Combining DRGs and per Diem Payments in the Private Sector: The Equitable Payment Model

By Hanning, Brian W. T. | Australian Health Review, February 2005 | Go to article overview

Combining DRGs and per Diem Payments in the Private Sector: The Equitable Payment Model


Hanning, Brian W. T., Australian Health Review


Abstract

The many types of payment models used in the Australian private sector are reviewed. Their features are compared and contrasted to those desirable in an optimal private sector payment model. The EPM(TM) (Equitable Payment Model) is discussed and its consistency with the desirable features of an optimal private sector payment model outlined. These include being based on a robust classification system, nationally benchmarked length of stay (LOS) results, nationally benchmarked relative cost and encouraging continual improvement in efficiency to the benefit of both health funds and private hospitals. The advantages in the context of the private sector of EPM(TM) being a per diem model, albeit very different to current per diem models, are discussed. The advantages of EPM(TM) for hospitals and health funds are outlined.

Aust Health Rev 2005: 29(1): 80-86

A VARIETY OF PAYMENT MODELS are currently used by health funds as the basis of fees paid to Australian private hospitals for acute care episodes (medical, surgical, and obstetric). These range from the per diem payment model widely used in the 1980s and 1990s to case-payment models to hybrid per diem-case-payment models. A new payment model created by the Australian Health Service Alliance (AHSA) that synthesises aspects of current per diem and diagnosis related group (DRG)-based payment models for payment of acute care episodes in the Australian private sector is presented in this article.

The model is designed to be fair to both health funds and private hospitals and recognise their symbiosis. It is designed to pass the following 'gold standard' test of whether a model is fair to both hospitals and health funds - "Would a senior health administrator be equally happy with a payment model regardless of whether they were employed by a Private Health Insurance (PHI) fund or a private hospital?" For these reasons it has been given the title of EPM(TM) (Equitable Payment Model).

What features are highly desirable in a private sector payment model?

A private sector payment model should:

* Be driven by current clinical practice

* Use a well researched classification system that includes all elements of patient care

* Base payments on national private sector relative costs, thereby minimising incentives to 'cherry pick' profitable cases

* Promote efficiency and innovation

* Base changes in length of stay (LOS) payment rates on recent national private sector data

* Encourage hospitals to continually reduce LOS where clinically appropriate

* Reduce health fund payments for cases with declining costs commensurate with reductions in hospital costs

* Bundle charges to a high degree to simplify claims and processing

* Base claims on submission of complete and accurate clinical data using a small number of current mandatory fields in the Hospital Casemix Protocol (HCP)

* Facilitate meaningful benchmarking

* Simplify negotiations by facilitating concentration on a small number of key parameters

* Enable contracts to be relatively brief and simple in structure

* Be durable over time

* Improve trust between hospitals and health funds by meeting the 'gold standard' test.

The 'old' per diem payment model of the 1980s and 1990s

In the old per diem model, cases were divided into very broad clinical categories such as surgical, advanced surgical, medical and obstetric. These were underpinned by the principal Medicare Benefits Schedule (MBS) procedure codes for surgical cases and International Classification of Disease (ICD) codes for Victorian medical cases. The same per diem rate was paid for cases in each broad category up to one or more step down points, usually 7 or 14 days, and a reduced per diem rate applied thereafter. This covered normal accommodation and a variable number of other costs. Costs such as theatre, allied health and critical care were usually paid separately.

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Combining DRGs and per Diem Payments in the Private Sector: The Equitable Payment Model
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