Table of Contents

1. Introduction
2. Benefit and System Design
3. Capitation
4. Community Mental Health Services
5. Diagnosis-Related Groups (DRGs)
6. Economics, Forecasting, and Pricing
7. Employee Assistance Programs (EAPs)
8. Health Maintenance Organizations (HMOs)
9. Law and Ethics
10. Provider Issues
11. Public Sector
12. Quality Assurance and Outcomes
13. Special Populations
    1. Children
    2. Elderly
    3. Ethnic Groups
    4. Women
14. Substance Abuse
15. Training and Education
16. Utilization Management
17. Author Index
18. Keyword Index

Diagnosis-Related Groups (DRGs)

112. Ashcraft, M. L. F., Fries, B. E., Nerenz, D. R., et al. (1989). A psychiatric patient classification system: An alternative to diagnostic-related groups. Medical Care, 27, 543-555.

This article reports on a project to construct a diagnostic classification system more appropri-ate for alcohol, drug, and mental disorders than the DRG system. The authors used data from the Veterans Administration (VA) to construct 12 psychiatric diagnostic groupings from which a psychiatric patient classification (PCC) system was derived. They found that this new classifi-cation system accounts for significantly more of the variation in length of stay than the DRGs. Moreover, they conclude that this system is more useful for hospital payment purposes because PCCs are clinically useful. They argue that PCCs appear to be valuable candidates for inclu-sion into the VA’s resource allocation system, and warrant exploration of its applicability to female and non-VA populations.
Keyword: DRGs

113. Dorwart, R. A., & Chartock, L. R.(1988). Psychiatry and the resource-based relative value scale. American Journal of Psychiatry, 145, 1237-1242.

Recent attempts to control medical costs for inpatient psychiatric services focus on regulating hospital reimbursement through the use of DRGs. This article focuses attention on other meth-ods to control mental health inpatient costs through regulating reimbursements received by physicians. The authors review the resource-based relative value scale (RBRVS) as an alterna-tive to other proposed reimbursement methods, such as physician DRGs. The RBRVS uses the setting, time spent, difficulty in treating the patient, training, and psychiatrist’s role to deter-mine reimbursement rates for psychiatrists. The authors suggest that the RBRVS has several advantages over both the DRG approach and capitation and may be useful in a variety of health care settings such as in HMOs and in the public sector.
Keyword: DRGs

114. English, J. T., Sharfstein, S. S., Scherl, D. J., Astrachan, B. M., & Muszynski, I. L. (1988). Diagnosis-related groups and general hospital psychiatry: The American Psychiatric Association Study. In D. J. Scherl, J. T. English, & S. S. Sharfstein (Eds.), Prospective payment and psychiatric care (1st ed., pp. 19-40). Washington, DC: American Psychiatric Association.

This chapter reviews the context in which psychiatric diagnoses were exempt from the original DRG system and reports on the findings of the Task Force on Prospective Payment, established by the American Psychiatric Association (APA) to examine the implications of the DRG system for psychiatry. The authors report the findings of this study which concluded that the DRG system is not accurate or fair for psychiatric diagnoses. Based on 1.67 million Medicare cases, the study found that there is substantial variation between hospital type in resource use by patients within a given psychiatric DRG. For example, the mean length of stay in hospitals with psychiatric units was 38 percent higher than that in general hospitals. The authors urge that any system be introduced incrementally, as part of a mixed retrospective and prospective payment approach and that levels of payment should consider the facility’s historical costs and the diversity of treatment models.
Keyword: DRGs

115. Essock, S., & Norquist, G. S. (1988). Toward a fairer prospective payment system. Archives of General Psychiatry, 45, 1041-1044.

An underlying assumption of the Medicare prospective payment system (PPS) is that character-istics of patients such as diagnosis and of hospitals can be used to predict costs. The authors challenge the assumption that the current system based on DRGs is an adequate predictor of cost for psychiatric care. They claim that the psychiatric payment categories are poor predic-tors of cost, accounting for between 2 percent and 15 percent of the variability in the length of stay. They examine variables that might be added to the equations to make for a more equi-table and effective reimbursement system for inpatient psychiatric care including additional facility and patient characteristics. Finally, they explore incentives that can be built into a payment system to counteract the impetus to minimize care provided.
Keyword: DRGs.

116. Freiman, M. P., Mitchell, J. B., Taube, C. A., & Harrow, B. S. (1988). The 1985 National Institute of Mental Health/Health Care Financing Administration study of payment for psychiatric admissions under Medicare: Overview and a look ahead. In D. J. Scherl, J. T. English, & S. S. Sharfstein (Eds.), Prospective payment and psychiatric care (1st ed., pp. 91-106). Washington, DC: American Psychiatric Association.

This chapter describes a study conducted by the National Institute of Mental Health (NIMH) and the the Centers for Medicare and Medicaid Services to examine issues relating to the classification of alcohol, drug abuse, and mental health (ADM) admissions under prospective payment, and the impact of modifications to this system on both exempt and nonexempt facilities. Medicareclaims in four states were used to develop "clinically related groups" (CRGs), an alternative classification system. This system was found to perform better than the DRG system in explaining variation in hospital costs and length of stay, but 90 percent of the variation was still unexplained by CRGs. The use of disease staging did not help to improve predictive power. The study also simulated DRG-related payments for ADM admissions to general hospi-tals with and without exempt units, and found that the average simulated payment to hospitals with exempt units was several hundred dollars higher than the average payment for an admis-sion to a nonexempt unit. Substantial inter-state variation was found, as well as between exempt and nonexempt hospital outlier rates. A follow-up study by the NIMH is described.
Keyword: DRGs

117. Goldman, H. H. (1988). Overview of studies on psychiatric hospital care under a prospective payment system. In D. J. Scherl, J. T. English, & S. S. Sharfstein (Eds.), Prospective payment and psychiatric care (1st ed., pp. 172). Washington, DC: American Psychiatric Association.

