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The Effect of Referral and Transfer Patients on Hospital Funding in a Capitated Health Care Delivery System

Pietz, Kenneth PhD*†; Byrne, Margaret M. PhD; Daw, Christina MPH*†; Petersen, Laura A. MD, MPH*†

doi: 10.1097/MLR.0b013e31812f4f48
Original Article

Objectives: (1) To investigate whether inpatients referred or transferred between facilities result in increased financial loss compared with those admitted directly, in a health care delivery system funded by capitation methods. (2) To determine whether the higher cost of those patients transferred or referred is fairly compensated by a diagnosis-based risk adjustment system, and whether tertiary care facilities bear an unfair financial burden for such patients in a capitated financing environment.

Methods: The study cohort included all Veterans Affairs (VA) beneficiaries who received inpatient care during fiscal year (FY) 2004. Referral was defined as an outpatient visit to 1 facility followed by an admission to another facility. Transfers were consecutive inpatient stays at different hospitals. We defined loss as cost minus the share of budget determined by a Diagnostic Cost Group-based allocation. Both t tests and linear regression were used to compare the effect on cost and loss for patients transferred or not and referred or not.

Results: Mean loss to a facility for patients transferred in was $1231 more than for those not transferred. Mean loss for referred patients was $3341 more than for those not referred, controlling for disease burden. For tertiary hospitals, the difference in losses for transfer patients was less than for other hospitals but greater for referral patients.

Conclusions: Patients referred or transferred from other facilities are more costly than those who are not. The difference may not be compensated by a diagnosis-based allocation system. A capitated health care system may consider additional funding to cover the cost of such patients.

From the *Division of Health Policy and Quality, Houston Center for Quality of Care and Utilization Studies, Veterans Health Affairs, Houston, Texas; †Health Services Research Section, Department of Medicine, Baylor College of Medicine, Houston, Texas; and ‡Department of Epidemiology and Public Health, University of Miami, Miami, Florida.

Supported by the Department of Veterans Affairs (VA). Dr. Byrne is an awardee of a Career Development Award from the National Cancer Institute (K07 CA101812). Dr. Petersen is a Robert Wood Johnson Foundation Generalist Physician Faculty Scholar (grant number 045444), and an American Heart Association Established Investigator Awardee (grant number 0540043N). This work was supported, in part, by a VA contract (Project XVA 33-093).

The views expressed are solely of the authors and do not necessarily represent those of the VA.

Reprints: Kenneth Pietz, PhD, Health Services Research and Development (152), Houston VA Medical Center, 2002 Holcombe Blvd., Houston, TX 77030. E-mail:

© 2007 Lippincott Williams & Wilkins, Inc.