alternatives to drgs: research issues

A L T E R N A T I V E S T O D R G S : R E S E A R C H I S S U E S

Carole Siegel, Ph.D.

Mary Jane Alexander, M.S. Ann B. Goodman, M.S.

Legislative mandates for the development of prospective payment methodologies for reimbursing inpatient care have spurred the psychiatric community into its own independent effort, applying both clinical and service research, to develop schemes which are fair to psychiatric patients, their providers and payers.~ Many of the issues involved in the development of an equitable prospective payment system (PPS) for psychiatric care are not new to the field, namely, problems of limited diagnostic accuracy, a limited knowledge of the outcomes of clearly defined treatment protocols, and a lack of integration, efficiency and efficacy in a highly differentiated service system. 2'2~'~ The research community needs to respond to these problems in the context of cost containment with an awareness that its response will influence care for psychiatric patients for the remainder of this century.

tn this paper, we will describe the background issues that have brought the psychiatric community to the present point in its response to PPS, and discuss some of the research problems posed by the need for a PPS with the right incentives for clinical effectiveness and efficiency.

BACKGROUND

A number of factors have converged to accelerate the rise in heahh care costs and to

increase utilization of tile health care system. These include government 's subsidi- zing of health costs for the elderly, disabled and poor via the Medicare and Medic-

aid programs, the inflation-oriented incentives of cost based retrospective reim-

bursement, health insurance that insulates the consumer from real costs, and pressures favoring high cost medical technology2 As long ago as 1972, an amend-

ment to the Social Security legislation was passed authorizing demonstrations of

prospective payment systems, and placing limits on the reasonable per diem costs that Medicare would reimburse, ~ however, health care has continued to be one of the most inflationary components of the Gross National Product.

In. 1982, based on the projection that the Medicare Hospital Insurance Trust Fund would be bankrupt by 1987, Congress passed The Tax Equity and Fiscal Re-

The authors are affiliated with the Epidemiology & Health Services Research Laboratory, The Nathan S. Kline Institute for Psychiatric Research, Orangeburg, N.Y. 10962.

PSYCH 1ATRIC QUARTERLY, 57(3&4) l;all/Wintcr 1985

© 1985 Human Sciences Press 2 0 3

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sponsibility Act, TEFRA, ~ an extremely stringent cost control measure, which ex- tended the earlier limits on reasonable per diem costs to all inpatient costs, and provided incentives for hospitals to spend less than those limits. TEFRA, however, because it capped reimbursements based on hospitals' historical costs essentially perpetuated the 1982 distribution of payments. These payments varied among different treatment facilities depending on the characteristics of the case mix, geogra- phy, the extent and availability of expensive or high technology care, teaching affiliations, treatment philosophies and levels of efficiency¢ Most importantly, the TEFRA legislation included a mandate to develop a legislative proposal for a PPS for Medicare. In 1983, this mandated legislation for a PPS was passed5 The system used the Yale-developed Diagnosis Related Groups (DRGS) as the patient classification scheme on which fixed payments would be based. ~

Prospective payment represents a radical change in the mechanism for reimbursing providers for the services they deliver. Prior to 1983, most third party payers, including Medicare, reimbursed hospitals retrospectively for the reasonable costs of provided services. This arrangement provided no incentives to hospitals to control costs; rather, it encouraged the expansion and upgrading of services. Pro- spective payment, on the other hand, is based on a fixed reimbursement for patients classified into an iso-resource utilization group, i.e., a group whose members are expected to use the same amount of hospital resources. Fundamental to PPS is the concept o f provider cost sharing, i.e., beyond the established price for each hospital stay, a facility is responsible for the cost o f careY Incentives for efficiency are built into the system by allowing hospitals to keep any excess payment they receive for a hospital stay.

