MMHA 6400 Week 2 Reimbursement Methods Post Example

Week 2 Discussion: Initial Post and Replies

One Pneumonia Stay, Three Contracts: What Two Extra Days Earn

Mr. T, a composite patient in his late seventies, is admitted to Alder Bend Community Hospital with community-acquired pneumonia and a secondary condition that places the stay in a Medicare diagnosis-related group for pneumonia with complications. The expected stay is four days. Because his oxygen needs resolve slowly and a home oxygen evaluation is delayed over a weekend, he stays six. Table 1 shows what Alder Bend would be paid for the four-day and six-day versions of his stay under three contracts, using round illustrative figures.

Table 1

Payment for the Same Pneumonia Stay Under Three Contracts (Illustrative)

The commercial figures assume billed charges of $32,000 for four days and $44,000 for six. The Medicare payment would change only if the stay's costs exceeded the outlier threshold, which two extra days on a medical floor would not.

The table shows that the same two days are worth nothing, $2,900 or $6,600 depending on the patient's insurance card. Under the DRG, Medicare has paid for the whole stay in one amount, so days five and six add cost and no revenue. Under the per diem, each day brings in $1,450, which may or may not cover the cost of a day of lower-intensity care. Under the percent-of-charges contract, each day adds whatever the chargemaster lists for room, respiratory therapy and drugs, discounted by 45%, which almost certainly exceeds the cost of those days. Prices paid by commercial insurers vary widely between hospitals and are driven far more by negotiating power than by cost (Cooper et al., 2019), so the commercial row is the least predictable of the three.

The consequence falls on Alder Bend's case managers and hospitalists. If they plan discharges the same way for every patient, the hospital's finances reward them for slow discharges of commercial patients and fast discharges of Medicare patients, which no one would defend clinically. The better answer, I think, is to manage length of stay to clinical need for every patient and to treat the payment differences as a contracting problem for the finance office, not a bedside one. That is easier to say than to do when the weekend oxygen evaluation is the only thing keeping a Medicare patient in the hospital (Reiter & Song, 2021).

Reply to Keisha

Keisha, I like that you used a per diem example from your own hospital's behavioral health unit. I checked your figures: at $1,100 a day, a nine-day stay should come to $9,900, not $9,100 as in your table, so the gap you describe between the per diem and the case rate is $800 larger than you reported. That actually strengthens your point that the per diem pays better for longer psychiatric stays. Did your contract include a day limit or step-down rate after a certain number of days? Many per diem contracts pay less after day five, which would change the picture (Reiter & Song, 2021).

Reply to Marcus

Marcus, you wrote that Medicare pays more when a stay runs long. That is true only for outlier cases. Medicare adds an outlier payment when a stay's estimated cost exceeds the DRG payment plus a fixed-loss threshold set each year, and that threshold is tens of thousands of dollars (Medicare Payment Advisory Commission, 2023). Even then, Medicare pays only a share of the cost above the threshold. A pneumonia patient staying two or three extra days on a medical floor will not come close. So for ordinary long stays, the DRG really is fixed. Your example of a trauma patient with a 40-day stay is exactly the kind of case outlier payments are for.

References

Cooper, Z., Craig, S. V., Gaynor, M., & Van Reenen, J. (2019). The price ain't right? Hospital prices and health spending on the privately insured. The Quarterly Journal of Economics, 134(1), 51-107. https://doi.org/10.1093/qje/qjy020

Medicare Payment Advisory Commission. (2023). Report to the Congress: Medicare and the health care delivery system. Medicare Payment Advisory Commission.

Reiter, K. L., & Song, P. H. (2021). Gapenski's healthcare finance: An introduction to accounting and financial management (7th ed.). Health Administration Press.