Producer Price Index Manual: Theory and Practice ... - METAC

10. Treatment of Specific Products
10.296 There is no distinction between the inpatient
and outpatient services below the industry
level.
10.297 After the hospitals were selected, the hospital
services needed to be identified for collection.
Because of the endless combinations of hospital
services, a method was devised to eliminate a timeconsuming
process of item selection at the hospital.
Instead, the services to be priced were preselected
using data from the U.S. Agency for Healthcare Research
and Quality.
10.298 The following characteristics were used in
preselecting each service:
• Type of Patient (inpatient or outpatient),
• Type of Payer (Medicare, Medicaid, Commercial
Insurance, etc.), and
• Assigned Diagnosis Related Group (DRG) (for
inpatients only).
•
10.299 DRG is a coding system in which patient
categories are defined by diagnoses or procedures
and modified by age, complications, coexisting
conditions, or discharge status. Each DRG groups
like patients with like ailments, and anticipates the
level of care required during hospitalization. DRGs
are prospective in nature, in that they are based on
expected costs rather than actual costs.
10.300 For each inpatient stay at a hospital, patients
are assigned one of 497 DRGs. For example,
a patient may be assigned DRG 127 Heart Failure
and Shock, depending on what the principal diagnosis
and procedures are. Other factors such as complications,
comorbidities, age, and discharges status
also play a role in DRG assignment. The DRG
along with diagnosis and procedures, will be listed
on the patient bill. However, the payment a hospital
receives may or may not be based on the assigned
DRG. The payment will depend on the payer and
the type of reimbursement they use. Both are covered
in the next section.
10.301 This output is represented by the full content
of the patient bill. Each hospital sampled for
the PPI was asked to provide a representative patient
bill for each of the preselected services. For
each patient bill selected, the information necessary
for pricing purposes was recorded (payer information,
diagnosis information, reimbursement, etc.).
10.302 Because of the importance of third-party
payers, the public and private insurers, it is important
to distinguish between the price and reimbursement
within the hospital industry. The term
price usually refers to the total charges that appear
on the patient bill. Reimbursement would be the actual
amount that the hospital receives as payment.
10.303 What a hospital charges and what it receives
are usually two very different amounts. The
PPI program is interested in what a hospital actually
receives (reimbursement) for its services, not what
it charges (price). Differences arise from many
sources, but chiefly discounted prices for various
services are frequently negotiated with third-party
payers. Thus, the PPI's primary purpose is to capture
reimbursement as the net transaction price.
10.304 The most common types of reimbursement
for hospitals are per diem rates, DRG/case rates,
and percentage of total billed charges. These are not
all inclusive. and many methods may be used.
However, these three, or variants of them, are seen
in the majority of cases.
10.305 The simplest reimbursement method for a
hospital is total billed charges. However, it is rarely
used. In most cases, a percentage of total billed
charges is paid. This percentage is negotiated before
services are rendered and is often in effect for a
year or more for a given covered population.
10.306 Per diem rates also are very common. This
type of reimbursement involves a per day payment
for each day of stay in the hospital, regardless of actual
charges or costs incurred. This per day rate depends
on a number of factors, the two main being
the number and mix of cases. Many times, multiple
sets of per diem rates will be negotiated on the basis
of service type (for example, medical-surgical, obstetrics,
intensive care, neonatal intensive care, rehabilitation).
The per diem rate is multiplied by the
length of stay to calculate the total reimbursement.
As with DRGs, the hospital keeps any overpayment
but has to absorb any underpayment.
10.307 The fundamental difficulty in measuring
price changes in the hospital industry is that no
identical transactions occur for each repricing period.
A patient generally does not repeatedly visit
the hospital for the same episode of an illness or
ailment. As such, each patient stay or visit to a hospital
can be defined as a custom service.
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