Hospitals

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Defining a Hospital Catchment Area

November 23, 2010 in Hospitals, Labor Economics | No comments

From what areas does a hospital draw on to fill its beds?  There have been many attempts to define a hospital’s catchment area.  The Dartmouth Atlas Group uses hospital referral regions (HRRs) and hospital service areas (HSAs). One method is to determine a minimum admission rate for a given geographic unit (e.g., county, census tract, zip code).  For instance, a given zip code would be placed in a hospital’s catchment area if that zip code made up at least 0.5% of hospital admissions.  Conversely, one could include all areas where at least a certain percent of resident admissions were to the hospital in question.

A paper by Gilmour (2010) examines how to create a hospital catchment area using K-means clustering.  The goal of this process is to assign local authority districts to hospitals based on the how likely the individuals are to visit a certain hospital.  K-means clustering is used to partition n observations into k clusters in which each observation belongs to the cluster with the nearest mean. The author applies the standard K-means clustering algorithm as follows:

  1. Two cluster centers are chosen arbitrarily,
  2. Each observation is assigned into the cluster whose center it lies closest to,
  3. The center of the cluster formed by this assignment is recalculated, and
  4. The process is repeated until the cluster assignments cease to change.

Gilmour uses a multivariate approach to estimate “closeness.”  He uses principal components analysis to incorporate additional information such as the size and distribution of the hospital’s activity.

Although the K-means clustering captures a larger share of the hospital’s admissions, the catchment areas are generally much larger than is the case using the marginal methods.

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Are All Readmissions Bad Readmissions?

September 1, 2010 in Hospitals | 2 comments

Currently, Medicare and private insurers are attempting to put in place incentives to reduce the number of readmissions. Visits to the hospital are costly and reducing the frequency of hospital visits is the best means to reduce medical costs. In particular, if readmissions are the fault of the care the patients receive during the initial admissions, hospitals should be liable for subsequent care.

On the other hand, a recent letter to the New England Journal of Medicine, argues that high readmission rates may in fact indicate high quality care.

“A higher occurrence of readmissions after index admissions for heart failure was associated with lower risk-adjusted 30-day mortality. Our findings suggest that readmissions could be ‘adversely’ affected by a competing risk of death — a patient who dies during the index episode of care can never be readmitted. Hence, if a hospital has a lower mortality rate, then a greater proportion of its discharged patients are eligible for readmission. As such, to some extent, a higher readmission rate may be a consequence of successful care.”

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Wage Index Reclassifications

August 16, 2010 in Hospitals, Medicare | No comments

Should Medicare pay hospitals located in New York City more for the same care as hospitals in Montana?  Prima facie, one might believe that New York hospitals should receive higher wages since the costs of operating a hospital are much higher in New York.  Labor (i.e., nurses, doctors, etc.) may prefer to live in an urban environment and thus it is possible that the cost to attract labor in Montana would be higher.

To adjust inpatient prospective payments to hospitals, Medicare created a wage index system.  Each hospital’s wage index value determines whether their payments will be adjusted upwards or downwards depending on the cost of labor in their area.  The cost of labor is currently defined as the average hospital worker wage (adjusted for occupation) in a given metropolitan statistical area (MSA).

This simple methodology, however, is complicated by exceptions.  Today, I review some of those exceptions where hospitals can reclassify to MSAs where they’d receive a higher wage index value.

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Hospital Quality

July 27, 2010 in Hospitals, Quality | 1 comment

The HCAHPS (Hospital Consumer Assessment of Healthcare Providers and Systems) is a standardized survey instrument and data collection methodology for measuring patients’ perceptions of their hospital experience.  HCAPHS is the first national standard for collecting and reporting hospitals quality data.

The survey asks discharged patients 27 questions about their recent hospital stay.  The survey is administered to a random sample of adult patients across medical conditions between 48 hours and six weeks following discharge.

Although CMS publicly reports the results of the HCAPHS survey, the sample is not restricted to Medicare beneficiaries.  However, hospitals are allowed to collect their own data which begs the question of whether they manipulate the data.  For instance, they may prefer worse satisfaction scores to have a low baseline or prefer high satisfaction scores to attract more patients.  Although I do not know if this occurs, one could envision a patient conveniently being dropped from the survey if they give the hospital a bad review.

