Coding and coverage for cardiac CT in the era of algorithm-based healthcare procedures and services.

In order for patients to gain the benefit of innovation in cardiac CT, it is necessary for coding, coverage, and payment to adapt to the novelty of algorithm-based healthcare procedures and services (ABHS). Appendix S to the CPT Code Set, the "AI Taxonomy", enables creation of discrete and differentiable codes for reimbursement of ABHS which has been clinically validated and FDA-labeled. Payment policy in OPPS and PFS is evolving to take account of the unique opportunities and issues arising from the clinical adoption of ABHS.

Skilled Nursing and Home Health Policy: A Primer for the Hospital Clinician.

This paper addresses the increasing challenges faced by hospital clinicians in coordinating and recommending postacute care for patients, focusing on issues related to access to the most common postacute services: skilled nursing facilities (SNFs) and home health agencies (HHAs). In coordinating discharges, hospital clinicians have minimal information on care delivery in these settings. This knowledge gap is exacerbated by the disrupted continuum of patient care between acute care hospitals, SNFs, and HHAs. To address these challenges, hospital clinicians must understand how recent federal policies have impacted SNF and HHA care provision. The paper provides an overview of recent Centers for Medicare and Medicaid Services (CMS) policies and programs affecting SNFs and HHAs, including: (1) fee-for-service reimbursement reform (ie, Patient Driven Payment Model [PDPM] and the Patient Driven Groupings Model [PDGM]); (2) bundled payment programs; (3) accountable care organizations; (4) Medicare Advantage plans. Overall, this paper aims to help hospital clinicians stay informed about the evolving landscape of postacute care delivery by providing relevant information on how recent policy changes have impacted patient care.

Cost Analysis of Outpatient Colectomy in a Tertiary Center: A Projected Medico-Economic Evaluation.

Aim of the study: Short stay processes are incentives to unburden chronically stressed healthcare systems. The aim of this study is to analyze financial implications of day admission (DAS) and outpatient strategies for colon resections in a prospective payment system (PPS) using Diagnosis Related Group (DRG) coding. Methods: Consecutive patients undergoing left and right colonic resections between January 1, 2019 and December 31, 2020 were included. Medico-economic evaluations of the virtual outpatient and day admission surgery groups based on predefined criteria were compared to the identical group of patients who underwent surgery in the actual traditional inpatient setting. In a second step, postoperative complications of the virtual outpatient group were assessed. Cost-revenue analysis was performed using a micro-costing approach including direct medical costs. Results: Overall (N = 257), 97 (37.7%) colectomies would have been potentially eligible for an outpatient strategy. The global costs of the actual inpatient strategy totaled USD 3 634 392 with a global revenue of USD 3 571 069, corresponding to a cost coverage rate of 98%. The result of the virtual DAS strategy would have been a net loss of USD 15 800 (coverage rate of 99%) due to 4 low length of stay outliers triggering a reimbursement reduction and preventing a positive net result of USD 16 208. The pilot reference outpatient case's revenue and cost amounted to respectively USD 7479 and USD 6911 (cost coverage of 108%). Conclusion: From both any given hospital and healthcare system point of view, elective outpatient colectomy for selected patients is the most cost-saving option. However, in a prospective payment system implemented to avoid bad incentives, the latter can unintentionally disadvantage best performing hospitals and impede widespread adoption of high-value strategies.

Evaluation of the impact of prospective payment systems on cholecystectomy: A systematic review and meta-analysis.

