Concept: Hospital Costing in the 1990's
Last Updated: 2002-01-22
RDRG and CMG Case Mix Systems
Details of Costing Methods Used in MCHP Deliverables in the 1990's
1 - Case-Mix Costing Using RDRGsSource of Global Budgets
From: Shanahan et al. (1994); Lloyd et al. (1995) and Shanahan et al. (1996)
The goal of these reports was to develop a method for assessing the cost efficiency of Manitoba Hospitals. Using the 1991/92 (and subsequently the 1993/94) inpatient hospital data, all inpatient (in-year) hospital days were classified into RDRGs® (version 5 RDRGs® for 1991/92, version 7 RDRGs® for 1993/94); each was weighted using Manitoba RCWs. Adjustments were made to the weights for atypical cases (cases involving non-acute days, outliers (LOS > Trim), transfers or deaths). For example, for cases with LOS > Trim, a marginal case weight was added to the RCW for every day that the LOS was past the average LOS (that is, case weight = RCW + Marginal case weight * (LOS - ALOS)). Marginal case weights were developed for each RDRG®.
For each hospital these case weights were summed. Hospital-specific average case weights were calculated by summing all the case weights in each hospital and dividing by the total number of hospital cases. Hospital average cost per weighted case (CWC) was calculated by dividing the total inpatient dollars by the total hospital case weights. See the next section for how the hospital inpatient dollars were identified. The hospital average CWC was the focus of the report. The CWCs for each hospital represent average cost per case adjusted for the types of patients treated in the hospitals. The report went onto compare CWCs across the hospitals. These hospital-specific CWC (developed for both the 1991/92 and 1993/94 inpatient hospital data) are used by other studies to determine hospital costs (see Pie Project section below).CWC (per hospital) = (Total $ per hospital) / (Sum of all RCW (per hospital))
To find the cost of a particular case:Cost of a case = CWC * (RCW for that case)
For more information on costing methods using the RDRG case mix system, please see Appendix A: Overview of Methodology for Calculating Cost Per Weighted Case in the Hospital Case Mix Costing Project 1991/92: Methodological Appendix deliverable by Lloyd et al. (1995).2 - Pie Project
From: Shanahan et al. (1997) )
This project looked at how heath care dollars were spent for residents of different regions. It included costs associated with hospitals, physicians, PCHs, long-term care hospitals, mental health hospitals and home care. Only the hospital portion will be discussed here. Using the methodology of the case-mix costing reports, specific case costs were estimated by multiplying a given case weight by the CWC in the hospital where the care was provided. (i.e. estimated inpatient cost for a case = RCW * CWC for that hospital). As in the case-mix costing reports, the RCWs were adjusted for cases that were classified as non-acute, long-stay outliers, deaths or transfers. The costs per weighted case (CWC) for each hospital was developed as for case-mix costing above.
Day care surgery costs were estimated using the DPG to classify cases and apply appropriate weights. The DPG weight was then multiplied by the CWC (as for inpatient costs) for the hospital providing the care to obtain an estimated cost per case.
Estimated day surgery cost for a case = DPG weight * CWC for that hospital.
For each area, the inpatient and day procedure costs were combined. Per capita expenditures were then looked at.
This report then looks at the difference between using hospital-specific CWC (described above) and using a provincial average CWC (sum all provincial inpatient dollars and divide by total provincial case weights). Note that this is the method discussed in the cost list approach (See Cost List ).