The DRGS were designed to classify patients into iso-resource groups accord- ing to clinical attributes for which well defined patient management processes ex- isted5 ~' The final 468 derived groups depend on diagnosis (ICD-9-CM), surgical procedures and age. Fifteen of the DRGs cover psychiatric disorders and are essentially based only on diagnosis (ICD-9-CM), ~ and a surgical procedure (DRG 424). The established rate o f reimbursement is essentially a national average price for the resources used to deliver care to patients in each DRG, with allowances for additional differences between hospitals based on the local costs of labor, and the urban/ rural location of a hospital5

Several specialty service sectors, including children's services, rehabilitation, psychiatric and long term care facilities, requested and received a temporary exemption from the DRG system. Psychiatry's request for an exemption was based on the concern that the psychiatric DRGs were derived using data from only a small and unrepresentative sample o f Medicare patients. More fundamental, however, was the field's assertion of a lack of relationship between diagnosis and resource utilization52 In granting the exemption, Congress also mandated further studies of the problems with DRGs in psychiatry and the development and testing of aher- native classification schemes. A report containing HCFA's recommendations for folding the exempt psychiatric facilities into the PPS is presently due to Congress? It appears that the recommendation of HCFA will be for an extension of the exemption for psychiatry until the end of 1987. '3

The fears o f the general health community concerning DRGS are echoed by the psychiatric community. Substantial revenue effects are possible by "patient

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skimming, ' '4 which is the selective admission o f only those patients who are not expected to overutilize resources, and "DRG creep, ''~a'~ which is the assignment of a pat ient to that DRG which provides the highest re imbursement without raising a red flag to the local peer review organization. Further , unless all payers utilize a PPS, there is a danger that costs may be shifted f rom Medicare to other payors5' In part icular in psychiatry there are the fears that re imbursement limits will en- courage general hospitals, which now provide the bulk of psychiatric inpatient care, to d u m p the severely ill pat ient on the public sector and that compromises will be made in the quality o f care that is delivered. .2j7'~

T h e studies a f forded by the initial congressional exemption have documented that the cur ren t DRGs do not work well in predict ing length of stay. Numerous groups, including special interest groups and independen t researchers ~,~7~° have carr ied out studies demonstra t ing the wide variability of length of stay within a DRG as well as wide differences between populat ions served by the various sectors which are not taken into account by the DRGs. They have also shown that the addi- tion to diagnostic groupings or routinely available patient characteristics such as age, sex, or pr ior history do not substantially increase the ability of the groupings to account for the variance in length o f stay. Hospital characteristics (e.g., teaching status or psychiatric bed versus scatter bed) and part icular state's organization of psychiatric services more consistently affected length of stay, as did measures of severity of illness.

Alternative groupings to the DRGs have been developed. Some of these have relied on extensive data collection, ~ whereas others have restricted themselves to routinely available data, .9,~° but no recommendat ions have been made with respect to these systems. They have yet to be fully evaluated on a national basis in a variety of settings. National Insti tute of Mental Health has jus t issued a request for

proposals to evaluate two of the systems developed under contract to NIMH dur ing the first Congressional exempt ion period.

IMPROVING T H E DRGS

It appears likely that Congress will grant psychiatric facilities a second extension in time to develop a meaningflfl PPS for Medicare patients. Other payers, including states in their role as administrators of the Medicaid programs and third party payers such as Blue Shield, have also begun to develop systems for cost containment2 It is not yet clear whether one methodology wilt be adopted by all payers.

Medicare 's cur rent payment system, which has come to be known as "the DRGs," is based on two major components: a patient classification scheme which assigns patients into groups which are homogeneous with respect to expected resource utilization, and a re imbursement scheme which assigns a cost or costs to each group. The distr ibution of patients among the categories of the classification scheme is re fe r red to as the case mix.

The DRGs are mutually exclusive and exhaustive groups which were formed to be homogeneous in length of stay based on a statistical g rouping technique known as recursive parti t ioning. They were def ined based on variables found in the hospital discharge abstract, The re imbursement associated with each DRG is a na-

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tional average o f costs of patients falling into the DRG with some adjustments based on peer groups (i.e., similar types) o f hospitals and an outlier policy for patients with excessively long lengths o f stay or with excessively high costs.