This systematic review and meta-analysis aimed to evaluate the impact of prospective payment systems (PPSs) on cholecystectomy. A comprehensive literature review was conducted, examining studies published until December 2023. The review process focused on identifying research across major databases that reported critical outcomes such as length of stay (LOS), mortality, complications, admissions, readmissions, and costs following PPS for cholecystectomy. The studies were specifically selected for their relevance to the impact of PPS or the transition from fee-for-service (FFS) to PPS. The study analyzed six papers, with three eligible for meta-analysis, to assess the impact of the shift from FFS to PPS in laparoscopic and open cholecystectomy procedures. Our findings indicated no significant changes in LOS and mortality rates following the transition from FFS to PPS. Complication rates varied and were influenced by the diagnosis-related group categorization and surgeon cost profiles under episode-based payment. There was a slight increase in admissions and readmissions, and mixed effects on hospital costs and financial margins, suggesting varied responses to PPS for cholecystectomy procedures. The impact of PPS on cholecystectomy is nuanced and varies across different aspects of healthcare delivery. Our findings indicate a need for adaptable, patient-centered PPS models that balance economic efficiency with high-quality patient care. The study emphasizes the importance of considering specific surgical procedures and patient demographics in healthcare payment reforms.

Effect of End-Stage Renal Disease Prospective Payment System on Utilization of Peritoneal Dialysis in Patients with Kidney Allograft Failure.

INTRODUCTION: The Center for Medicare and Medicaid Services introduced an End-Stage Renal Disease Prospective Payment System (PPS) in 2011 to increase the utilization of home dialysis modalities, including peritoneal dialysis (PD). Several studies have shown a significant increase in PD utilization after PPS implementation. However, its impact on patients with kidney allograft failure remains unknown. METHODS: We conducted an interrupted time series analysis using data from the US Renal Data System (USRDS) that include all adult kidney transplant recipients with allograft failure who started dialysis between 2005 and 2019. We compared the PD utilization in the pre-PPS period (2005-2010) to the fully implemented post-PPS period (2014-2019) for early (within 90 days) and late (91-365 days) PD experience. RESULTS: A total of 27,507 adult recipients with allograft failure started dialysis during the study period. There was no difference in early PD utilization between the pre-PPS and the post-PPS period in either immediate change (0.3% increase; 95% CI: -1.95%, 2.54%; p = 0.79) or rate of change over time (0.28% increase per year; 95% CI: -0.16%, 0.72%; p = 0.18). Subgroup analyses revealed a trend toward higher PD utilization post-PPS in for-profit and large-volume dialysis units. There was a significant increase in PD utilization in the post-PPS period in units with low PD experience in the pre-PPS period. Similar findings were seen for the late PD experience. CONCLUSION: PPS did not significantly increase the overall utilization of PD in patients initiating dialysis after allograft failure.

Day Admission Surgery Program in a Prospective Payment System: What Are the Financial Incentives?

Background: Day admission surgery (DAS) is meant to provide a better in-hospital experience for patients and to save costs by reducing the length of stay. However, in a prospective payment system, it may also reduce the reimbursement amount, leading to unintended incentives for hospitals. Methods: Over a 4-month period in 2021 and based on predefined clinical and logistic criteria, patients from different surgical sub-specialties were identified to follow the institutional DAS program. Revenue-analysis was performed, considering the Swiss diagnosis-related group (SwissDRG) prospective payment policy. Revenue with DAS program was compared to revenue if patients were admitted the day prior surgery (No DAS) using nonparametric pooled bootstrap t-test. All other costs considered identical, an estimation of the average cost spared due to the avoidance of pre-operative hospitalization in the DAS setting was carried out using a micro-costing approach. Results: Overall, 105 inpatients underwent DAS over the study period, totaling a revenue of CHF 1 209 840. Among them, 25 patients (24%) were low outliers due to the day spared from the DAS program and triggering a mean (SD) financial discount of Swiss Francs (CHF) 4192 (2835), yielding a total amount of CHF 105 435. DAS revealed a mean revenue of CHF 7320 (656), compared to CHF 11 510 (1108) if patients were admitted the day before surgery (No DAS, P = .007). Conclusion: In a PPS, anticipation of financial penalties when implementing a DAS for all-comers is key to prevent an imbalance of the hospital equation if no financial criteria are used to select eligible patients. Promptly revising workflow to maintain constant fixed costs for a greater number of patients may be a valuable hedging strategy.