The number of hospitals that publicly report HCAHPS results has increased from 2,521 in March 2008, to 3,711 in March 2009.

Timeline:

  • 2002.  CMS partnered with the Agency for Healthcare Research and Quality (AHRQ), another agency in the federal Department of Health and Human Services, to develop and test the HCAHPS survey.
  • May 2005.  National Qualify Forum endorses HCAHPS
  • December 2005.  Office of Management and Budget (OMB) approves HCAHPS
  • October 2006.  CMS implements HCAHPS survey
  • July 2007.  The Deficit Reduction Act of 2005 requires IPPS hospitals to submit HCAPHS data to receive full IPPS annual payment update.  Non-IPPS hospitals, such as Critical Access Hospitals, may voluntarily participate in HCAHPS.
  • March 2008. CMS publicly reports HCAHPS survey results on Hospital Compare.

Source: HCAHPS Fact Sheet, March 2009.

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Effect of Massachusetts Health Reform on Hospital and Preventive Care

May 26, 2010 in Health Reform, Hospitals | 2 comments

Kolstad and Kowalski (2010) examine how the Massachusetts individual mandate affected uninsurance rates, hospital and outpatient utilization, and preventive care:

“Among the population discharged from the hospital in Massachusetts, the reform decreased uninsurance by 28% relative to its initial level. Increased coverage affected utilization patterns by decreasing length of stay and the number of inpatient admissions originating from the emergency room. We also find evidence that outpatient care reduced hospitalizations for preventable conditions. At the same time we find no evidence that the cost of hospital care increased.“

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An evaluation of MedPAC’s hospital wage index revisions

March 26, 2010 in Hospitals, Medicaid/Medicare | No comments

Some press on a report I worked on at Acumen, LLC.

“The hospital wage index used to adjust Medicare inpatient prospective payment system (IPPS) payments to reflect the geographic differences in labor costs has created payment problems through its use of metropolitan statistical areas (MSAs) and “rest of state” areas to define hospital labor markets. However, the “blending and smoothing” approach developed by the Medicare Payment Advisory Commission (MedPAC) isn’t the best corrective mechanism. Instead, better labor market definitions are the solution, according to a new report from Burlingame, Calif.-based Acumen LLC that was commissioned by the Centers for Medicare and Medicaid Services (CMS).

Under the wage index, geographically distant hospitals that have different labor costs often receive the same wage index value because they are located within the same broad MSA or county, or neighboring hospitals that have the same labor costs receive much different wage index values because they happen to be located in different MSAs. These problems have driven as many as one-third of IPPS hospitals to seek a reclassification or an exception that increases the hospital’s wage index value, and “the overlay of the existing patchwork of reclassifications and adjustments on the wage index has created a very complicated and convoluted system,” says Acumen.”

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Do Hospitals “Cost Shift” to the Privately Insured when Medicare Reduces Prices?

March 23, 2010 in Health Insurance, Hospitals, Medicaid/Medicare | 7 comments

Many health policy experts believe that when Medicare or Medicaid decrease prices, hospitals will increase the prices they charge to the privately insured.

Does this make sense?  Ginsburg (2003) summarizes the debate:

Most executives in hospitals, physician organizations, health plans, and businesses have long been convinced that reductions in rates paid to Medicare and Medicaid lead directly to higher payment rates charged to private payers. But most economists who have published on the topic express strong skepticism about the possibility that cost shifting can and does occur.  Not only do they point to empirical analyses that fail to obtain results supporting the existence of cost shifting, they also argue that cost shifting is conceptually impossible. The crux of their argument is the question of why providers with the ability to increase revenue through increases in prices to private payers would not have already exhausted such capacity prior to reductions in payment rates.

Ginsburg argues that cost shifting can occur.  Many hospitals are non-profits whose goal is not profit maximization.  Instead, they may try to maximize the quantity of patient care subject to a constraint of fiscal solvency.  The board of directors for many hospitals is made up of community leaders and physicians rather than managers, which further dilutes the profit motive.  When Medicare or Medicaid reduces reimbursement rates, non-profits may increases prices charged to private insurance companies to insure that they will break even.  Additionally, for-profit hospitals may also be able to raise the rates they charge private insurers only after a Medicare or Medicaid fee cut because they must compete with non-profit hospitals on price.