The development of an improved PPS can be based on several changes in the approach that was utilized: 1) changing the measure of resource utilization used to define groups; 2) using additional variables to describe patients; 3) changing the statistical approach used to form groups and 4) changing the strategies used to set payments.

i) Chanung the Measure of Resource Utilization

Ideally, a classification scheme which is to be used for reimbursing inpatient costs should consist of clinically meaningful groupings of patients who are homogeneous with respect to the costs of their inpatient stay. Unfortunately, true cost data are not readily available and surrogate measures of hospital resources used during an inpatient stay are used in scheme development.

The present DRGs are based on length of stay, a measure that is readily available on the individual patient level. To account for differences in resource utilization within the DRGs, Medicare has assigned a weight to each DRG, based on the average of charges derived from a Medicare Provider Analysis and Review (MEDPAR) charge file for patients within the DRG. How well that average reflects the resource use of a patient who falls within the group thus depends to a large extent on how well length of stay serves as a surrogate measure of resource utilization and also on how well charge data correlate with costs. To date the degree of cor- relation between resource use and length of stay has not been clearly demon- strated2 ~'22 Further, while length of stay and charges are highly correlated for psychiatric patients (probably because the charge for a psychiatric inpatient episode is predominantly based on the per diem charge times the length of stay), the corre- lation between charges and the true costs would not be expected to be any better than that between length of stay and costs. These considerations place in question the validity o f groupings based on length of stay or charges.

If true cost data could be used to develop the groupings, clearly the resulting groups would directly serve the purpose for which they were intended. However, obtaining cost data is problematic. They are not presently available on a uniform basis across facilities (although uniform cost accounting procedures are rapidly being developed in the present climate o f cost containment).

Differentiated cost centers chosen to reflect ancillary procedures such as x-rays or tab tests and special services such as CAT scans help to define patient level costs in general health. However, within private psychiatric hospitals, ancillaries account for less than 5% of the costs of an episode, ~8 and this is probably the case in other settings. It is rather the case that most inpatient psychiatric care is labor intensive, and is provided by a variety o f staff representing a wide range of costs. Therefore, accounting procedures that specify the costs of ancillary services, but that includes staff time in the per diem cost of a unit, do not substantially serve to differentiate costs of a psychiatric inpatient episode,

Staff time, then, may provide a more valid basis for the development of iso- resource groups. Obtaining these data, however, is also problematic. Staff time is

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not usually routinely documented. An empirical study would be required to measure the time that diverse clinical staff spend with various types of psychiatric patients. Ideally, data collection should be over the entire course of an inpatient episode, as the intensity of t rea tment is expected to vary over time. The feasibility of collecting staff time has been demonst ra ted in several related studies. Daily staff t ime has been used by the nursing home industry to develop resource utilization groups (RUGs)/2a'~4 In general health care staff time has been used to assess costs 25 and to de te rmine staffing requirements in both acute and long term care facilities 2~ ~.

Several issues need to be considered if staff time is to be used as a measure of resource utilization for iso-resource group development , as the cost of the data cob lection effort is large. Must staff t ime be directly observed by independent data col- lectors or can staff estimate their own time? Are there surrogate measures of staff time such as tile acuity scores used to allocate nursing start ~6 which could be used to assess effort? ts there really a replicable relationship of staff time to patient characteristics? In a long term care setting, there probably is, since most patients in a long term care facility do not change dramatically over the course of their hospitali-

zation. What size and type of patient and facility samples are needed to demonstrate a relat ionship between staff time and patient characteristics that is generaliza- ble across facilities?

A fur ther issue in the consideration of resource utilization measures for psychiatric patients is the definit ion of an episode of care, ''~s~ Developing a reimbursement strategy for a chronic disease with episodic acute symptoms, based only on the use of resources dur ing an acute inpatient phase, may promote disincentives for effective total management of pat ient care, particularly in an environment where communi ty based care has been emphasized. In this larger context, the intensity and frequency with which a part icular type of pat ient uses the total care system over the course of some ex tended time per iod may be the most appropr ia te way to con- ceive of resource utilization for the chronic psychiatric patient. Capitated systems or

HMOs are meaningful approaches when this most holistic view of the episode of care of a patient is taken.

