VA Economic Data Sets VI:HERC Average Cost Datasets

Todd Wagner, Ph.D.

Ciaran Phibbs, Ph.D.

Learning Objectives

At the end of this lecture, you will1. Understand how we created the average cost

data2. Relate the methods to other cost

determination methods3. Know how to access the data4. Be aware of the HERC data limitations5. Have information to help choose between

HERC or DSS

VA Cost Data

• In 1990’s, we lacked of accurate encounter-level cost data for economic and health services research

• HERC’s Goal: Create encounter level cost estimates for all care provided at VA facilities

Costing Methods

Direct measurement

Pseudo-bill

Reduced list costing

Clinical cost function

Average cost per visit

More detailed Less detailed

InpatientMed/Surg

OutpatientAC Costs

Inpt. Rehab, MH, LTC

DSS

HERC Inpatient Costs

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Average Cost Categories

Ten categories of inpatient care1. Medicine and surgery (med/surg)2. Rehab3. Blind rehab4. Spinal cord injury5. Psychiatry6. Substance abuse 7. Intermediate medicine8. Domiciliary9. Psychosocial residential rehabilitation10. Nursing home (risk adjusted FY98-00 only)

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Step 1: Create Categories

• Utilization– Patient Treatment Files (PTF) bedsection

file– Use bedsection variable to create category

• Costs– FY98-03 Cost Distribution Report – FY04- Summary of DSS data

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Step 2: Merge and Reconcile Utilization and Costs

• Utilization and cost data come from different datasets– Sometimes there are costs for a bedsection

with no utilization (must fix).– Sometimes there are utilization data but no

costs (must fix).

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After Reconciliation

• A few bedsections stays were reclassified

• Some costs were moved into other categories

• Most common fix: we reclassified substance abuse cost or days as psychiatry

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Bedsection PTF CDRAverage daily

costRehab No. of days Total costs Costs/daysBlind rehab No. of days Total costs Costs/daysSpinal cord No. of days Total costs Costs/daysPsychiatry No. of days Total costs Costs/daysSubstance abuse No. of days Total costs Costs/daysIntermediate med. No. of days Total costs Costs/daysDomiciliary No. of days Total costs Costs/daysPRRTP No. of days Total costs Costs/days

Step 3: Calculate Daily Rate

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• For each category of care, we estimated – Local cost per day– National cost per day

• Flagged local costs where they differ >= 2 standard deviations from national costs

• COSTL= length of stay*local cost per day• COSTN= length of stay*national cost per day

Two Cost Estimates

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Step 4: Med/surg Hospitalizations

• Use average daily rate?– Unpalatable assumption that the daily cost

does not vary by diagnosis

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Med/surg Hospitalizations

• Additional data can help us estimate costs– Length of stay– Diagnosis related group (DRG)

• Based on entry diagnosis, patient is assigned to one of 511 groups

• We use CMS relative value weights for DRG

• General approach was to use a cost regression

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Cost RegressionMed/surg hospitalizations

• We made a statistical model to estimate cost– Step 1: Build a model with inpatient discharge data

(Medicare)

– Dependent variable is cost adjusted charges (CAC)

CACi=1length of stayi + 2DRGi + 3icudaysi + 4agei +…+ei

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Cost Regression:Med/surg hospitalizations

• Step 2: From the regression model, save the parameter estimates (’s)

• Step 3: With our new function, plug in VA data to estimate costs

CACi=1length of stayi + 2DRGi + 3icudaysi + 4agei +…+ei

1length of stayi + 2DRGi + 3icudaysi + 4agei=Est. VA costs

Model from previous page

Regression Model

• Used OLS with cost adjusted Medicare charges as the dependent variable

• Absolute value of difference between predicted cost and Medicare cost-adjusted charges was our criterion

• Also tried– GLM– Semi-log– HCUP data

Variance AttenuationN Avg. cost SD Min. Max.

cost 15,428 4,786 5,525 5 203,877 estcost 15,428 4,535 4,269 685 128,695

cost 12,905 5,468 8,863 8 662,916 estcost 12,905 5,238 4,675 685 160,280

cost 21,463 4,941 4,979 10 109,945 estcost 21,463 5,224 4,479 685 190,673

DRG127 Heart failure & shock

DRG88 Chronic obstructive pulmonary disease

DRG89 Simple pneumonia & pleurisy age >17 w cc

Implausible costs

• A handful of stays had costs <$0

• Other stays had costs <$20

• Facts or Statistical artifacts?

