A preliminary analysis of the federal government's new policy on early hospital discharges of certain Medicare patients may provide fodder for those who want to expand the policy to all Medicare inpatients.
The study of the "transfer provision" found that it cut hospital profits--and overall government expenditures--for cases in the 10 DRGs subject to reduced payments when hospitals discharge patients to a post-acute setting after a shorter-than-average hospital stay.
But the report also found little change in the number of such early discharges. That has prompted the hospital industry to argue that the policy was imposed exclusively to save the government money. The policy hasn't improved patient care, the industry says, and should be repealed.
The transfer provision, which took effect Oct. 1, 1998, under the Balanced Budget Act of 1997, targeted cases in 10 high-volume DRGs. Congress feared that Medicare was overpaying for those treatments because it paid hospitals a full DRG payment for partial care and then paid again for post-acute care that could have been delivered in a longer hospital stay.
The transfer provision limits hospital reimbursement to a per-day fee--lower than the full DRG payment--for patients whose hospital stays are at least one day shorter than the average length of stay in those DRGs.
HCFA disclosed the results of the study in the agency's proposed prospective payment system regulations for fiscal 2001, which starts Oct. 1. The proposed regulations were published in the May 5 Federal Register.
The study said the new transfer payment policy cut in half the average hospital profits for cases in the selected DRGs that were transferred to post-acute settings in fiscal 1999 (See chart).
For the most profitable DRG of the bunch--DRG 483 for tracheotomies--the average per-case profit fell to $16,672 in fiscal 1999 from $32,007 in fiscal 1998.
"There's no question that profits are going to go down" for those cases subject to the transfer policy, said Thomas Scully, president and chief executive officer of the Federation of American Health Systems.
Hospital industry lobbyists point to the transfer policy as one contributor to the continuing slide of hospital finances. According to a recently released report from Ernst & Young and HCIA-Sachs, a Baltimore-based healthcare information company, hospitals have lost 0.5% in 2000 on Medicare after making a 2.5% profit in 1998 (May 8, p. 8).
But the policy has led to only a 1 percentage point drop in the number of patients in those 10 DRGs who were discharged at least one day before the average length of stay, the threshold for the reduced payment, according to the study.
Hospital industry analysts said that the finding suggests hospitals have been making discharge decisions largely based on the clinical needs of Medicare patients, not financial incentives. They argue that the policy should be repealed, because hospitals aren't trying to game the system when they discharge patients quickly to post-acute providers.
"The study indicates that there wasn't a change in (inpatient) days that there would have been had there been abuse," said Carmela Coyle, senior vice president for policy at the American Hospital Association. "I think the findings really help our case."
But one Medicare expert said the policy is effective. "It looks to me like the findings of the study are reassuring that the policy isn't disrupting the way patients are treated," said Stuart Guterman, principal research associate at the Urban Institute in Washington and a former deputy director of the Medicare Payment Advisory Commission. "It seems to me to be an appropriate payment policy."
The report doesn't take a position on whether to extend the transfer policy to all 511 DRGs, as HCFA has the authority to do beginning Oct. 1 under the balanced-budget law. Despite the law's dictum, President Clinton has agreed not to expand the number of DRGs in the policy until at least Oct. 1, 2002.
Hospitals fought the transfer policy when Congress originally proposed it. They successfully lobbied Congress to restrict it to only 10 DRGs in the final version of the budget law.
The DRGs subject to the transfer policy accounted for
$11.7 billion of the $79.9 billion paid to hospitals for inpatient care to Medicare beneficiaries in fiscal 1998. They also accounted for 1.1 million of the 11.9 million discharges that year.
The Congressional Budget Office estimated in December 1997 that the transfer policy limited to the selected DRGs would save a total of $1.3 billion between 1999 and 2002.