II) Enhancing the Set of Variables Used to Describe a Patient

The DRGs have been shown to explain little of the variation in length of stay, ~'-' and there is little reason to believe that they would explain the variation in intensity of t reatment . While recent studies have not been able to demonst ra te a strong role for demograph ic and selected clinical variables in predict ing resource use of psychiatric patients as measured by length of stay and charge data/72~' these variables may nevertheless prove critical when used with a more accurate measure o f resource utilization. In addit ion, more sensitive clinical variables and service systern variables may help to def ine new groupings more reflective of patient resource utilization. A review of those variables which may impact resource utilization is given below.

Demographic Variables. Age--Age is acknowledged to play a role in only one of the present psychiatric DRGs, DRG 431, chi ldhood mental disorders. Age modifica-

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tion of more diagnostic groupings may be appropr ia te since the l i terature suggests that chi ldren and the elderly will have longer lengths of stay. 9'~2''~'~°

Marital status" and household composition (e.g., lives alone, homeless, lives in non- institutional or institutional group q u a r t e r s ) - - T h e s e may serve as proxy variables for measur ing a patient 's social suppor t network and ease of discharge. These variables have been shown to predict length of stay2 '~9'a~a~ Such variables or others which capture social suppor t networks should be considered in scheme development? TM

Area of residence--This has not yet been considered in any DRG-related studies, but may identify patients at greater risk for more intense or lengthier treatment, It has the decided advantage of not being gameable. Those who reside in high risk, dis integrated or non-family areas, ~ or in areas with little care availability ~6 would be expected to use more hospital resources and to have poorer outcomes. Most epidemiologic studies of mental illness have shown higher prevalence of severely disabling illness in central city, decaying areas? 7 Several studies 38~'~ have demon- strated dr if t o f the chronically ill into these areas. It is reasonable to assume that social suppor t ibr the mentally ill within these areas is weaker than in areas with more family or iented life styles. A recent study ~' has linked social status as measured by area o f residence to pat ient outcome. Another study ~ has demonst ra ted that regional differences in length of stay are substantially diminished after s tandardizing

for regional demographic differences. Other demographic variables--Other demographic variables, such as sex or eth-

nicity, while possibly predictive of resource utilization, may, if used to classify pa-

tients, p romote t reatment biases and hence would not be appropr ia te for use in

g roup in fo rmat ionF -~

Clinical Variables. Diagnosis--it is not unreasonable to assume that diagnosis is related to resource utilization since it is the most sophisticated, abbreviated classification of health that we possess. While the essentially diagnosis based DRGs account for little o f the variance in inpatient length of stay, ~''~'a''~3 this does not pre- clude a relat ionship between diagnosis and length of stay or resource utilization. Diagnoses of schizophrenia, especially paranoid '~':~':~ .... and pre-adult ~"-~ types, and of organic disturbance'" have been related to longer inpatient episodes

whereas alcoholic diagnoses have been related to shorter episodes. :'<'~ DSM-II I with its cri terion-based diagnoses, multiaxial classification system and

tested reliability in clinical situations could potentially provide a real improvement on the ICD-9-CM nosology which was utilized in DRG development? ~''~'~7 The multiaxial DSM-II I system accounts for mental disorders (Axes I and II), physical disorders and conditions (Axis I l i ) , severity of psychosocial stressors (Axis IV), and highest level of adaptive functioning in the past year (Axis V). The seven point level of function scale ranging from super ior to grossly impaired has been shown to have adequate reliabilities (0.75-0.80), t8 and could be collapsed to fur ther increase its reliability. Axes IV and V have been related to admission decisions '~''~° as well as to length of stay26'47 The use of a state-of-the-art diagnostic system for payment purposes would reinforce the clinical credibility of a re imbursement system. Fur- ther, the use of DSM-III would be useful to the field in terms of building on a re-

search base that a l ready exists.