HERC Inpatient Discharge Data

Rehab, MH/SA,

and LTC

Med/surg.

Discharge Dataset

HERC Inpatient Datasets

• Discharge dataset can be merged to PTF main file

• Includes med/surg, rehab, MH/SA and LTC

• Exclude cases admitted before 10/1/97

• FY file only includes discharges in the fiscal year

• Subtotals for each category of care

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When Not to Use the HERC AC datasets

• When you need to distinguish between two procedures for the same diagnosis

• When inpatient costs will depend substantially on factors beyond DRG and LOS

• When you evaluate an intervention that compares close substitutes.– Example: CABG with radial artery vs. saphenous vein

Variation in Physician Time

• The method assumes physician time is proportional to the institutional costs.

• If an intervention will affect labor inputs, you will probably need to use other cost estimates (possibly DSS).

HERC Outpatient Average Cost Data

VA Outpatient Care in FY03

• 68.1 million visits

• 126.7 million CPT codes used– top 5 used 23 million times

• 10,593 different codes used

HERC Outpatient Care Dataset

• Relatively easy file to use

• Merges directly to OPC/NPCD files

• Local cost and national cost estimates

• Estimated Medicare payment

• Flag for imputed values

Overview of Methods• All VA outpatient costs

– 1998-2003 from CDR

– 2004 from DSS

• Assign Medicare RVU to all CPT codes in SE file. This includes Medicare facility payment.

• Estimate Medicare payment for each encounter• Scale Medicare payments to VA costs, by

category of care

Current Procedural Terminology (CPT) Codes

• 5 Digit code• Represents physician services

– clinic visits– surgery and other procedures

• Represents Ancillaries, e.g., laboratory, radiology

• HCPCS is Medicare version, which adds codes for durable medical equipment, etc.

Two-step Process

• Apply a common set of relative values to all CPT codes used by the VA– Medicare is the primary source of the

relative values

• Second, scale relative values to actual VA costs

Medicare Fee Schedule

• RBRVS - resource based relative value scale

• Each CPT code has been assigned a value by Medicare known as the relative value unit (RVU)

• Payments are determined by the RVU

Medicare Fee Schedule Issues

• Non Reimbursable Medicare Procedures (GAP Codes)

• Non-Physician Providers

• Global Payments

• Invalid CPT codes

Medicare Facility Fees

• Facilities can bill Medicare when providing ambulatory care– Emergency rooms, hospital clinics, ambulatory surgery

centers

• Since most VA facilities would be eligible for Medicare facility payments, we included facility payments in the HERC cost estimates– THIS ASSUMPTION HAS A BIG IMPACT

Ambulatory Payment Category

• Medicare pays a flat facility rate based on the Ambulatory Payment Category (APC) of the CPT code.

• When facility fee is charged, physician payment is less.

APCs

• Some services have separate Medicare Fee Schedules that include facility payments (e.g., lab)– No APC payments for these services

• The APCs for some CPT codes are subject to discounting, mostly surgical procedures– If subject to discounting, 100% if most

expensive APC, else discounted 50%

Filling in the Rest of the Gaps

• California Workmen’s Compensation

• National survey of provider charges

• Match to clinically similar codes

• Remainder, used average for clinic stop

• Inpatient codes, used clinic stop average

• APCs, matched to similar services

Fee Sources

Fee Schedules used for VA Outpatient Procedures

Other 8%

Dental 2%

Unlisted 2%

Medicare 59%

GAP Codes 29%

Medicare - MedicareResource Based RelativeValue Scale (RBRVS)