Two different methods for calculating outpatient expenditures are also discussed (emergency departments, outpatient clinics). The first method involved allocating outpatient dollars for each hospital based on inpatient discharges from the hospital (inpatient proxy). E.g. if a population in a RHA had 60% of a given hospital's inpatient cases, that RHA was allocated 60% of the hospital's outpatient costs. The second method (the combined method) used all available outpatient data. For the 33 hospitals with outpatient claims data, outpatient expenditures were distributed proportionately based on claims for service (this included the teaching hospitals). For the 5 Winnipeg community hospitals, data from a previous study (Emergency Room Use in Winnipeg Hospitals (1991/92) was used to distribute the dollars. For the remaining 38 hospitals, the inpatient proxy method was used. This combined method was the preferred method in the report. Per capita outpatient hospital expenditures were then looked at, as well as total inpatient plus outpatient hospital expenditures per capita.3 - Funding Methodology
From: Mustard & Derksen (1997)
The goal of this report was to develop a funding methodology to allocate health care resources to Regional Health Authorities equitably in relation to the need for health care services in their populations. The first step in this process required precise age- and sex-specific estimates of provincial per capita use of health care resources, valued in dollars. A portion of this first step involved hospital inpatient, day surgery and other outpatient services. Hospital separations that occurred in FY 1994/95 were included, except for separations from extended care beds at 6 specified hospitals, and all separations from Deer Lodge and Riverview (these were all transferred to the Institutional Long Term Care Pool).
The CMG™ classification system was used to group the inpatient cases. The typical resource intensity weight (RIW™) was assigned to inpatient cases, except for very short cases (LOS < 0.5 * ALOS and the ALOS was > 6 days.) which did not end in death. These very short stay cases were assigned a weight = LOS * the routine auxiliary weight for daily care (per diem weight, assigned by the CMG™ grouper). No adjustments were made for cases that were very long, that were transferred or which ended in death.
Day surgery and other outpatient services were assigned the DPG weight, if they could be classified by the DPG grouper (cases which grouped into DPG 62 (hemodialysis), DPG 63 (transfusions), DPG 65 (chemotherapy) and DPG 99 (ungroupable) were excluded).
These weights (inpatient, day surgery and outpatient) were then summed within provincial age and sex categories. The distributions of resource intensity weights across the age and sex categories were used to distribute the FY 96/97-service pool budget.
To calculate dollars of utilization, the sum of the weights for each age/sex cell were divided by the provincial sum of the weights, and multiplied by the total dollars of utilization. These total dollars of utilization were for inpatient and outpatient combined, for 1996/97 (rather than for 1994/95, which is the year of hospital data that this was run on, due to the goal of this project).
It would also be correct to use this method on a case by case basis, rather than for cells of age/sex. Since this is the method that the other approaches take, it will be briefly summarized here:The CWC can be found by dividing total dollars of utilization by the provincial sum of the weights.The dollars of utilization for each case could then be found by multiplying the CWC by the weight assigned to that particular case.CWC (provincial) = (Total provincial $) / (Sum of all RIW™ and DPG weights)
Cost of a case = CWC * (RIW™ or DPG weight for that case)
- Details regarding the case by case application of this method as well as the estimated annual cost per weighted case values to be used with the CMG™/RIW™/DPG data can be found in the MCHP concept titled Calculating Hospital Costs Using Cost Per Weighted Case (CPWC) / Cost of a Standard Hospital Stay (CSHS) Values.4 - Cost List
From: Jacobs et al. (1999)
This report is somewhat different from the ones above in that its goal is not to look at distributions of costs as a final product, but rather to recommend approaches to finding costs. Among other costing methods (Pharmaceuticals, Home Care, etc.), approaches to hospital costing are recommended.
The recommended approach in the cost list for inpatient hospital cases uses the RDRG® classification, rather than the CMG™ classification, because the RDRG® classification further subdivides the patients into levels of severity as defined by complications or co-morbidities which would be expected to affect the amount of hospital resources used. The provincial cost of a typical case for each RDRG® is reported in the paper. These costs are calculated by the following steps (note similarity and differences) to the case-mix costing method described above. Using the 1993/94 inpatient hospital data, all inpatient hospital days were classified into RDRGs® (version7); each was weighted using Manitoba RCWs. Adjustments were made to the weights for atypical cases (cases involving non-acute days, outliers (LOS > Trim), transfers or deaths).
Whereas for the case-mix costing study, hospital average cost per weighted case (CWC) were calculated by dividing the total inpatient dollars by the total hospital case weights - the cost list found the provincial inpatient cost per average weighted case (CWC) by dividing the provincial inpatient hospital expenditure by the sum of all the inpatient RDRG® weights.CWC (provincial) = (Total provincial inpatient $) / (Sum of all RCWs)
An estimate of the cost of a typical case in each RDRG® was found by multiplying the inpatient cost per average weighted cases (CWC) by the RDRG® typical case weight.