The end of an era? Activity-based funding based on diagnosis-related groups: A review of payment reforms in the inpatient sector in 10 high-income countries.

CONTEXT: Across the member countries of the Organisation for Economic Co-Operation and Development, policy makers are searching for new ways to pay hospitals for inpatient care to move from volume to value. This paper offers an overview of the latest reforms and their evidence to date. METHODS: We reviewed reforms to DRG payment systems in 10 high-income countries: Australia, Austria, Canada (Ontario), Denmark, France, Germany, Norway, Poland, the United Kingdom (England), and the United States. FINDINGS: We identified four reform trends among the observed countries, them being (1) reductions in the overall share of inpatient payments based on DRGs, (2) add-on payments for rural hospitals or their exclusion from the DRG system, (3) episode-based payments, which use one joint price to pay providers for all services delivered along a patient pathway, and (4) financial incentives to shift the delivery of care to less costly settings. Some countries have combined some or all of these measures with financial adjustments for quality of care. These reforms demonstrate a shift away from activity and efficiency towards a diversified set of targets, and mirror efforts to slow the rise in health expenditures while improving quality of care. Where evaluations are available, the evidence indicates mixed success in improving quality of care and reducing costs and expenditures.

Upcoding in medicare: where does it matter most?

Upcoding in Medicare has been a topic of interest to economists and policy makers for nearly 40 years. While upcoding is generally understood as "billing for services at higher level of complexity than the service actually pro- vided or documented," it has a wide range of definitions within the literature. This is largely because the financial incentives across programs and aspects under the coding control of billing specialists and providers are different, and have evolved substantially over time, as has the published literature. Arguably, the primary importance of analyzing upcoding in different parts of Medicare is to inform policy makers on the magnitude of the process and to suggest approaches to mitigate the level of upcoding. Financial estimates for upcoding in traditional Medicare (Medicare Parts A and B), are highly variable, in part reflecting differences in methodology for each of the services covered. To resolve this variability, we used summaries of audit data from the Comprehensive Error Rate Testing program for the period 2010-2019. This program uses the same methodology across all forms of service in Medicare Parts A and B, allowing direct comparisons of upcoding magnitude. On average, upcoding for hospitalization under Part A represents $656 million annually (or 0.53% of total Part A annual expenditures) during our sample period, while up- coding for physician services under Part B is $2.38 billion annually (or 2.43% of Part B annual expenditures). These numbers compare to the recent consistent estimates from multiple different entities putting upcoding in Medicare Part C at $10-15 billion annually (or approximately 2.8-4.2% of Part C annual expenditures). Upcoding for hospitalization under Medicare Part A is small, relative to overall upcoding expenditures.

Barriers and Facilitators in Pricing and Funding Policies of European Countries That Impact the Use of Point-of-Care Diagnostics for Acute Respiratory Tract Infections in Outpatient Practices.

Antimicrobial resistance is a major global health threat, which is increased by the irrational use of antibiotics, for example, in the treatment of respiratory tract infections in community care. By using rapid point-of-care diagnostics, overuse can be avoided. However, the diagnostic tests are rarely used in most European countries. We mapped potential barriers and facilitators in health technology assessment (HTA), pricing, and funding policies related to the use of rapid diagnostics in patients with community-acquired acute respiratory tract infections. Expert interviews were conducted with representatives of public authorities from five European case study countries: Austria, Estonia, France, Poland, and Sweden. Barriers to the HTA process include the lack of evidence and limited transferability of methods established for medicines to diagnostics. There was no price regulation for the studied diagnostics in the case study countries, but prices were usually indirectly determined via procurement. The lack of price regulation and weak purchasing power due to regional procurement processes were mentioned as pricing-related barriers. Regarding funding, coverage (reimbursement) of the diagnostic tests and the optimized remuneration of physicians in their use were mentioned as facilitators. There is potential to strengthen peri-launch policies, as optimized policies may promote the uptake of POCT.