GAP Codes - RBRVS typeschedule for procedures notcovered by Medicare

Dental - American DentalAssociation

Unlisted Codes - Unspecif iednon-reimbursable procedures

Other - Other non-reimbursable procedures

Scaling to VA Costs

• Followed same general method as for inpatient costs

• Mapped CDR to 11 separate groups of outpatient services (outpatient pharmacy is 12th category, no utilization data)– 13th category for unidentified clinic stops

Outpatient Care Categories

• Medicine• Dialysis• Ancillary• Rehabilitation• Diagnostic• Prosthetics

• Surgery• Psychiatry• Substance Abuse• Dental• Adult Day Health

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When to use HERC Outpatient AC dataset

• AC outpatient dataset is based on CPT codes

• Can use HERC outpatient AC data as long as study results are not sensitive to aggregation at the CPT code level

What Do We Miss Using Only the OPC Data?

• Outpatient pharmacy

• Possibly some lab data

• Other items?

• HERC is performing validation tasks over time – look for reports on the HERC web site

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Don’t Use Data if…

• Your study has systematic differences within CPT code resource use– Example, add a brief smoking counseling component to

physician visit

• Your study focuses on CPT codes for which HERC imputed values.

• Local cost don’t seem correct. There could be errors in the CDR allocations that HERC relied on prior to 2004.

Excluded CostsInpatient and Outpatient

• Research and education (through HSR&D)• Capital financing• Malpractice expenses• Contract provider costs• Community nursing home services• Headquarters• Prosthetics

Access to HERC Data• Form on HERC’s web page; fax a completed

form to us.• We provide the AAC authorization codes.• Each user needs to register.• Long-term issues

– Publications with the HERC data

– Unfunded projects

– Non-VA funded applications/projects

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Data at Austin

• Datasets for each fiscal year:– Discharge– Non-med/surg hospitalizations– Med/surg hospitalizations– Outpatient– Person-level (annualized roll up)

AC Datasets: FY04 Data

• CDR ended in FY04; we used summary of DSS NDE data

• We are making the AC Datasets more like the DSS datasets to facilitate comparisons

• Inpatient FY04 data and documentation released

• Outpatient FY04 coming soon

Questions on the HERC Average

Cost data?

DSS or HERC Costs?

“A person with one watch knows the time, a person with two is never sure. ”

-Segal’s Law [adaptation]

Med/Surg Differences

• HERC costs tend to be larger than DSS

• Cost of shorter stays tend to be larger in HERC than DSS

• HERC costs tend to be larger than DSS for the very complex procedures (large DRG weight).

Rehab, MH and LTC costs

• Large site differences in psychiatry between HERC and DSS costs.

• LOS perfectly determines costs of HERC.

• LOS is a very strong predictor of DSS costs, but “other things” matter

HERC Technical Reports

• Yu and Berger. Comparison Between DSS National Data Extracts and HERC Average Costs: Aggregate and Person-Level Costs, FY2001

• Wagner and Velez. A Comparison for Inpatient Costs from the HERC and DSS National Data Extract Datasets

Recommendations

• Consider the cost data you need

• Consider your audience

• Choose a primary database (HERC or DSS)

• Use the other for sensitivity analyses

• Do not mix HERC and DSS data (except HERC and DSS pharmacy)

When in Doubt

No problem is so formidable that you can’t just walk away from it.

- Shultz’s Law

Useful Links

Medicare Public Use Files

www.cms.hhs.gov/providers/pufdownload/default.asp?

• Physician Fee Schedule Payment Amount File National/Carrier

• National Physician Fee Schedule Relative Value File

• DRGs Relative Weight File• Clinical Diagnostic Laboratory Fee Schedule

Links (Cont.)

• Hospital Outpatient Prospective Payment System: www.cms.hhs.gov/regulations/hopps/default.asp

• Ingenix (for GAP codes): www.ingenix.com

• VIREC: www.virec.research.med.va.gov

• PBM: www.vapbm.org