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Presenting Symptoms--Symptoms of paranoid ideation, ~~,~2,~* cognitive symptoms or d i sordered thinking, :~~'~ hostility, suicide attempt, :~ and violence :'' have been shown to relate to length of stay. While these present ing symptoms may be highly correlated with diagnosis, their number and persistence may exert an independen t effect on discharge decisions, and hence should be considered in scheme development .

Severity; of Illness--Several systems that capture severity have been proposed in- c luding Disease Staging, ~2 the Psychiatric Severity of Illness Index ~ and Patient Management Categories? ~ Disease staging relies on an algori thm which reviews all listed diagnoses, decides on a principal diagnosis, and assigns that diagnosis to a disease category which has been def ined based on etiology, cause, and manifestation. Based on pr imary and secondary diagnoses, the category is then assigned a severity score, possibly based on the relationship between multiple diagnoses, ranging from zero to four. Al though staging can theoretically be derived from information found in the discharge abstract, it is unclear whether enough information is available in sufficient detail. Two other problematic aspects of staging are that it sometimes in- fers etiology in the absence of empirical data and sometimes assigns a case to multiple disease categories2 '

The Psychiatric Severity of Illness Index (PSOII) appears to be more promis-

ing in accounting for variations in length of stay. ~~ A single severity score is assigned based on the modal rat ing of a patient on seven dimensions of severity, including peak manifestations, complications, interactions, level of dependency on hospital staff, social suppor t system, rate of responsiveness to therapy, and resolution of acute symptoms. The rat ing of some of these dimensions requires medical record review byond the discharge abstract, and as yet there are no operat ional definitions for scoring the Index.

The index was tested as a modif ier of DRGs in a sample o f randomly selected

psychiatric discharges from 11 hospitals. Multiple analyses were carried out in which dif ferent groups of patients were excluded from analyses. The exclusion criteria included patients who left against medical advice, who were t ransfer red out or t ransfer red to a non-psychiatric unit, who were awaiting placement, who were prematurely discharged or who were assigned to a research protocol. When all exclusion criteria were used, 55% of the variance in length of stay was explained but 40%

of the cases were eliminated. This suggests that the exclusion criteria themselves have impor tan t bear ing on length of stay and should be considered in a classification scheme.

Two of the dimensions of the index are problematic. Rate of response to therapy can be viewed as almost a direct measurement of length of stay. I f used to develop groups, this could result in re imbursement for any length of stay incurred, i.e., a retrospective based payment. Resolution of acute symptoms may characterize the effectiveness or aggressiveness of a t reatment; therefore, it is arguable whether it should be included in a classification scheme. The degree to which each of the dimensions o f severity independent ly contributes to the predictive success of the total severity score is not known; therefore, it is unclear how much the success of the index depends on the two problematic dimensions. The other dimensions of severity in this index, however, may important ly relate to resource utilization o f psychiatric patients.

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A well de te rmined mu|tiaxial DSM II I diagnosis would provide items such as comorbidity, highest level of functioning in tile past year, and severity of psychosocial stressors, which coincide to a great degree with complications, level of dependency on hospital staff, and social suppor t in the PSOII.

Prior history of hospitalization--Prior history of hospitalization, suggested by the APA clinical advisory group, '2 may serve as a proxy measure of severity of illness which is easily and reliably collected without extensive medical record review. How- ever, patients with pr ior admissions have been shown to have both longer lengths of stay ~ and shor ter lengths o f stay ~'2'~ than patients without pr ior admissions. Pa- tients with pr ior admissions who are treated in general hospitals are more likely than those without to be t ransfer red to a state facility? ~ Prior history may predict resource use over a patient 's total career bet ter than it does on a single inpatient episode basis. In a single episode, patients with a well established pr ior history in the system may simply require that their acute symptoms be stabilized, whereas the truly acute first or possibly second admission patient may require a longer length of stay and more intensive resources to re turn to a pre-morbid level of functioning.