Diagnosis Related Groups of Patients Admitted from an Urban Academic Medical Center to a Virtual Hybrid Hospital-at-Home Program.

Background: The diagnosis related group (DRG) is used as an economic patient classification system based on clinical characteristics, hospital stay, and treatment costs. Mayo Clinic's virtual hybrid hospital-at-home program, advanced care at home (ACH), offers high-acuity home inpatient care for a variety of diagnosis. This study aimed to determine the DRGs admitted to the ACH program at an urban academic center. Methods: A retrospective study was performed on all patients discharged from the ACH program at Mayo Clinic Florida from July 6, 2020, to February 1, 2022. DRG data were extracted from the Electronic Health Record (EHR). Categorization of DRG was done by systems. Results: The ACH program discharged 451 patients with DRGs. Categorization of the DRG demonstrated that the most frequent code assigned corresponded to respiratory infections (20.2%), followed by septicemia (12.9%), heart failure (8.9%), renal failure (4.9%), and cellulitis (4.0%). Conclusion: The ACH program covers a wide range of high-acuity diagnosis across multiple medical specialties at its urban academic medical campus, including respiratory infections, severe sepsis, congestive heart failure, and renal failure, all with major complications or comorbidities. The ACH model of care may be useful in taking care of patients with similar diagnosis at other urban academic medical institutions.

Impact of Diagnosis-Related Groups on Inpatient Quality of Health Care: A Systematic Review and Meta-Analysis.

The aim of this meta-analysis was to comprehensively evaluate the effectiveness of Diagnosis-related group (DRG) based payment on inpatient quality of care. A comprehensive literature search was conducted in PubMed, EMBASE, Cochrane Central Register of Controlled Trials and Web of Science from their inception to December 30, 2022. Included studies reported associations between DRGs-based payment and length of stay (LOS), re-admission within 30 days and mortality. Two reviewers screened the studies independently, extracted data of interest and assessed the risk of bias of eligible studies. Stata 13.0 was used in the meta-analysis. A total of 29 studies with 36 214 219 enrolled patients were analyzed. Meta-analysis showed that DRG-based payment was effective in LOS decrease (pooled effect: SMD = -0.25, 95% CI = -0.37 to -0.12, Z = 3.81, P < .001), but showed no significant overall effect in re-admission within 30 days (RR = 0.79, 95% CI = 0.62-1.01, Z = 1.89, P = .058) and mortality (RR = 0.91, 95% CI = 0.72-1.15, Z = 0.82, P = .411). DRG-based payment demonstrated statistically significant superiority over cost-based payment in terms of LOS reduction. However, owing to limitations in the quantity and quality of the included studies, an adequately powered study is necessary to consolidate these findings.

California Hospitals' Rapidly Declining Traditional Medicare Operating Margins.

In recent years, Medicare margins of U.S. short-term acute care hospitals participating in the inpatient prospective payment system (IPPS) have declined nationally by over 10 percentage points, from 2.2% in 2002 to -8.7% in 2019. This trend conceals critical regional variations, with recent studies documenting particularly low and negative margins in metropolitan areas with higher labor costs despite geographic adjustments by the Centers for Medicare & Medicaid Services (CMS). In this article, we describe recent trends in California hospitals' traditional fee-for-service Medicare operating margins compared to hospital operating margins across payers and changes in the CMS hospital wage index (HWI) used to adjust Medicare payments. We conduct an observational study of audited financial reports of IPPS-participating California hospitals using California Department of Health Care Access and Information and CMS data for years 2005-2020 (n = 4429 reports included in the analysis). We describe trends in financial measures by payer and investigate associations between HWI and traditional Medicare margins, focusing on the pre-COVID period of 2005 through 2019. During that period, California hospitals' statewide traditional Medicare operating margin declined from -27 to -40%, and financial shortfalls in caring for fee-for-service Medicare patients more than doubled ($4.1 billion in 2005 to $8.5 billion in 2019, both values in 2019 dollars). Meanwhile, operating margins from commercial managed care patients increased from 21% in 2005 to 38% in 2019. There was a stable negative association between HWI and traditional Medicare operating margins throughout the period (p = 0.000 in 2005; p < 0.0001 in 2006-2020), indicating that areas of California with higher health care wages had persistently worse traditional Medicare operating margins than areas with lower wages.

