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Hospital Costing: Experience from the VHA

Carey K, Burgess J. Hospital Costing: Experience from the VHA. Financial Accountability & Management. 2001 Jan 5; 16(4):289-308.

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BACKGROUND / RATIONALE: Current structural and functional changes within VHA largely parallel the widespread movement toward managed care that has occurred throughout the U.S. health care delivery system. The future of VHA as a viable alternative within that competitive environment requires knowledge concerning the relationship between managed care and cost within the new organizational structure.OBJECTIVE(S): This project has the major goals of: (1) decomposing changes in costs into various contributing factors including managed care practices; (2) determining how much cost reduction is actually being achieved through the aggressive managed care practice of reduction in the length of hospitalizations; and (3) evaluating the cost consequences of changes in treatment settings. Finally, we plan (4) to compare the cost containment performance of VHA with that of the private sector under managed care.METHODS: This research applies state-of-the-art econometric models to the tasks outlined above. Recent methodological advances have been made in the statistical techniques appropriate to analyzing individuals clustered within hierarchies. A natural application within health services research is analysis of cost that takes into account both patient and provider characteristics. This project develops patient level costs that can be used in a multilevel cost analysis. Data on both individual patients and on facilities and/or networks are included so that the source of variation in cost can be attributed to differences occurring at each level as well as to differences in specific explanatory variables.FINDINGS / RESULTS: Preliminary multilevel modelling approaches to the relationship between the level of managed care penetration in VHA and patient costs suggest that facilities more heavily penetrated by the primary care model appear to be slightly more effective at controlling the costs of their sicker patients.STATUS: We have expanded the original base of the work to now include definitions of VA patients with new classification systems developed for use within HCFA. The extension replaces traditional cost standards with state-of-the-art measures using the Diagnostic Group Methodology (DCG) that was developed for use within Medicare. As a result of efforts put forth as part of this grant, DCG cost measures are now well developed inside the VA.

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