Price Adjustment Medical Costing

End of Life Care Programs

By Dean G. Smith PhD and the Accounting Workgroup

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An alternative to traditional medical resource costing is ‘price adjustment’.  In an international context, this method compares the monetary estimates of resource used, after adjustment for price level differences between countries and over time to standard current values.  In order to attempt comparisons of different cost estimates, analysts must be at least certain as to what items are included in costs and whether costs are being based on opportunity costs, charges, or average costs.

Medicare Cost-to-Charge Ratios

In the US context, the price adjustment approach underlies the use of Medicare Cost-to-Charge Ratios (CCR).  Costs are estimated using the CCR approach by multiplying the number of units of each procedure billed by its Medicare charge and CCR and then summing these costs.  Some health care organizations have begun to invest in sophisticated, computerized cost-accounting systems (CAS) that are capable of providing procedure-specific cost estimates, usually based on relative value units, but these systems often rely on billing data to obtain service units.

The Studies

A couple of studies have used a combination of CCR and CAS to estimate costs (costs to the institution – costs to Medicare are the Medicare charges). In both studies, the CAS was for hospital costs only, with Medicare reimbursement (not institution costs) being used for professional services by using relative value units and a conversion factor from the Medicare Fee Schedule.

Inaccuracy

To overcome the issues of inaccurately (or non-transparently) measuring resource units, it has become more common in clinical trials (a distinct sub-set of possible study methods) to develop case report forms to capture all study end points, including medical service use.  These studies then translate medical service use into costs using standard charges or costs, or a series of representative data sets of charges or costs, to the resource units. These methods have become so common that all submissions to the British Medical Journal are required to document methods using a 35-part form that includes items such as: part 16) Quantities of resources are reported separately from their unit costs; part 17) Methods for the estimation of quantities and unit costs are described; part 18) Currency and price data are recorded; and part 19) Details of currency of price adjustments for inflation or currency conversion are given.

Following these guidelines, a Michigan-based study is collecting data through a resource use data collection form and applying to standard costs per unit of service to produce costs for a RWJ-sponsored palliative care program.

Not the Usual Medical Care

There are a few studies on the costs and cost-effectiveness of end of life programs or the impact of serious illness on patient’s families.  Those studies that do evaluate end of life care programs are usually small in scope, compare the end of life program (e.g., as in hospice) to “usual care,” or have no comparison group, or do not evaluate the costs of the program.

Assessment

Criticisms of studies of only one medical resource/cost item often surround the total costs of care – suggesting that the use of focused studies may not be well received.  In fact, even studies that capture the total costs of medical care services are criticized for not capturing the indirect costs – family expenses on end of life care are substantial and are not factored into most cost-analysis studies. Very few studies try to capture all costs to enable adjustments of costs for selection processes that may influence resource use.

Editor’s Note: Accounting workgroup members:

1 Stephen Seninger PhD: Professor, Bureau of Business and Economic Research, University of Montana, Missoula, MT

2 Ira Byock, MD: Director, Promoting Excellence in End of Life Care, Practical Ethics Center, University of Montana, Missoula, MT

3 Carol D’Onofrio,DrPH: Research Director, Sutter Visiting Nurse Association & Hospice, Piedmont, CA

4 Jennifer Elston-Lafata PhD: Director, Center for Health Services Research, Henry Ford Health System, Detroit, MI 

5 Joe Engelhardt PhD: Research Coordinator, Life Institute VA Medical Center, Albany, NY

6 Carol A. Lockhart PhD: Project Director, Phoenix Care, Hospice of the Valley, Phoenix, AZ

7 Steven H. Miles MD: Professor of Medicine, Center for Bioethics, University of Minnesota, Minneapolis, MN

8 Herbert A. Rosefield: Corrections Care Consultant, Volunteers of America, Raleigh, NC

9 Anne M. Wilkinson PhD:Senior Health Policy Analyst, RAND, Arlington, VA

10 Barbara Volk-Craft RN, MBA  Program Manager: Phoenix Care, Hospice of the Valley, Phoenix, AZ

11 Dean G. Smith, PhD  Professor and Chair, Department of Health Management & Policy, University of Michigan, Ann Arbor, MI

Conclusion

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