Does prospective payment influence quality of care? A systematic review of the literature.

In the light of rising health expenditures, the cost-efficient provision of high-quality inpatient care is on the agenda of policy-makers worldwide. In the last decades, prospective payment systems (PPS) for inpatient care were used as an instrument to contain costs and increase transparency of provided services. It is well documented in the literature that prospective payment has an impact on structure and processes of inpatient care. However, less is known about its effect on key outcome indicators of quality of care. In this systematic review, we synthesize evidence from studies investigating how financial incentives induced by PPS affect indicators of outcome quality domains of care, i.e. health status and user evaluation outcomes. We conduct a review of evidence published in English, German, French, Portuguese and Spanish language produced since 1983 and synthesize results of the studies narratively by comparing direction of effects and statistical significance of different PPS interventions. We included 64 studies, where 10 are of high, 18 of moderate and 36 of low quality. The most commonly observed PPS intervention is the introduction of per-case payment with prospectively set reimbursement rates. Abstracting evidence on mortality, readmission, complications, discharge disposition and discharge destination, we find the evidence to be inconclusive. Thus, claims that PPS either cause great harm or significantly improve the quality of care are not supported by our findings. Further, the results suggest that reductions of length of stay and shifting treatment to post-acute care facilities may occur in the course of PPS implementations. Accordingly, decision-makers should avoid low capacity in this area.

The Effect of a New Payment System on Physiotherapeutic Management of Patients With Low Back Pain in Primary Care.

OBJECTIVE: To evaluate differences regarding the number of treatment sessions, costs, and outcomes (including relapses) between a regular payment-per-session system and the recently introduced product payment system in The Netherlands. DESIGN: Prospective cohort study. SETTING: Dutch physical therapy practices in primary care over a 2-year period. PARTICIPANTS: 16,103 patients with low back pain (LBP). INTERVENTION: The new product payment system is compared with the regular payment-per-session system. MAIN OUTCOME MEASURES: Pain, disability, recovery, number of physical therapy sessions, therapy duration, costs (per episode), and LBP relapse. RESULTS: At baseline, we found greater pain and disability scores associated with an increased risk profile in both payment systems. With regard to the payment systems, we found greater costs (€283.8 vs €210.8) and a greater percentage of relapse (4.5% vs 2.8%) for the product payment system compared with the payment-per-session system. Comparing the 2 payment systems within each risk strata, we found no significant differences, except for a decrease in pain in the medium-risk stratum. Concerning the therapy characteristics, we found that in the payment-per-session group, the therapy took 6 days longer for low-risk patients (median 27 vs 21 days) and 7 days shorter for high-risk patients (median 42 vs 49 days) compared with the product payment group. Moreover, the mean number of sessions in the payment-per-session group was greater for low-risk patients (5.4 vs 4.8 sessions) and lower for high-risk patients (7.7 vs 8.1 sessions) compared with the payment-per-session group. Finally, the costs were significantly greater in all strata of the product payment group compared with the payment-per-session group. CONCLUSIONS: The 2 payment systems are largely comparable regarding patient outcomes, therapy duration, and treatment sessions. Both the average cost per patient per LBP episode and the number of relapses in the product payment system are statistically significantly greater than in the payment-per-session system.

Challenges of implementing diagnostic-related groups and healthcare promotion in Iran: A strategic applied research.