Payer--As qualification for certain disability roles can be used to identify those

with highly chronic and severely incapacitating illness, ~'~ it would be important in an all payer classification scheme to include payer as a surrogate measure of dis-

ability status. Transfer Status--The fact that a patient has t ransferred in from or out to an-

o ther inpatient setting may serve as surrogate measure of the patient 's severity of illness when viewed in conjunction with a characterization of the setting as a refer-

ral center which handles the severely ill patient. I f a setting serves as a referra l center, the t ransfer in may be severely ill or t reatment resistant and require more resources. I f the setting is not equipped to serve the severely ill, a t ransfer out might have a shor ter length of stay. I f the setting is adequately staffed a t ransfer out may be more severely ill and have had a long length of stay. Patients t ransferred in from other inpatient facilities have been shown to have longer lengths of stay. ~'~°

Service System Variables. The psychiatric care delivery system is much more highly dif ferent ia ted than the general health care system. It includes scatterbeds and discrete psychiatric units in general hospitals, f reestanding psychiatric hospitals, and a publicly subsidized state and county hospital system. The types of patients seen in these facilities vary considerably as do their lengths of stay, costs and treatments, m7,~,2°.4~ Further , states vary considerably in the local resources they make available tbr psychiatric care. ~7''~° While in general, service system characteristics predict length of stay bet ter than patient characteristics, 9'~'1~'2°~ the rationale tbr inclusion of a part icular service system characteristic into a PPS would require careful examination. Inclusion of an inefficient characteristic might act to maximize re imbursements and provide a disincentive for the use of more efficient approaches. Fur the rmore , whether the service system characteristic should be used as a patient modif ier or as a payment modif ier (for example, the service characteristic, teaching hospital, could be used to define peer groups of hospitals that would receive d i f ferent re imbursements) must also be considered.

Patient related. Treatments~Procedures--The receipt o f treatments such as ECT or rehabili tat ion therapies ~9'2~ has been related to longer lengths of stay. However,

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the incluson o f costly therapies or programs of fixed durat ion and high costs as a classifier may provide a disincentive for providing equally effective but less costly

treatments. In a more generic sense, clinicians' practice styles influence t reatment objec-

tives which in turn affect lengths of stay2 For example, an approach which focuses on using medicat ion to stabilize a patient 's acute symptoms would be expected to p roduce shor ter lengths of stay than an approach that targets behavioral or per- sona]ity changes. Besides difficulties in objectively classifying practice styles, not enough has been established in the psychiatric l i terature on t reatment outcome, part icularly on long term outcomes, to include practice style into a payment system.

Legal status--Involuntary patients across all settings have been shown to have longer lengths of stay, 'u and when treated in the psychiatric unit of a general hospital, are more likely to be discharged to a state hospital? l However, because poli- cies regard ing involuntary commitment of patients in the mental health system vary significantly from state to state, the use of this variable for classification purposes may he appropr ia te for a statewide but not a national PPS.

Setting Related. Scatter bed versus organized psych, iatric setting--It has been suggested that the care delivered to patients in scatter beds is very different from that del ivered to patients in an organized psychiatric setting such as a unit of a general hospital or in a specialty hospital, p~''a' Thus t reatment setting could ei ther be rec- ognized as a "procedure" and could be used in group definitions, or different rate structures could be set dependen t on t reatment setting. The alternative classification schemes proposed by MACRO include this distinction. '-'°

Role of the hospital as a Referral Center--Hospitals known as referral centers .by virtue of their university affiliations or special clinical expert ise may routinely receive t ransfer red patients and rarely refer patients out. Transfers into referral cen-

ter hospitals would be expected to be more severely ill or t reatment resistant and may require more hospital resources. In a recent study, lengths of stay for trans- fe r red Medicare patients were three times as long in the receiving hospitals as in the sending hospitals. 2° Thus the rote of a hospital as a referral center should be exam- ined in conjunction with the patient 's t ransfer status.

