Diagnostic-related groups and prepaid healthcare system cost effects

Health Economics

Prepayment Healthcare System & DRGs

The relationship that exists inextricably between the length of the patient stay in the hospital or other medical institution and the type of insurance held by the individual patient cannot be denied and has been in fact shown to be fact. In the examination of whether specialty and system of care exert independent affects on resource utilization the cross-sectional analysis of just over 20,000 patients who visited providers' offices during 9-day period in 1986. The study concluded that variations in patients mix should be a major determinant of variations in resource use..." The change, according to the work of Sajay (2005) is from "medical economics to health economics" and this was "announced by Klarman" who stated that "the economics of health is a new term than medical economics which reflected the recognition of economics as a toolbox for analyzing problems" In fact, it was Klarman who applied the definition of health economics as "medical care subjected to the constraint of scarce resources." (Sajay, 2005)

Health Economics

Prepayment Healthcare System & DRGs

Objective

This work will focus on a type of prepayment system for healthcare and its effect on the costs and quality of healthcare. The topic is the effect of diagnostic-related groups (DRGs) on the cost of quality of health care.

Introduction

In the work entitled "Health Care Criteria for Performance Excellence" (2005) it is that "an example of a strategic objective for a health system in an area with an active business alliance focusing on costs and quality of health care might be to become the low cost provider. Action plans likely would entail design of efficient processes to minimize length of hospital stays, analysis of resource and asset use, and analysis of the most commonly encountered Diagnosis Related Groups (DRGs) with a focus on preventative health in those areas. Performance requirements might include staff training in setting priorities based upon costs and benefits.

Length of Inpatient Stays Found Influenced by Insurance Type

It is stated that: "Organizational-level analysis and review likely would emphasize process efficiency, cost per member, and health care quality." Further stated is that the relationship between the length of inpatient stays and the type of health insurance of the patient which consisted to discharges in seven DRGs from Minneapolis and St. Paul during 1982. After applying controls for the age, sex, medical condition, severity of illness and hospital size, teaching and ownership status, and average annual occupancy rate, the null hypothesis that the type of health plan is unrelated to the length of stay of patients was found to be one that was rejected. Stated is that:

"Patients in prepaid group practices and independent practice associations exhibit significantly shorter lengths of stay than similar patients in Blue Cross and commercial health insurance plans, while Medicare and Medicaid patients exhibit significantly longer lengths of stay than those of similar commercially insured patients."

In the examination of whether specialty and system of care exert independent effects on resource utilization the cross-sectional analysis of just over 20,000 patients who visited providers' offices during 9-day period in 1986. The study concluded that variations in patients mix should be a major determinant of variations in resource use..."

Business Management vs. Medical Profession

The work entitled "Monetized Medicine: from the Physical to the Fiscal"..." is a study of the inner workings of the conflict that exists between the medical profession and business experts which is inclusive of accountants and from the sociological viewpoint. Stated is that the passage of the U.S. federal law in 1983 mandated DRGs as the 'basis of prospective payments to Medicare providers, DRGs changed from being industrial products to commodities." It is well-known that the considerations of medical issues do not adhere to the economic consideration and that the "transformation of professional practice in to market activity has not been readily accepted by physicians who consider it a threat to the professional autonomy."

From Medical Economics to Health Economics

The change, according to the work of Sajay (2005) is from "medical economics to health economics" and this was "announced by Klarman" who stated that "the economics of health is a new term than medical economics which reflected the recognition of economics as a toolbox for analyzing problems" In fact, it was Klarman who applied the definition of health economics as "medical care subjected to the constraint of scarce resources." (Sajay, 2005)

Through the DRG integration into the realm of cost of production medical staff could be held liable on terms of finance for their professional work. It is important to note that the medical profession in relation to the jurisdiction over health and sickness was not an area that the engineers or accountants and administrators challenged. Abbott (1998) states that it is through the claim of jurisdiction in relation to tasks that professions practice competition.

Discussion

The literature reviewed reveals the conflict that simmers just under the surface of the interaction between the business, management and financial realm within the institution affected by the DRGs and the professional medical staff. The viewpoint of professional medical staff is focused toward the outcome of the patient in terms of satisfactory discharge conditions. The inherent judgment of the medical professional and the business, management or finance professional is differentiated by the environment in which they operate in their professional career lives. The considerations of that which is physical and that which is fiscal in the work of Sajay (2005) are clearly polar opposites therefore in no way are they comprehensibly compatible but are destined to be at odds with one the other.

Summarization

The inherent conflict that exists between financial accounting and accounting for performance are separated by a very thin line. That differentiation is because the focus of the business, management, financial end of the hospital-industry and the physician's end of the hospital-factory is toward two very different goals. Interestingly enough those two very different dimensions in healthcare do come together at the crossroads of end results in the fact that for a patient to suffer due to malpractice, neglect, improper or lack of treatment will most necessarily affect the financial sector of the institution or organization in the realization of punitive damages in lawsuits against them. Therefore, in the view of the business, management or finance individual it is critical that exemplary care be given to the patient in coordination with providing that care in the most resourceful and efficient manner.

Importance of this Study

The importance of this particular study is the hypothesis that both the financial, business and management paradigm and the professional healthcare giver sector paradigm both are more likely to succeed if the other succeeds. Therefore it may be said that the interrelation of the two is expressed through a critical balance existing between the two that acts in a supportive manner one toward the other. Cost-sharing as well as competitive health plans have ridden the circuits of possibility with health viewed as a "consumption commodity" Sajay (2005) and humans as a type of investment capital. Difficulty in terms of trade yet health was considered to be a commodity by Fuchs and Zeckhauser for the reasons as follows:

Health affects personal utility

Health does not have an unlimited supply

Health can be increased by the applications of scarce resources

Thereby the patient is become 'consumer' in the hospital-factory and its' products and services.