Hospitals Profit from Prospective Payment System / First Year Results in $20.4 Million for Local Hospitals

By Carter, Kim | THE JOURNAL RECORD, April 19, 1986 | Go to article overview

Hospitals Profit from Prospective Payment System / First Year Results in $20.4 Million for Local Hospitals


Carter, Kim, THE JOURNAL RECORD


Hospitals in the Oklahoma City and surrounding area made over $20.4 million, an average of $1.3 million per hospital, durin g the first year under the Prospective Payment System.

The data was taken from unaudited costs reports released by Blue Cross Blue Shield, the federal Medicare intermediary, and the Health Care Financing Administration. It includes Medicare cost analysis for all hospitals in the Oklahoma City area under Blue Cross. Doctor's General is covered by another intermediary.

In order to curb rising costs of health care, the retrospective cost reimbursement of Medicare was changed to Diagnosis Related Group payments. The rate for services is pre-determined based on historical cost experience of the hospital and the national average.

The fee schedule consists of 470 diagnosis related groups.

Over three years, beginning on Oct. 1, 1983, the system was to be phased in with 75 percent of the rate in the third year based on the national average, climbing to 100 percent in 1986. Congress recently delayed implementation at the urging of the health care industry. DRG rates will be determined by the national average starting in October 1987.

Every hospital in Oklahoma City and the surrounding area experienced a profit gain in the first year under the new system.

Unaudited cost reports show Baptist Medical Center made $4.9 million; St. Anthony Hospital, $4.3 million; Norman Municipal Hospital, $1.7 million; Presbyterian Hospital, $3.2 million; Moore Municipal Hospital, $138,599; Mercy Health Center, $1.7 million; Oklahoma Teaching Hospitals, $1.4 million; Edmond Memorial Hospital, $283,293; Midwest City Memorial Hospital, $463,918; Deaconess Hospital, $599,011; Bethany General Hospital, $97,289; South Community Hospital, $498,313; Bone & Joint Hospital, $98,649; Hillcrest Osteopathic Hospital, $864,051.

Medicare discharges increased from the base period within the range of .1 percent to 18 percent for nine of the 13 hospitals and declined at the remainder.

Utilization rates vary from 17.4 percent at Moore Municipal to 38.4 percent at Bethany General.

When looking at operating costs per discharge, 12 hospitals of the 14 undercut the average. Only two - Bone & Joint and Hillcrest - lowered their costs per Medicare discharge.

Coffey said the statewide trends are consistent with national figures.

"As the transition toward national rate continues...it will affect large metropolitan hospitals differently from rural hospitals," Coffey said.

"The plan set out originally to reward efficient hospitals. There has been a group of hospitals that have been able to make as much or more money based on the principle of rewarding the efficient hospital."

"The Medicare program itself was successful and did exact to savings - while the total dollars (cost) may have been more because of the increase in people covered and inflation, the actual amount of output was reduced so both Medicare and hospitals came out ahead."

In the planning stages of the Prospective Payment System, a portion of hospital administrators believed their facilities would lose money.

Under the new system, hospitals were given an incentive to cut costs, but many feared they would cut costs so deeply it would damage the quality of care.

"Some hospitals across the state have been hurt," said John C. Coffey, president of the Oklahoma Hospital Association, "because the payment mechanism is different in rural areas. Costs going in were handled a different way than in metropolitan areas," Coffey said.

"It's no secret we've had a big reduction in inpatient usage. The reduction in utilization is an insurmountable blow to income."

The Oklahoma Foundation for Peer Review, the local agency appointed to evaluate medical care under the new system, contends quality of care has remained as it was under cost-based reimbursement. …

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