge premium for LRP and PLND was 18.4%, which differed from the predicted cost premium by less than 1%. The most significant cost centers in order of importance were operative time, length of stay and consumables. To achieve cost equivalence with RRP, operative times would need to average 159 minutes (LRP and PLND) and 174 minutes (LRP alone) holding other factors constant. Cost equivalence could not be achieved by shortening hospital stay alone unless LRP were performed as an outpatient procedure. CONCLUSIONS: Our model predicts the perioperative costs of LRP to be greater than RRP by a factor of less than 1.2x. If disposable instruments and trocars are eliminated, and patients undergoing LRP and PLND are discharged on postoperative day 2, cost equivalence with RRP and PLND can be achieved with operative times of 3.4 hours.

Computer Simulation↗
PubMed2003

Hospital economics of the hospitalist.

OBJECTIVE: To determine the economic impact on the hospital of a hospitalist program and to develop insights into the relative economic importance of variables such as reductions in mean length of stay and cost, improvements in throughput (patients discharged per unit time), payer methods of reimbursement, and the cost of the hospitalist program. DATA SOURCES: The primary data source was Tufts-New England Medical Center in Boston. Patient demographics, utilization, cost, and revenue data were obtained from the hospital's cost accounting system and medical records. STUDY DESIGN: The hospitalist admitted and managed all patients during a six-week period on the general medical unit of Tufts-New England Medical Center. Reimbursement, cost, length of stay, and throughput outcomes during this period were contrasted with patients admitted to the unit in the same period in the prior year, in the preceding period, and in the following period. PRINCIPAL FINDINGS: The hospitalist group compared with the control group demonstrated: length of stay reduced to 2.19 days from 3.45 days (p<.001); total hospital costs per admission reduced to 1,775 dollars from 2,332 dollars (p<.001); costs per day increased to 811 dollars from 679 dollars (p<.001); no differences for readmission within 30 days of discharge to extended care facilities. The hospital's expected incremental profitability with the hospitalist was -1.44 dollars per admission excluding incremental throughput effects, and it was most sensitive to changes in the ratio of per diem to case rate reimbursement. Incremental throughput with the hospitalist was estimated at 266 patients annually with an associated incremental profitability of 1.3 million dollars. CONCLUSION: Hospital interventions designed to reduce length of stay, such as the hospitalist, should be evaluated in terms of cost, throughput, and reimbursement effects. Excluding throughput effects, the hospitalist program was not economically viable due to the influence of per diem reimbursement. Throughput improvements occasioned by the hospitalist program with high baseline occupancy levels are substantial and tend to favor a hospitalist program.

Bed Occupancy↗
PubMed2000

Cost estimates for hospital inpatient care in Australia: evaluation of alternative sources.

OBJECTIVE: This paper presents a framework for evaluation of alternative sources of estimates of the costs of hospital inpatient care in Australia. It argues that the choice of costing methods depends on the decision-context and the sensitivity of the decision to estimation errors. METHOD: Five criteria are proposed for evaluation of sources of hospital cost data, with detailed consideration of the way estimates are derived in two computerised approaches which use accounting data. Three broad approaches to cost estimation are evaluated against these criteria. RESULTS: Choosing an estimation method entails an optimisation analysis for each decision context. 'Microcosting' techniques remains the most valid approach to cost estimation, but are costly and this may, in turn, limit the sample of patients or institutions. Protocol-based cost estimates vary widely in their validity, depending on source data, but there is little justification for continued use of crude per diem cost estimates in such protocols. When precision and resolution are important objectives, clinical costing approaches provide the most valid inpatient cost estimates at a reasonable data cost. When external validity is important, or where standardisation of hospital costs is desired, use of published national cost weights may be preferred. CONCLUSION: Both primary and secondary sources of cost data must withstand challenges to internal and external validity. The 'resolution' (or precision) of cost estimates and the relative costs of collection must also be considered. IMPLICATIONS: Studies using estimates of the costs of hospital care should defend the appropriateness of the costing approach and data source for the decision context.

Accounting↗
PubMed2001

Payment policy for chemotherapy in public hospitals: a case for splitting DRG 780/R63Z.

OBJECTIVE: To assess the appropriateness of the current way chemotherapy is classified in the Australian casemix classification system. METHOD: Secondary analysis of patient-level data for all cases of DRG 780 separated from Victorian hospitals with clinical costing systems in the years 1994/95, 1995/96 and 1996/97 using the Chi-squared Automatic Interaction Detector (CHAID) option of Answer Tree Version 2.0. RESULTS: Different cancers have different costs. There is a significant difference (F=316.8, df=4, 11091, p=0.00) between the cost of colon cancer (mean=$289), breast cancer (mean=$481), lymphatic cancer (mean=$605), leukemia (mean=$1,118) and other cancers (mean=$512). The differences are sufficiently large that they meet the statistical criteria for splitting a DRG. CONCLUSION: Application of nationally agreed criteria for creation of Diagnosis Related Groups suggests that the existing DRG 780 should be split into five groups: colon, breast and lymphatic cancers, leukemia and a residual 'other cancers' category. The new groups increase the explanation of variation in costs (about a 10% reduction in variance). IMPLICATIONS: It is no longer valid for casemix development to be based on length of stay as a proxy for resource utilisation, especially for DRGs that are primarily same day.

Antineoplastic Agents↗