Availability ofedternative care networks--The ability of a facility to discharge a pa- t ient once acute symptoms have abated often depends on the availability of some communi ty based alternative care structure to offer cont inued suppor t to the patient who has significant social impairment . The amount and type of such care varies widely across localities. Some studies ~',2~ have found a relationship between disposition on discharge and length of stay accounted for in part by nonavailability of a referral , While the disposition of a patient on discharge, a readily available data item, provides some information on the availability of aftercare services for the patient, it does not provide a complete picture. The characterization of the availability o f services within a community on a statewide or nationwide basis, appears desirable but may be a formidable task to carry out, particularly within the limited time fi 'ames available for the development of schemes required by the various providers to meet state and federal legislative mandates for PPS.

Alternative Groupings. There have been several studies in which new groupings have been developed using expanded sets of variables, ~-~° but none of these

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groupings have been repor ted m substantially account for the variance in length of stay. T h e N I M H is cont inuing to fund projects that test, refine or simulate provider response to Case Related groups (CRGs) and Alternative Case Groupings (ACGs), two al ternate patient classification schemes developed by MACRO dur ing the first exempt ion per iod2 ° T h e CRGs consist of 16 groups. In this scheme, the psychotic diagnoses that comprise a single g roup in tile DRG system (DRG 430) are disaggre- gated into four groups, and a number of the neuroses dist inguished in the DRGs are combined. In addi t ion to principle diagnosis, the CRGs take into account the presence of a psychiatric or somatic secondary diagnosis, and age. A ref inement of

the CRGs excludes substance abuse DRGs and includes the status of the treating hospital with respect to whether or not it has a PPS exemption. The ACGs deal only

with mental illness and exclude substance abuse. This scheme has 12 groups based on three diagnostic groupings (organic disturbances, psychosis, and all other psy-

chiatric diagnoses), age as a proxy for disability/chronicity (over 65 and under 65), and the exempt status of the treating hospital. Although nei ther of these groupings show a substantial improvement over the current DRGs in predict ing length of stay, they do include variables that speak to some of the concerns of the psychiatric

community.

iii) Changing the Statistical Approach

The DRGs have been derived using a statistical grouping procedure known as recursive part i t ioning, which formed groups based on similarities among and differences between patients in terms of their resource utilization. To the extent that the method was successful, it was appropr ia te to assign patients an expected level of resource utilization based on membership in a group. Using grouping procedures, greater patient specificity could be obtained by introducing more patient variables to describe patients result ing in an increase in the number of groups. Similarity of patients within a g roup has been based on squared deviation from the mean value

of the group. Several suggestions have been made to improve the methodological basis of the

DRGs2 9 The first is the use o f absolute deviation rather than squared deviation as the measure of similarity used in g roup tormat ion and as the measure of accuracy of an assignment method for predict ing resource utilization. "Variance accounted for" in analysis o f variance models, the evaluation method most commonly used in present studies, may not be the most appropr ia te measurement of the worth o f a

classification scheme. Ano the r suggestion is the use of a tormula based approach rather than a

g roup ing approach to assign a resource utilization amount (length of stay, cost) to a patient. T h e Cox propor t ional hazards model, a survival time method, has been suggested. Using this model, patient specific length of stay, cost or other resource utilization distributions can be modeled and used to assign an expected amount of resource utilization to a patient. Very fundamentally, the model does not assume that resource utilization distributions are normally distributed, but allows them to range in shape from flat to multi-modal. Because the propor t ional hazard model allows the easy incorporat ion of many patient variables, it can be highly specific in as- signing resources to a patient. The modeled distributions can be used fur ther to de-

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velop al ternate payment strategies such as block payments (different payments for d i f ferent stages o f the episode) ~9~ and to identify resource use outliers. The method is still under study, particularly in terms of its implications fbr payers and providers . It has only been tested on a limited basis, and has not yet been explicated in terms which demonst ra te its administrat ive feasibility.