Although Ginsburg offers a compelling argument that cost shifting could occur, he does not provide empirical evidence that it does occur in reality.

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Does hospital ambience affect patient health?

March 2, 2010 in Hospitals | No comments

Does a fancy hospital interior and soothing music help promote faster healing?  Sharp Hospital system certainly things so. NPR’s Marketplace even covers the story:

Dan Gross is executive vice president of Sharp Healthcare. I meet up with him in the lobby for my tour of the swanky Sharp Memorial. Its a $200-million hospital in San Diego. And it’s built with the principals of what’s known as “evidence-based design.”

GROSS: There’s a lot of research today and a lot of conversation around how the design of a hospital really promotes comfort, healing and produces better quality outcomes for patients.

Does a “nice” hospital actually improve health outcomes? That will be difficult to ascertain. Building a fancy hospital may improve outcomes, or it may be the case that nicer hospitals attractive relatively richer, relatively healthier patients.

Even if “evidenced-based design” does improve health outcomes, the change in ambience may not affect patient health directly.  For instance, Sharp talks about using the Disney concept of on-stage and off-stage work where “…nurses have private areas ‘off stage’ where they can prepare medications uninterrupted.”  Having nurses think they are “on stage” may incentivize them to work harder, smarter and more professionally. Further, a more luxurious hospital may attract higher quality staff.

From an individual hospital’s point of view, it doesn’t matter which mechanism is causing this improvement in health.  From society’s point of view, however, if fancy new hospitals simply attract the best staff and healthier, more affluent patients, then improved hospital design may be a waste of resources.

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When is closing a hospital a good idea?

February 18, 2010 in Hospitals | No comments

Typically when a business closes, it is a sad event, but one business’s demise often makes way for more efficient competitors to gain market share. This is rarely, how hospital closures are seen, however. In the press, a hospital closure is met with fears of decreased health care access and quality for the local community.

There is some merit to these fears because, unlike a typical business closing, the hospital market is not your typical free market. First, Medicare and Medicaid fix prices for their patients. Often, Medicaid payments will cover a hospital’s variable, but may not be sufficient to cover the average cost of care if the hospital treats too many Medicaid patients. Secondly, there are problems of moral hazard for insured individuals. Finally, many non-profit hospitals are not run in a profit maximizing fashion. Non-profit hospitals are often overseen by a community board whose goal is not profit maximization.
To evaluate how hospital closures affect social welfare, a paper by Capps, Dranove and Lindrooth (2010) examines the closures of hospitals in three urban markets (Phoenix, Tampa, and Tuscon). The authors found that the hospitals closures increased aggregate welfare.

“the cost savings from the closures we studied more than offset the reduction in patient welfare. However, we also found that because some of the cost savings are shared nationally, several of the closures led to a decline in total surplus in the local community.”

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Does a Hospital’s Ranking Increase Patient Volume?

February 1, 2010 in Quality | 2 comments

The US News and World Report has popular rankings for colleges, graduate schools and now hospitals.  Do patients actually decide to seek care at different hospitals based on these ratings?  Devin Pope attempts to answer this question in a recent Journal of Health Economics article (free draft).

To determine whether or not this is the case, Pope uses two methods.  First, he employs a fixed effects framework.  This method in essence evaluates how a change in the hospital rank affects the change in the volume of non-emergency patients.  The second method uses a mixed-logit discrete choice model (a.k.a. the random coefficient logit model).  This is based on a random utility framework and is different from the standard conditional-logit model; most importantly, it does not exhibit the logit’s restrictive independence of irrelevant alternatives (IIA) property.

To determine the change in patient volume, the paper focuses on Medicare patients in California.  The reason for this is because Medicare patients have flexible coverage and each hospital receives the same payment from Medicare from each patient.

The paper finds that a hospital-specialty that improves their within state rank by one spot experiences a 6.8% increase in patient volume on average.  The effect is largest for heart problems.  This may imply that patients are most responsive to changes in rankings for heart treatments.

Pope also conducts a number of robustness checks.  One of these is to examine how changes in a hospital’s rankings affect the volume of emergency care.  Since emergency care patients likely have little choice over the hospital to which they are admitted, a change in rankings should have little impact on patient volumes.  This turns out to be the case.

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