va health economics course presentation # 3: costing methods
DESCRIPTION
VA Health Economics Course Presentation # 3: Costing Methods. May 2, 2007. Costing Methods. Mark W. Smith, PhD Associate Director VA Health Economics Resource Center. Focusing Question. What is the cost of a health care intervention? Example - PowerPoint PPT PresentationTRANSCRIPT
-
VA Health Economics Course Presentation # 3:Costing MethodsMay 2, 2007
-
Costing MethodsMark W. Smith, PhDAssociate Director VA Health Economics Resource Center
-
Focusing QuestionWhat is the cost of a health care intervention?
ExampleCSP 519 compares separate PTSD and smoking cessation therapy to combined therapy.
-
Cost of Health CareOutside of health, most items that we purchase daily have a readily observable cost
Not true with health careInsurance buffers patient from true cost Charges, payments may not equal cost
-
Cost Estimation Approaches
Two general approaches to costing:MicrocostingAverage costing (gross costing)
-
Estimating Costs: Micro-costingDetermine each input, find its price, then sum (quantity*price) across all inputsDSS uses this approachResearchers use this approach in some circumstancesGold standard but resource intensive
-
Estimating Costs: Average CostingOver a long period, divide total cost by total units of care providedLess precise than micro-costing
-
Costing SpectrumDirect measurementPseudo-billReduced list costingCost regressionEstimate Medicare paymentAverage cost per daymicroaverage
-
Microcost method 1Direct Measurement
-
Direct MeasurementUsed to the find the cost of: interventionscare unique to VA (e.g., CSP 519)MethodMeasure staff activityFind labor costFind cost of supplies, capital, overhead
-
Finding Unit CostAverage cost Total program cost/number of unitsAssumes homogeneous productsRelative Values needed for heterogeneous productsFind Relative Value of each productFind cost per relative value unit (RVU)Use this to find cost of each product
-
Staff Activity AnalysisMethods of finding staff activitiesTrack staff activity in a log Estimate activity
Need not be comprehensive; can sample activity
Estimate labor costDirect Measurement
-
Characterizing Staff ActivitiesCost of patient care may include non-patient care time
Activities that produce several products may need to be included, depending on perspectivee.g., time spent on clinical research may be regarded as a research cost, or a patient care cost, depending on analytical goal Direct Measurement
-
Exclude and IncludeExclude development cost
Exclude research-related costs
Should measure when program fully implemented
Should measure at constant returns to scaleDirect Measurement
-
Direct vs. Indirect vs. OverheadDirect costs: costs that are tied to a particular encounter (e.g., staff time, medications)
Overhead: costs that cannot be tied to particular procedures (e.g., VA police, maintenance, food service)
-
Direct vs. Indirect vs. OverheadIndirect: sometimes means overheadsometimes means non-salary benefits (e.g., health care, annual leave)sometimes means secondary impact of treatment on other health care use Example: patient receives better depression care at VA and later has fewer visits for other causes
-
DiscussionWhich of these should be included in the cost of an intervention? Non-salary benefits Secondary impact on other health care services Overhead costs
-
Other CostsSurvey or actual measure of supply costsAlternatives for overheadCost report dataStandard ratesAlternatives for capitalCost reportRental ratesDirect Measurement
-
Microcost method 2Pseudo-Bill
-
Pseudo-billItemize all services utilized/provided
Use schedule of cost/reimbursement for each service
Example: HERC outpatient costsItemized all CPT codesUsed relative value weights to assign costs to procedures
-
Microcost method 3Reduced List Costing
-
Reduced List CostingSome utilization items in pseudo-bill explain most of variation in coste.g., surgical procedures
Costing major items may be sufficient
Schedule of cost/reimbursement must be adjustede.g., new rate for surgical procedures that includes cost of laboratory services
-
Microcost method #4: Cost Regression
-
Cost RegressionDependent variable is charges or cost-adjusted charge from non-VA dataIndependent variables:Clinical informationDiagnosis Related GroupDiagnosisProceduresVital status at dischargeLength of stayDays of ICU careAnything that predicts cost and is in both datasets.
-
Transformation of Dependent VariableCost data are frequently skewedSkewed errors violates assumptions of Ordinary Least SquaresError terms not normally distributed with identical means and varianceTransformation Typical method: log of costCan make OLS assumptions more tenable
-
References - IDuan, N. (1983) Smearing estimate: a nonparametric retransformation method, Journal of the American Statistical Association, 78, 605-610.
Manning WG, Mullahy J. Estimating log models: to transform or not to transform? J Health Econ 2001 Jul;20(4):461-94.
