Route of admission and patient profitability under Medicare's Prospective Payment System

The purpose of this study was to explore and describe the relationship between route of admission into the hospital (emergency department admission versus elective admission) and patient profitability under Medicare's prospective payment system. This issue is of interest because many hospitals engage in the practices of patient boarding and ambulance diversion, which delay or prevent admissions through the emergency department (ED) and threaten patients' access to timely care. Currently, Medicare payment policy does not recognize differences in patient costs that may exist between ED and elective admissions.;A series of quantitative analyses were conducted to explore whether ED admissions are less profitable than elective admissions and whether there are underlying differences in profitability between ED and elective admissions after controlling for other patient and hospital factors that affect profitability. Data from the 2003 Nationwide Inpatient Sample of the Healthcare Cost and Utilization Project were merged with hospital-specific data from the Medicare Prospective Payment System Impact File to calculate patient-specific Medicare margins.;Results revealed that ED admissions were significantly less profitable than elective admissions. The average Medicare margins (calculated as revenue minus cost) were -;Results indicate that hospitals have a financial incentive to engage in patient selection by route of admission for Medicare patients. The Centers for Medicare and Medicaid Services should consider adjusting Medicare payment to take route of admission into account. The adjustment would result in a closer match between payment and patients' resource use, a stated goal of the program, and reduce the incentive for hospitals to engage in patient selection by route of admission. Since the Medicare payment system serves as a model for other public and private payers, refinements to Medicare payment policy could result in broader changes to inpatient reimbursement.;Results from this study also suggest that a severity-adjusted DRG system, which will be implemented in fiscal year 2008, may not completely eliminate the differences in profitability that exist between ED and elective admissions. Additional adjustments may be necessary.