Objective: The objective of this study was to develop and evaluate a method of allocating funding for very-high-cost (VHC) patients among hospitals.
Research Design: Diagnostic cost groups (DCGs) were used for risk adjustment. The patient population consisted of 253,013 veterans who used Department of Veterans Affairs (VA) medical care services in fiscal year (FY) 2003 (October 1, 2002–September 30, 2003) in a network of 8 VA hospitals. We defined VHC as greater than $75,000 (0.81%). The upper fifth percentile was also used for comparison.
Methods: A Bayesian decision rule for classifying patients as VHC/not VHC using DCGs was developed and evaluated. The method uses FY 2003 DCGs to allocate VHC funds for FY 2004. We also used FY 2002 DCGs to allocate VHC funds for FY 2003 for comparison. The resulting allocation was compared with using the allocation of VHC patients among the hospitals in the previous year.
Results: The decision rule identified DCG 17 as the optimal cutoff for identifying VHC patients for the next year. The previous year's allocation came closest to the actual distribution of VHC patients.
Conclusions: The decision-theoretic approach may provide insight into the economic consequences of classifying a patient as VHC or not VHC. More research is needed into methods of identifying future VHC patients so that capitation plans can fairly reimburse healthcare systems for appropriately treating these patients.
From the *Division of Health Policy and Quality, Houston Center for Quality of Care and Utilization Studies, a Health Services Research and Development Center of Excellence, Houston VA Medical Center, and Section for Health Services Research, Baylor College of Medicine, Houston, Texas; and the †Department of Epidemiology and Public Health, University of Miami School of Medicine, Miami, Florida.
Supported by the Department of Veterans Affairs (Project XVA 33-059). The funding agreement ensured the authors’ independence in designing the study, interpreting the data, writing, and publishing the report. Dr. Petersen is a Robert Wood Johnson Foundation Generalist Physician Faculty Scholar and an American Heart Association Established Investigator Awardee. Dr. Byrne holds a National Cancer Institute career development award.
The views expressed are solely those of the authors and do not necessarily represent those of the VA.
Reprints: Kenneth Pietz, PhD, Health Services Research and Development (152), Houston Veterans Affairs Medical Center, 2002 Holcombe Blvd., Houston, TX 77030. E-mail: firstname.lastname@example.org.