Background and Aim: Implementing the diagnostic-related groups (DRGs) promotes the efficiency of healthcare. Therefore, the present study aimed to identify the challenges facing implementing the DRGs in Iran. Methods: The present study is a strategic applied research conducted in two phases. In the first phase, the challenges facing DRGs were extracted through a literature review. Then the collected data is entered into a checklist consisting of five sections including technological, cultural, organizational, strategic, and natural challenges. In the second phase, data were collected by purposive sampling and semistructured interviews with 10 managers of the Medical Services Organization of Tehran, Iran. Data analysis was performed by conventional content analysis using MAXQDA software and descriptive using SPSS software version 19. Results: The challenges facing the implementing DGRs from the experts' perspective included technological, organizational, nature, strategic, and cultural in order of priority. The three main fundamental challenges were reported; lack of integrating the DGRs with health information system (70%), frequent changes of management (70%), reducing the quality of care following early patient discharge (60%). Conclusion: The results of the present study showed that the DRG system faced with challenges and healthcare officials should apply policies and guidelines to reform the system before changing the reimbursement system in Iran. By considering the leading countries experiences in the nationalizing the DRG system field, the problems and solutions of the system can be identified and aid in the more successful implementation of these systems.

Comparing financing models for supplementary healthcare in appendectomy: activity-based costing (fee-for-service) vs. diagnosis related group remuneration (bundled payment): a systematic review and meta-analysis

Purpose: In Brazil, healthcare services traditionally follow a fee-for-service (FFS) payment system, in which each medical procedure incurs a separate charge. An alternative reimbursement with the aim of reducing costs is diagnosis related group (DRG) remuneration, in which all patient care is covered by a fixed amount. This work aimed to perform a systematic review followed by meta-analysis to assess the effectiveness of the Budled Payment for Care Improvement (BPCI) versus FFS. Methods: Our work was performed following the items of the PRISMA report. We included only observational trials, and the primary outcome assessed was the effectiveness of FFS and DRG in appendectomy considering complications. We also assessed the costs and length of hospital stay. Meta-analysis was performed with Rev Man version 5.4. Results: Out of 735 initially identified articles, six met the eligibility criteria. We demonstrated a shorter hospital stay associated with the DRG model (mean difference = 0.39; 95% confidence interval ­ 95%CI ­ 0.38­0.40; p < 0.00001; I2 = 0%), however the hospital readmission rate was higher in this model (odds ratio = 1.57; 95%CI 1.02­2.44, p = 0.04; I2 = 90%). Conclusions: This study reveals a potential decrease in the length of stay for appendectomy patients using the DRG approach. However, no significant differences were observed in other outcomes analysis between the two approaches.

The Effect of Prospective Payment Systems on Health Care Providers' Behavior: A Case Study of Global Surgeries Payment System in Iran.

Background: Global payment system is a kind of case-based payment system which pays for 60 commonly surgical operations by the average cost for each specified surgery case in Iran. The aim of the study was to determine the effect of this payment system on the number of services provided for each global surgical case versus fee-for-service (FFS) for the same operation. Methods: This is a retrospective study based on data from a large referral teaching hospital in Iran in the period of 2012-2015. Information related to 46 surgeries was performed which both global and FFS documents were gathered (N=7672). Statistical analysis was done on variables including Length of stay (LOS), Blood test (BT), Radiology (RA) and a mixed variable named VC (visit and consult number). Data were analyzed by a zero-inflated negative binomial regression model using STATA 11. Results: Descriptive analysis showed the mean of each service was significantly (p<0.001) higher in the FFS document's group rather than the global payment group. Regression estimates showed the amounts of each service including LOS, BT, RA and VC were significantly (p<0.001) higher in FFS surgery than global documents for the 15 selected surgery. LOS and BT have shown a significantly higher amount in 100% of surgeries for FFS above global document. Same as for Radiology test and VC variables, there were significantly higher amounts in 93% of surgeries for FFS above global hospital documents. Conclusion: The findings can reinforce the presence of a relationship between providing more clinical services in FFS document form and providers' incentives to adjust profits against their Costs. The significantly higher service provision in FFS documents can be controlled with a prospective global payment mechanism.

