Medicare designs its reimbursement system to pay providers fairly and to ensure that no groups of patients are financial winners or losers for hospitals. Payments to hospitals are based on a patient's diagnosis at the time of discharge, largely independent of the length of stay. Thus, if two patients have the same diagnosis -- pneumonia, for example -- a hospital will receive the same payment for a 95-year-old Medicare patient who is an inpatient for eight days, as for a 72-year-old who is an inpatient for four days. This system of payment was instituted in 1983 in an effort to prevent needless delays in discharging patients. Under the old Medicare formula, payment was based on a patient's length of stay, a system that provided an easily abused financial incentive for hospitals to retain patients as long as possible, Chuang says.
When it was first put into effect, the new payment system raised the concern that hospitals might be systematically underpaid for frail older patients; that is, older patients who generally lack strength and are particularly susceptible to disease and infirmities. But a study published in 1987 found that there was little difference in the amounts hospitals charged for patients under the Medicare system, regardless of factors such as a patient's age, income or history of previous hospitalizations, or whether the patient had been living in a nursing home at the time of admission.
Chuang's study differs from the 1987 study and most other investigations of the Medicare payment systems in two ways. First, the research team used clinically relevant information gathered at the time of admission for each patient. Most other studies, including the 1987 study, have been based on administrative data such as age, permanent disability and income.
Contact: Liese Greensfelder
University of California - San Francisco