INTRODUCTION in a less degree than the current Medicare DRG-based IPPS.

INTRODUCTION

in a less degree than the current Medicare DRG-based IPPS, a hospital that fails to obstruct a complication after admission may receive a higher payment, because the diagnosis associated with the complication may accrue in the patient being assigned to a higher-paying DRG Existing hospital payments rules in the U.S., whether by means of case (e.g., DRGs), discounted fee-for-service, or through diems, have the same fundamental flaw in that payment is increased when a complication offers in effect financially rewarding poor quality care. In IPPS this is a concatenation of assigning the DRG comorbidity or complication indicator using discharge diagnoses that include diagnoses that were not past nor future on admission as well as diagnoses that unravel post admission. Though DRGs were intended to be a " clinical description of with what intent the patient required hospitalization " (Federal Register, 2001) as a practical (and political) matter it was important in 1983 that the DRG and other IPPS adjustments explained as a great deal of the between hospital take away from variation as possible in order for IPPS itself to be accepted according to the hospital industry. Reconsidering the inclusion of post-admission complications in the DRG assignments is consistent with the original intent of DRG and IPPS and delineates a natural evolution of IPPS.

The underlying philosophy of a DRG-based IPPS is to provide hospitals with the financial incentive to command costs by paying a fixed amount, based upon the patient's clinical condition. Increasing payment when a post-admission complication appears undermines the hospitals incentive to rule costs. In IPPS the proces of establishing the prospective DRG payment amounts is essentially a naught sum method for allocating a fixed governmental estimate among hospitals. As a deduction the increased payment for patients with complications can arise in lower payments for patients without complications. Thus, hospitals with gentle complication rates are financially penalized. In virtually no other part of the economy can a firm exact a higher price for a proces or production which has proven to be defective. The Deficit Reduction Act (DEFRA) of 2005 (PL 109-171) begins to address this flaw in IPPS according to requiring CMS in fiscal year (FY) 2009 to good at least two types of post-admission infections and to no longer allow the selecteded post-admission infections to affect DRG assignment.

Consistent with the intent of the 2005 DEFRA, the intention of this article is to intend a redesign of the Medicare IPPS in which, subject to certain conditions, the amount of the increase in DRG payment owed to the occurrence of a post-admission complication is reduc Although the primary motivation for redesigning IPPS is to provide the financial incentive for hospitals to contract complications and improve the quality of care, a byproduct of the redesign is that aggregate Medicare payment can be reduc Therefore, an estimate of the reduction in the additional Medicare payments to be paid to post-admission complications is calculated.

BACKGROUND

Pay-for-performance is an emerging sweep in health care financing (Rosenthal et al., 2004) greatest in quantity pay-for-performance systems have focused forward providing retrospective financial bonuses to hospitals if specific proces standards (eg beta blocker prescribed for acute myocardial infarction (AMI) patients) and issue standards (e.g. risk-adjusted mortality rates) are met Thus, chiefly pay-for-performance systems have been exclusively pay extra for performance bodys with no financial consequences associated with poor performance. In fact, this approach to pay-for-performance pays extra for what should be standard care.

A inferior and related trend is the increased use of severity of illness (SOI) adjusted DRG hypothesiss to produce hospital comparative report cards (Hibbard et al., 2005) and to determine hospital payment (Health Services expense Review Commission, 2004). Hospital report cards typically include a comparison of a hospital's actual charges, extent of stay, and mortality to State or regional norms onward a severity adjusted basis. Payment forward a severity adjusted basis has been shown to more accurately explain take away from differences across hospitals (Medicare Payment Advisory Commission, 2000) Furthermore, severity adjusted DRG payment arrangements limit the ability of providers to "cream skim" the DRG a whole by selectively treating less fiercely ill patients and reduce the ne for payment adjustments as it is as indirect medical education and disproportionate share.

In recognition of the importance of SOI for understanding hospital splendor and quality, the Hospital Fair Competition Act of 2005 which requires Medicare to incorporate a SOI adjustment into the Medicare IPPS, has been introduced in the U Senate (Grassley and Baucus, 2005) The Medicare Payment Advisory Commission (MedPAC, 2000 and 2005) has attract favor toed that Medicare adopt a severity adjusted DRG a whole CMS has also proposed severity adjusting the DRG (Federal Register, 2006) Because there is a growing realization that the Medicare DRG ne to adjust for patient SOI, the following simulation of the redesign of the Medicare IPPS will use severity adjusted DRG Although there are issues of that kind as cost, administrative burden and potential for upcoding associated with the adoption of any SOI adjustment to the DRG it was beyond the view of this article to examine those issues.