Understanding the Public Policy of Global Budget Payment Reform Improves the Quality of Public Healthcare From the Perspective of Patients in China.

The transformation from the retrospective to the prospective payment system is significant to improve the quality of public healthcare (QPH). This article used the quasi-natural experiment of the global budget payment reform of government (GBPRG) in Chengdu, adopted the difference in difference (DID) method to estimate the effect of the GBPRG on the QPH, and concluded that GBPRG has a significant positive impact on the healthcare outcome and has a significant effect on improving the QPH. Policy implications drawn from the results show that the government should continue to explore compound healthcare insurance payment method (HIPM), improve the governance capabilities of the government, reduce transaction costs, improve healthcare insurance reimbursement policies, adjust the proportion of healthcare insurance reimbursements, continuously optimize the allocation of healthcare resources, establish an incentive mechanism to improve the QPH, and realize the pareto optimal choice of healthcare resource allocation.

How Denmark, England, Estonia, France, Germany, and the USA Pay for Variable, Specialized and Low Volume Care: A Cross-country Comparison of In-patient Payment Systems.

BACKGROUND: Diagnosis-related group (DRG)-based hospital payment can potentially be inadequately low (or high) for highly variable, highly specialized, and/or low volume care. DRG-based payment can be combined with other payment mechanisms to avoid unintended consequences of inadequate payment. The aim of this study was to analyze these other payment mechanisms for acute inpatient care across six countries (Germany, Denmark, England, Estonia, France, the United States [Medicare]). METHODS: Information was collected about elements excluded from DRG-based payment, the rationale for exclusions, and payment mechanisms complementing DRG-based payment. A conceptual framework was developed to systematically describe, visualise and compare payment mechanisms across countries. RESULTS: Results show that the complexity of exclusion mechanisms and associated additional payment components differ across countries. England and Germany use many different additional mechanisms, while there are only few exceptions from DRG-based payment in the Medicare program in the United States. Certain areas of care are almost always excluded (eg, certain areas of cancer care or specialized pediatrics). Denmark and England use exclusion mechanisms to steer service provision for highly complex patients to specialized providers. CONCLUSION: Implications for researchers and policy-makers include: (1) certain areas of care might be better excluded from DRG-based payment; (2) exclusions may be used to incentivize the concentration of highly specialized care at specialized institutions (as in Denmark or England); (3) researchers may apply our analytical framework to better understand the specific design features of DRG-based payment systems.

Effectiveness of hospital transfer payments under a prospective payment system: An analysis of a policy change in New Zealand.

Prospective payment systems reimburse hospitals based on diagnosis-specific flat fees, which are generally based on average costs. While this encourages cost-consciousness on the part of hospitals, it introduces undesirable incentives for patient transfers. Hospitals might feel encouraged to transfer patients if the expected treatment costs exceed the diagnosis-related flat fee. A transfer fee would discourage such behavior and, therefore, could be welfare enhancing. In 2003, New Zealand introduced a fee to cover situations of patient transfers between hospitals. We investigate the effects of this fee by analyzing 4,020,796 healthcare events from 2000 to 2007 and find a significant reduction in overall transfers after the policy change. Looking at transfer types, we observe a relative reduction in transfers to non-specialist hospitals but a relative increase in transfers to specialist facilities. It suggests that the policy change created a focusing effect that encourages public health care providers to transfer patients only when necessary to specialized providers and retain those patients they can treat. We also find no evidence that the transfer fee harmed the quality of care, measured by mortality, readmission and length of stay. The broader policy recommendation of this research is the introduction or reassessment of transfer payments to improve funding efficiency.