-
References - IIBasu A, Manning WG, Mullahy J. Comparing alternative models: log vs Cox proportional hazard? Health Economics 2004 Aug;13(8):749-65.
-
HERC Web Site FAQs E1. How do I estimate costs with a clinical cost function? http://www.herc.research.va.gov/resources/ faq_e02.asp
E2. What is retransformation bias, and how can it be corrected? http://www.herc.research.va.gov/resources/ faq_e02.asp
-
Limitations
Relies on similar cost structures of external and study (internal) data.
Reduces the number of outliers.
Can create statistical anomalies.
-
Microcost method # 5: Estimating Medicare reimbursements
-
Medicare ReimbursementsPart A -- Prospective Payment for Inpatient Stays
Part B -- Payment for Physician Services to Inpatients
-
Medicare Inpatient Facility PaymentDRG-based payments adjusted byDisproportionate share payments Indirect medical educationGeographic adjustments
Outlier payments for unusual cases
Direct medical education
-
Medicare Payments
Medicare pays flat rate per DRG, regardless of length of stay (except for outliers)
Cost analysis may wish to capture effect of length of stay on cost
-
Medicare Pricer Software
Computer application for calculating facility paymentRequires 6-digit hospital PPS (identifier)DRGAdmission and discharge dates (LOS)
-
Medicare Outpatient Payment
Payment based on CPT procedure codes
Provider payment and facility payment (if done in hospital)
See documentation for HERC Outpatient Average Cost data: www.herc.research.med.va.gov/ methods_data/va_cost_methods_ac.asp
-
Outpatient Medicare Payments
Some CPTs have no APC:Paid on cost pass-through basis Paid through another APC (e.g., anesthesia)Paid through a separate cost listMultiple CPTs assigned to a single group-APCSome surgery procedures are discounted
-
Selecting a Method
Data available?
Method feasible?
Assumptions appropriate?
Method accurate: Will it capture the effect of the intervention on resource use?
-
Direct MeasurementAssumptionsActivity survey and payroll data are representativeMay assume all utilization uses the same amount of resources
AdvantagesUseful to determine cost of a program that is unique to VA
Disadvantages Limited to small number of programsCant find indirect costsCant find total health care cost
-
Pseudo-billAssumptionsSchedule of charges reflects relative resource useCost-adjusted charges reflect VA costs
AdvantagesCaptures effect of intervention on pattern of care within an encounter
Disadvantages Expense of obtaining detailed utilization data
-
Reduced List CostingAssumptionsItems on reduced list are sufficient to capture variation in resource useCost of items on reduced list is accurate
AdvantagesRequires less data than pseudo-bill
DisadvantagesNeeds to find data on cost associated with items on reduced list
-
Cost RegressionAssumptionsCost-adjusted charges accurately reflect resource useThe relation between cost and utilization is the same in the current study as in the previous study
Advantages Less effort to obtain reduced list of utilization measures than to prepare pseudo-bill
Disadvantages Must have detailed data Data from prior study may have error or bias
-
Estimate Medicare paymentsAssumptionsMedicare payments reflect average cost for a population; your sample is generalizableRVU captures effect of intervention on resources used
Advantage: easy to understand
DisadvantagesAccuracy limited VA may have different cost structures from average non-VA facilitiesInpatient: doesnt reflect variation in resources beyond DRG (or LOS)
-
Combining MethodsNo single method may fill all needs, even within a single study
Hybrid method may be bestDirect method or pseudo-bill on utilization most affected by interventionCost regression or Medicare payment for other utilization
-
Discussion CSP 519 compares Separate PTSD and smoking cessation visits Combined PTSD and smoking cessation visits
What are some costs that you could estimate by an average-costing approach? Is there anything that might need to be measured directly?
-
Reference
Barnett PG. Determination of VA health care costs. Medical Care Research and Review 2003;60(3 Suppl.):124S-141S.
www.herc.research.med.va.gov/ publications/supplement_mcrr_2003.asp
-
Other Resources
HERC web site: FAQ responses, technical reports (click on Publications tab)
HERC Help Desk ([email protected])
-
HERC email list
To join the HERC email list, send a request to [email protected].
-
Next sessionWednesday, 5/16/2006, 2 p.m. ETEstimating the Cost of Health Care: VA CostsPaul Barnett, PhD
Reading for next session:M Gold et al. Cost-Effectiveness in Health and Medicinepp. 199-210. Available for purchase at http://www.oup.com/us/ or http://www.amazon.com
PG Barnett. Medical Care Research and Review 60(3), pp. 124S-141S. Download from http://www.herc.research.med.va.gov/ publications/supplement_mcrr_2003.asp