hospital patient

Payers

Report: Hospital Payments Vary, but It’s Not Because of the Quality of Care

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hospital patient

This article originally appeared in the Summer 2013 issue of Xerox HealthFocus magazine.

The need for quality and the importance of fairness are often lost in the highly charged debate over healthcare reimbursement. Why do hospitals each receive different payments for the same services? Why do different payers pay a hospital different amounts for the same care? Is quality a factor in payment calculations? Do patient outcomes influence payment?

More importantly, how can payment methods improve cost efficiency, access to services and care quality?

The dataset enabled the broadest view yet of the state’s hospital market.

To answer this question, the Payment Method Development team at Xerox has been consulting clients on value purchasing, which focuses on getting more care for the healthcare dollar.  That requires financial and medical data from a large swath of providers and payers as well as careful analysis that interprets the findings in the context of the entire market. Once a clear picture emerges, states can identify goals and develop policies to achieve them.

A recent area of focus has been hospital payments, and how the variations between them could be costing healthcare programs. The team has untaken several studies recently, including one published in December 2012 for the Rhode Island Office of the Health Insurance Commissioner.

The first step to finding solutions is understanding the market.

The study focused on payments to hospitals, which, at 33 percent, is the largest category of medical spending. Our team collected claims data from 2010 from 11 hospitals across five categories of payers: Medicare fee-for-service (FFS), Medicare managed care, Medicaid FFS, Medicaid managed care and commercial. The dataset included 73 percent of inpatient stays and 62 percent of outpatient visits, enabling the broadest view yet of the state’s hospital market. With data comprising all public and commercial payers in one dataset, the team could compare payment levels from different payers across different hospitals – something few studies nationwide have been able to achieve.

The team found substantial variation in payments for similar care. Commercial payment levels by insurance companies were highest – 66 percent higher than Medicare FFS, which were the lowest. Within a given

hospital, average payment per inpatient stay varied considerably (and sometimes twofold) depending on which insurance paid the bill.

Cost also varied significantly. For inpatient care, cost per stay at the most costly hospital was 73 percent higher than the least expensive hospital. Not surprisingly, the higher cost hospitals tended to be paid more.

If there was a correlation between quality and payment, it was neither strong nor obvious…

Furthermore, Rhode Island’s data did not support the “cost shift” theory that hospitals with more Medicare and Medicaid patients command proportionally higher commercial payment levels.

Well-paid hospitals often say that payments reflect the high quality of care they provide. However, evidence on quality in Rhode Island (such as patient satisfaction, processes of care, safety indicators) did not show a link to costs or payments. If there was a correlation between quality and payment, it was neither strong nor obvious using currently available quality measures.

Upon reviewing the report, the Office of the Health Insurance Commissioner concluded, “…The findings in this study are evidence that the private contracting model is not fair to payers, patients or hospitals and does not promote value.”

Payment variation analysis such as this can help establish or update a state healthcare program’s policy goals and options. Using a factual basis, states can ensure payment alignment and encourage high quality, low costs, payment parity for similar services, and accountability for care outcomes and costs.

While each state has different characteristics and challenges, a broad and comprehensive analysis can identify problems and even propose specific solutions.

Some of the options include publishing rates of payment and care quality variation, issuing regulations to reduce disparities among hospitals and enacting legislation to standardize payment methods. States can also use studies such as Rhode Island’s to implement a payment method that incentivizes care quality based on specific, measurable benchmarks. Other recommendations may be made as a result of a payment variation analysis; it depends on the findings, the state’s goals and national healthcare trends.