One Complaint per Customer, Please

Jane Orient, M.D., is in the private practice of medicine in Tucson, Arizona. She is also an associate in internal medicine at the University of Arizona College of Medicine.

Paying for what you get, in the hospital at least, is becoming outmoded. Medicare now pays hospitals on the basis of their patients’ diagnoses, and patients receive whatever care their doctors think is appropriate. In other words, Medicare payments are determined before costs are incurred, as opposed to traditional fee-for-service payments, which are made after services have been performed.

Medicare payments have been modeled after “diagnosis related groups” (DRGs), which were originally used at Yale to classify patients so that the costs of caring for them could be studied more easily. DRGs suddenly emerged from the obscurity of the laboratory when the government required hospitals to start using them in 1984 for all Medicare patients. The central planners sent out a directive, and hospitals everywhere hastened to install computers, software, and specially trained personnel in order to comply. Few academicians have ever seen their schemes so rapidly implemented, bypassing the normal stages of testing and marketing, despite the most caustic criticism from the people who actually have to “make the system work.” Some private insurers also adopted the method because they feared that otherwise they would be burdened with more “cost-shifting” from Medicare patients onto the bills of privately insured patients.

The DRG method of prospective payment—in contrast to fee for service—is based on averages. The hospital receives the average amount that it cost, in past years, to take care of patients with a certain condition. Of course, each patient is different, so the hospital’s payment may be substantially more or less than the patient’s care actually cost. A few adjustments are made: for age over seventy, and/or for the presence of one or more complicating conditions. However, if the patient has more than one diagnosis, the hospital is paid only for the one that is considered to be the main reason for admission.

The idea of DRGs is to force hospitals to become more “efficient.” However, the term “efficiency” has taken on a new meaning that can best be explained by an example.

Suppose that a patient with an inflamed gall bladder also has a skin cancer on his face. I had a patient like that. I asked the surgeon to remove the skin cancer as soon as he finished with the gall bladder. That way, he’d just have to scrub once. “Sure. No problem,” he said. The patient also thought it was a good idea—only one trip to the operating room, and since he’d be asleep anyway, there would be no need to stick needles into his face to give a local anesthetic. The typist added a paragraph to the operative report. The cleaning crew only had to clean the room once. The scheduling clerk put just one procedure on the schedule, allowing five minutes extra. The messenger made one trip to take both the gall bladder and the skin cancer to the pathologist. Pretty efficient, don’t you think?

Not according to the new Medicare definition. A doctor from New Jersey recently explained how his hospital managed such a case under DRGs. If the skin cancer had been removed during the gall bladder operation, the hospital wouldn’t have been paid for the extra operating room time, or the sutures, or the biopsy. Therefore, they just took out the gall bladder, and scheduled the patient to come back to out-patient surgery at a later time for his skin cancer. Being “efficient” means to concentrate on the main diagnosis. The New Jersey hospital was rewarded for its “efficiency” by being paid for two separate procedures, instead of just one (or one plus a little more, as our hospital was paid before DRGs).

This concept of efficiency would be even easier to understand if it were applied to other familiar situations. Imagine that your car needed a new battery, and also had a leaky radiator. If the mechanic could be paid for only one job at a time, he might say that he couldn’t fix both problems at one visit. He might fix the important problem—the battery—and advise you to bring the car back in a month (not too soon, because of the committee for auditing early returns). Meanwhile, he might suggest that you keep a jug of water in the trunk, and one eye on the temperature gauge.

A plumber working under DRGs might have to say “Sorry, a dripping faucet is not a com plication of a malfunctioning water heater. I’ll put you on the list for another visit.” Or worse, he might tell you that your Brand X water heater requires parts that are more expensive than average, and he can’t afford to fix it. If it were only five years older, it would fit into a different category that paid better, but as it is, he can’t help you.

“Winners” and “Losers”

That brings up another problem with DRGs. Sometimes the hospital bill is higher than average, not because of inefficiency, but because the patient is sicker than average. Under DRGs, hospitals make a profit on some patients: those who recover quickly and uneventfully from a relatively simple problem or those who belong to a high-paying DRG. Hospitals lose money on patients who develop complications, or recover slowly, or undergo a procedure that isn’t in the computer yet. (Lens implants were in that category in New Jersey when the system was first tried.)

What must the efficient hospital do, in order to assure enough income to pay the nurses and the laundry and the mortgage? Administrators are advised to “manage the case mix.” That means to bring in more patients with profitable diagnoses (so the hospital will get paid for not doing things) and reduce the number of patients with multiple or complex diagnoses (so that fewer things will have to be done without payment).

For help in this management problem, the hospitals seek the cooperation of the doctors. They distribute lists of the various DRGs (with the amount of payment for each) and encourage doctors to make more “accurate” diagnoses. There is now a new kind of continuing medical education conference, called “economic grand rounds,” that concerns how to save money on patients with “losing” DRGs by reducing the number of tests or by ordering less expensive treatments. The utilization review committee has become increasingly vigilant about patients who exceed the “length of stay” criteria. Patients are being sent home earlier.

Doctors are being encouraged to think like members of a large team, rather than like individu als. They must keep the welfare of the hospital in mind. If the hospitals do well, then doctors will do well. To help them become better team players, they receive computer printouts of their cost profiles, which can be compared with those of their colleagues. Those who are costing the hospital too much money may soon face loss of their admitting privileges.

The Next Step

Not surprisingly, DRGs for hospitals have not solved the problem of the Medicare deficit. As usual, the government prescription is “more of the same.” Some have advocated including the doctor’s fee under the DRG, starting with three specialists who are thought to be especially overpaid: radiologists, anesthesiologists, and pathologists. A fourth type of hospital-based physician, emergency medicine specialists, might be added next.

But the real goal of the federal government is to eliminate the bother of dealing with patients as individuals. DRGs may be just a stopgap measure on the way to capitation: payment by the head, rather than by the diagnosis.

Medicare patients are no longer just individual social security numbers. When admitted to the hospital, they become a member of one of 467 groups. Some of them are “winners,” and others “losers.” Soon, they may just be a capitated unit in an undifferentiated mass.

In that event, all of us will be losers.

Further Reading

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