This chapter reviews several studies examining the usefulness of case mix measures in prospective payment. The author argues that there is no viable classification system whose impact has been tested on the heavily differentiated mental health system. Given this, and the fact that alternative systems may be worse than a prospective payment system (PPS), the author urges psychiatry to play a key role in implementing an effective PPS. He argues that psychiatry should not overemphasize the differences between health and mental health care, as similarities are the basis for its claims for reimbursement under health insurance. An equitable and efficient reimbursement system for mental health care can be viewed as an opportunity for psychiatry rather than a necessary evil.
Keyword: DRGs

118. Namerow, M. J., & Gibson, R. W. (1988). Prospective payment for private psychiatric specialty hospitals: The National Association of Private Psychiatric Hospitals prospective payment study. In D. J. Scherl, J. T. English, & S. S. Sharfstein (Eds.), Prospective payment and psychiatric care, (1st ed., pp. 41-54). Washington, DC: American Psychiatric Association.

This chapter describes a study conducted by the National Association of Private Psychiatric Hospitals to test the adequacy of the psychiatric DRGs and alternative systems to pay hospi-tals, and to assess the financial impact of these systems on private psychiatric specialty hospi-tals. Thirty hospitals were randomly selected for the study, which included retrospective chart review for patient-specific data, a questionnaire survey for hospital organization and financial information, and site visits. Data were analyzed in order to determine the variables correlated with length of stay and cost of care. The study found that both the original 15 DRGs and its modified version allow for inadequate grouping for setting payment rates for private psychi-atric hospital stays. This chapter discusses the implications of this and other findings.
Keyword: DRGs

119. Rosenheck, R., Massari, L., & Astrachan, B. M. (1990). The impact of DRG-based budgeting on inpatient psychiatric care in Veterans Administration medical centers. Medical Care, 28(2), 124-132.

This study examines the impact of a DRG-based resource allocation methodology (RAM) on inpatient psychiatric care in the Veterans Administration (VA) hospitals. The authors reviewed data on discharge for psychiatric and substance abuse disorders before and after the implemen-tation of DRG-based budgeting in the VA system. They found a significant decline in lengths of stay, total annual bed days per patient, and total expenditures after DRGs were instituted. The authors conclude that RAM is a potent management tool and discuss the reasons why these changes are attributable to this payment method and not other factors.
Keyword: DRGs

120. Ruggie, M. (1990). Retrenchment or realignment? U.S. mental health policy and DRGs. Journal of Health Politics, Policy and Law, 15(1), 145-167.

This article examines the rise of DRGs as part of a major reorganization of the delivery of health services in the United States. The author argues that there have been two major institu-tional shifts in the state’s provision of mental health services; from main provider to retrospec-tive buyer, and from retrospective payer to prospective buyer. The impact of this shift on providers and organizations is discussed.
Keyword: DRGs

121. Sargent, S. C., Scherl, D. J., & Muszynski, I. L.(1988). The New Jersey experience with diagnostic-related groups. In D. J. Scherl, J. T. English, & S. S. Sharfstein (Eds.), Prospective payment and psychiatric care (1st ed., pp. 172). Washington, DC: American Psychiatric Association.

New Jersey has long been an important laboratory for experiments with prospective reim-bursement of hospital services. This chapter reports on a study conducted by the American Psychiatric Association to explore the effect of the state’s DRG-based system on its psychiatric hospitals. Interviews and focus groups with State government officials, hospital administra-tors, and provider associations identified a number of problems with this system. Participants were concerned that the DRG system would lead to reduction or closure of psychiatric units, admissions based on anticipated reimbursement rather than on need, frequent utilization review, and downgrading of staff. The authors conclude that the DRG system favors private psychiatric hospitals which are exempt from such payment and that psychiatric DRGs should reflect severity of illness, complications, and the costs of indigent care.
Keywords: DRGs, New Jersey

123. Zwanziger, J., Davis, L., Bamezai, A., & Hosek, S. D. (1991). Using DRGs to pay for inpatient substance abuse services: An assessment of the CHAMPUS reimbursement system. Medical Care, 29, 565-577.

Studies have shown that DRGs and similar classification systems poorly predict inpatient resource use, especially mental health services. Previous studies have also demonstrated that certain types of providers are systematically under- (or over-) reimbursed. This study assessed how well the CHAMPUS (Civilian Health and Medical Program of the Uniformed Services) DRG system explains variation in costs at the individual level and predicts resource use across hospitals. The study found that substance abuse DRGs are only partially successful in classifying CHAMPUS patients according to their resource use, explaining only 4.2 percent of the total variance. The source of this variation might be lack of consensus on treatment, or differences among mental health providers regard-ing delivery of services. The study also found substantial variation in the impact of the DRG system on hospital revenue. General hospitals were reimbursed at a higher level than substance abuse specialty hospitals. This may reflect differences in coding practices, or severity of patients in the two settings.
Keywords: DRGs, substance abuse

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