Cost of a typical case for a RDRG® = CWC * RCW for the RDRG®
Appendix 1 of the report contains, for each RDRG®, an estimate of the cost of a 'typical' case. Also reported in the appendix for each RDRG® are the average LOS, the TRIM point, the average cost per day and the marginal cost per day. When using this data, keep in mind that they were developed for version 7 RDRG®, and they are estimates for typical cases only.
The cost list report recommends how to use the inpatient hospital cost list for 4 possible circumstances, as described in the following table:The circumstance that compares most directly to the 3 reports listed above is the third circumstance, the costing of a group of existing cases. The recommended approach in this situation is:
Circumstances Related to Measure Recommended Cost Measure
1. The intervention under consideration affects the number of hospitalizations but not the treatment patterns (including LOS) within an RDRG®. Use the cost of a typical case, and apply it to the number of cases within each RDRG®.
2. The intervention will only affect the LOS, resulting in a longer or shorter stay. Use the marginal cost per day.
3. The intervention is expected to affect both the number of cases and the LOS (i.e. the average LOS is not expected to equal the typical average length of stay), OR if one wants to cost a group of cases. Use the average cost per case OR the average cost per case + (the marginal cost * the number of days the stay is beyond or before the mean).
4. The treatment will affect how resources are used within an RDRG®. One should consider using micro-cost analysis.
If the LOS is equal to the typical average LOS within the RDRG®,For day procedure costs the recommended approach is to group the cases by DPG.Cost = average cost per caseIf the LOS is not equal to the typical average LOS within the RDRG®,Cost = average cost per case + (marginal cost * (LOS - ALOS))
Appendix 2 of the report gives the costs for each DPG (which were estimated by multiplying the inpatient (provincial) cost per weighted case by the DPG weight, that is, cost for a DPG = CWC * DPG weight.
The provincial cost for cases that are reported in the appendices are likely to be on average higher or lower, depending on the type of hospital in which the care was received. Thus hospital type adjustment factors are reported in the paper, which can be applied to both inpatient costs and day procedure costs.
For calculating emergency department outpatient costs, the paper reports that it is possible to calculate the average nursing cost of an average emergency department visit (see the report for details).
Table Summarizing the Similarities/Differences in the Approaches
Shanahan et al. (1994); Shanahan (1996)
Shanahan et al. (1997)
Mustard & Derksen (1997)
Jacobs et al. (1999)
|Output/Goal||CWC (hospital specific cost per weighted case)||Per Capita Expenditures for inpatient and day procedure cases for residents of different regions; also outpatient||Distribution of RIW™ across age/sex cells (used to distribute the FY 1996/97 service pool budget). (Inpatient, day procedure and outpatient included).||
Methods of how to apply hospital costing. To achieve this: Appendix 1: cost of typical case for each RDRG®.
Appendix 2: DPG costs
|Adjusted for Case-Mix||Yes||Yes||Yes||
|Classification System used for inpatient cases||RDRGs®||RDRGs®||CMGs™||
|Weights applied to inpatient cases||Case Weights||Case Weights||Typical Weights||
N/A - using Appendix 1 the cost is applied directly by RDRG®
|Hospital Specific Costs||Yes||Yes||No||
No (although adjustments can be made for hospital type)
|Day Procedure||N/A||DPG weights||DPG weights||
|Outpatient Hospital Expenditure allocation||N/A (inpatient only)||Mixture of inpatient/ outpatient utilization data||Inpatient Utilization data||
|Short stay||Adjustment to weight only if transfer or death||Adjustment to weight only if transfer or death||Adjustment to weight if LOS < 0.05 * ALOS for that CMG™ and ALOS > 6 and not a death.||
Adjustment to cost if LOS < ALOS.
|Long stay||Adjustment to weight if LOS > TRIM||Adjustment to weight if LOS > TRIM||No adjustment||
Adjustment to cost if LOS > ALOS.
|Other adjustments||Adjustment to weight if death, transfer or non-acute days||Adjustment to weight if death, transfer or non-acute days||None||None|
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