IV. Alternative Poyment Strategies

t t has been suggested that since the difficulties involved in the development of a PPS for psychiatric patients are manifold, it might be best to provide a reimbursement that more closely reflects the provider 's experience, perhaps by allowing the psychiatric provider to recover at least some propor t ion of documented costs2 ~ A mixed re imbursement system combining a cost based component with a case based prospective component would provide an incentive to reduce costs, and facilities would lose only part of costs incurred at the margin. ~

Under TEFRA, '~ a hospital was paid a prospectively de te rmined amonnt per discharge based on a unique hospital base year. A modif ied adjustment might base the amount paid on the experience of a peer group of hospitals, e.g., hospitals of a given size, ownership, or teaching status.

Block payment strategies have also been suggested which would establish different re imbursements for phases of" the t reatment episode which differ with respect to the resources used. ~'3' For example, a two payment strategy might be used in which a higher payment is made for the initial block of the episode, where more intense use of resources occur, followed by a lower payment to cover the re- maining block o f the episode. Or hospitals could be paid per diem amounts which vary, for example, by week: payments might be highest in week one and diminish thereafter .

More holistic views of the patient care episode are taken into account with strategies that recognize that an illness episode goes beyond the inpatient stay. In one such model aftercare would be re imbursed up to some fixed limit. Capitation models assign a fixed re imbursement amount to a patient fbr a time period, such as a year, to cover all psychiatric care required by the patient within the period. How- ever, appropr ia t e provider structures have not yet been developed within which capitation models could operate.

CONCLUSION

This paper has focused on the issues that appear to be specific to the design of a PPS that is equitable across the range o f psychiatric services and has highlighted some of the research problems. More fundamental ly, problems in developing a PPS stem from the lack of precision and specificity in psychiatry with respect to diagnosis, t rea tment and prognosis, as well as to the lack of a well developed epidemiology of mental disorders. '2 Thus, any resolution o f the current re imbursement related issues will require the deve lopment of and feedback upon fundamenta l knowledge in the field of psychiatry.

The New York State (NYS) Depar tment of Health has requested the input of

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the Office of Mental Hygiene in developing NYS's case-mix based reimbursement

system for Medicaid and other third party payers. This system is to be put in place subsequent to the expiration of the present New York Prospective Hospital Reim-

bursement Methodology (NYPHRM). NYS is a particularly interesting crucible in

which to mold a PPS for psychiatric patients, tor it encompasses an enormous range

of populations and covers a diverse care availability network. NYS expends more

resources per capita on the mentally ill than any other state, and it contains the widest range of populations in need. The interior of the State comprises poorer ru-

ral counties with sparsely developed service networks and inadequate transporta- tion facilities. On the other hand, New York City itself is served by six medical

schools offering the most sophisticated treatment techniques now available. Hospi- tals in the suburban areas sur rounding New York City are among the wealthiest

and best equipped in the country. Considering such a diverse patient population

and care availability network, a PPS developed for NYS populations which is re-

sponsive to this variability will have broad implications for any national efforts.

Reimbursement for care plays a major role in shaping the structure of the care

delivery system. NYS has the opportunity now to create a thoughtful approach to re imbursement that provides incentives to all providers to deliver adequate and ef-

ficient services to the mentally ill. Of particular concern in NYS is the possibility- of a general hospital patient "fallout" to the State mental health system. To avoid this,

the PPS, which will cover a wide range of payers, must be equitable to all providers.

It must be constructed to provide disincentives to prematurely discharge patients

from general hospitals, or to skim the most desirable patients in acute services. The implications of a prospective payment system designed for psychiatry are

far reaching. Psychiatric benefits have historically been fragile, and are at risk in the current and constricted cost envi ronment for further erosion if the psychiatric com-

muni ty cannot demonstrate that psychiatric services are indeed necessary, effective

and efficient. ~ Such a demonstrat ion could override the historical discrimination

against psychiatric treatment that has undermined the provision of quality care for the mentally ill, and make possible a more rational allocation of resources. Specifi-

cally, indices of resource utilization must be established that are valid reflections of

both patient need and legitimate regional variation.

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alternatives to drgs: research issues

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