Paying a Premium: How Patient Complexity Affects Costs and Profit Margins

Department of Surgery, University of Michigan, Ann Arbor, Michigan, United States
Annals of Surgery (Impact Factor: 8.33). 07/1999; 229(6):807-11; discussion 811-4. DOI: 10.1097/00000658-199906000-00007
Source: PubMed

ABSTRACT Tertiary medical centers continue to be under extreme pressure to deliver high-complexity care, but paradoxically there is considerable pressure within these institutions to reduce their emphasis on tertiary care and refocus their efforts to develop a more community-like practice. The genesis of this pressure is the perceived profitability of routine surgical activity when compared with more complex care. The purpose of this study is to assess how the total cost and profit (loss) margin can vary for an entire trauma service. The authors also evaluate payments for specific trauma-related diagnostic-related groups (DRGs) and analyze how hospital margins were affected based on mortality outcome.
The authors analyzed the actual cost of all trauma discharges (n = 692) at their level I trauma center for fiscal year 1997. Data were obtained from the trauma registry and the hospital cost accounting system. Total cost was defined as the sum of the variable, fixed, and indirect costs associated with each patient. Margin was defined as expected payments minus total cost. The entire population and all DRGs with 10 or more patients were stratified based on survival outcome, Injury Severity Score, insurance status, and length of stay. The mean total costs for survivors and nonsurvivors within these various categories and their margins were evaluated.
The profit margin on nonsurvivors was $5,898 greater than for survivors, even though the mean total cost for nonsurvivors was $28,821 greater. Within the fixed fee arrangement, approximately 44% of transfers had a negative margin. Both survivors and nonsurvivors become increasingly profitable out to 20 days and subsequently become unprofitable beyond 21 days, but nonsurvivors were more profitable than survivors.
There is a wide variance in both the costs and margins within trauma-related DRGs. The DRG payment system disproportionately reimburses providers for nonsurvivors, even though on average they are more costly. Because payers are likely to engage in portfolio management, patients can be transferred between hospitals based on the contractual relationship between the payer and the provider. This payment system potentially allows payers to act strategically, sending relatively low-cost patients to hospitals where they use fee-for-service reimbursement and high-cost patients to hospitals where their reimbursement is contractually capped. Although specific to the authors' trauma center and its payer mix, these data demonstrate the profitability of maintaining a level I trauma center and preserving the mission of delivering care to the severely injured.

5 Reads
  • Source
  • [Show abstract] [Hide abstract]
    ABSTRACT: Mit der Einführung der DRGs („diagnosis-related groups“) bewegte sich die Leistungsvergütung der Kliniken von der Tagessatzstruktur zur Pauschalvergütung. Entsprechende Behandlungsfälle werden abstrakt durch das Institut für das Entgeltsystem im Krankenhaus (InEK) definiert und mit einer Vergütung versehen. Je nach Diagnosen und durchgeführten Prozeduren wird der Erlös festgelegt. Bei komplexen Fällen wie dem Schwerverletzten gilt dies für die durchschnittlichen Diagnosen und Prozeduren. Vor diesem Hintergrund stellten mehrere Arbeitsgruppen Kosten der Polytraumabehandlung von über 70000€ kalkulierten mittleren Defiziten bis 20000€ gegenüber. In den USA hat eine ähnliche Konstellation zur Schließung von Traumazentren geführt. Hauptgründe für die Kosten-Erlös-Differenz sind die heterogene Population und die erheblichen Vorhaltekosten. Beides ist im Fallpauschalensystem nur schwer abzubilden. Da das DRG-System prinzipiell lernen kann, kam es zu Beginn zu Anpassungen der Vergütung. In den letzten Jahren ist keine wesentliche Verbesserung mehr zu verzeichnen. Aktuell belaufen sich durchschnittliche Defizite auf ca. 5000€ pro Schwerverletztem. Eine erneute gemeinsame Anstrengung ist erforderlich, um eine ökonomisch bedingte Reduktion der Versorgungsqualität zu vermeiden. Following the introduction of DRGs (“diagnosis-related groups”) in Germany, reimbursements changed from a per diem rate to a flat charge per patient. DRGs are defined by the German Institute for the Hospital Remuneration System (InEK, Institut für das Entgeltsystem im Krankenhaus) along with the respective reimbursement. The revenues are set according to the diagnoses and procedures. In complex cases like serious injury this applies for the average diagnoses and procedures. As a result, several groups reported costs of polytrauma care as high as €70,000 with losses as high as €20,000. In the USA, a similar constellation has lead to the closure of trauma centers. The main reasons for the financial deficit are heterogeneity of polytrauma patients and contingency costs. Both are difficult to transfer to a case-based compensation system. Since the German DRG system was designed to learn during introduction, there were adjustments to reimbursements for polytrauma care in the initial phase. However, in recent years, no further improvements in the care of severely injured patients have been seen. The deficit per seriously injured patient currently runs at approx. 5000€. A renewed joint effort is required in order to avoid an economy-related reduction in quality of care.
    Der Unfallchirurg 11/2009; 112(11):975-980. DOI:10.1007/s00113-009-1684-0 · 0.65 Impact Factor
  • [Show abstract] [Hide abstract]
    ABSTRACT: By using mandatory discharge data from a state agency, the records of 116,687 patients hospitalized for treatment of injury were evaluated to develop an epidemiologic and demographic profile of this population and to compare outcomes of patients treated in state-designated trauma centers (TC) with those treated in nontrauma centers (NTC). Injury severity was calculated by using the International Classification Injury Severity Score methodology to compute individual diagnosis survival risk ratios from 698,187 reported diagnoses, and then by using these survival risk ratios to determine probability of survival for every patient. The population was then categorized by age, injury type, treatment facility designation, injury severity as indicated by probability of survival, and discharge disposition. Incidence of potentially preventable death was compared between TC and NTC, as was the effect on outcome of noninjury comorbidity. The average age of this population was 58 +/- 26 years with significant skew toward the elderly in NTC (mean age, 62 +/- 26 years). The most commonly encountered injuries likewise reflected the elderly nature of this population. Although 71.3% received care in NTC, the majority of severely injured were treated in TC. Potentially preventable mortality (>0.5) was significantly lower in TC. The effect of noninjury comorbidity on outcome was better managed by TC, both in terms of decreased mortality and in proportion of patients discharged home. These data demonstrate the unique characteristics of injury victims treated in the state of Florida and indicate that the developing trauma system is demonstrating productivity in terms of avoidance of preventable death, efficient management of noninjury comorbid problems, and more complete recovery as indicated by proportion of patients discharged to home.
    The Journal of trauma 05/2000; 48(4):581-4; discussion 584-6. DOI:10.1097/00005373-200004000-00001 · 2.96 Impact Factor
Show more


5 Reads
Available from