1. Estimating the Cost of Health Care: VA Costs Paul Barnett May 16, 2007

2. Health Economics Resource Center 2 Overview of Cost Presentations Cost of Intervention Session 2 weeks ago Cost of VA provided care Today’s session Cost incurred outside VA Session in two weeks Patient incurred cost

3. Health Economics Resource Center 3 Specific Learning Objectives Understand VA data sources for patient and encounter costs Understand VA data sources for patient and encounter costs Be familiar with their methods of cost determination Be familiar with their methods of cost determination Be able to choose between data sources Be able to choose between data sources Know how to access the data Know how to access the data

4. Health Economics Resource Center 4 VA Cost Data Sets Two possible sources: Two possible sources: HERC average cost estimates HERC average cost estimates –Non-VA data on relative values adjusted for VA expenditures DSS cost estimates DSS cost estimates –Activity based cost allocation system

5. Health Economics Resource Center 5 Which cost data for my study? Randomized trial comparing two types of Cardiac Artery Bypass Graph (CABG) surgery Randomized trial comparing two types of Cardiac Artery Bypass Graph (CABG) surgery –Graphs using saphenous vein vs. radial artery What cost data should be used to estimate costs during the 2-year follow-up period? What cost data should be used to estimate costs during the 2-year follow-up period?

6. Health Economics Resource Center 6 HERC Average Cost Datasets

7. Health Economics Resource Center 7 HERC method of distributing costs to hospital stays and outpatient visits Acute medical surgical stays Acute medical surgical stays –Estimate of what stay would have cost in a Medicare hospital, based on a regression model Other inpatient care Other inpatient care –Length of stay Outpatient care Outpatient care –Hypothetical Medicare payment based on procedure codes assigned to visit

8. Health Economics Resource Center 8 Cost data used to build HERC average cost datasets Cost incurred at each medical center in each category of care Cost incurred at each medical center in each category of care –FY98-03 Cost Distribution Report –FY04-present Tabulation of DSS data

9. Health Economics Resource Center 9 HERC Method: Acute Medical/Surgical Hospitalizations Cost regression estimated using Medicare data Cost regression estimated using Medicare data –Length of stay –Days of intensive care –Diagnosis Related Group (DRG)  Stay is assigned to one of 511 groups based on diagnosis and procedures  Medicare relative value weights for DRG

10. Health Economics Resource Center 10 HERC Method: Acute Medical/Surgical Stays (cont). –HERC identifies acute medical surgical components of stays in the VA Patient Treatment File (PTF)  Consistent with non-VA hospital definition  Contiguous medical-surgical bed section segments

11. Health Economics Resource Center 11 HERC Method: Acute Medical/Surgical Stays (cont). –HERC applies regression parameters to VA stays to estimate what stay would have cost in a Medicare hospital –Estimates adjusted to reflect actual VA expenditures

12. Health Economics Resource Center 12 HERC Method: Other stays Costs assumed to be proportional to length of stay Costs assumed to be proportional to length of stay –Rehabilitation –Blind rehabilitation –Spinal cord injury –Psychiatry –Substance abuse –Intermediate medicine –Domiciliary –Psychosocial residential rehabilitation –Long-Term Care

13. Health Economics Resource Center 13 HERC Cost File: Inpatient Discharge Data Cost of each VA hospital discharge reported in Patient Treatment File (PTF) Cost of each VA hospital discharge reported in Patient Treatment File (PTF)  Stays ending in discharge in Fiscal Year  Excludes stays that began before FY98 –Length of stay, costs at national and local rates

14. Health Economics Resource Center 14 HERC Cost File: Inpatient Discharge Data (cont.) Subtotals of days and costs in 10 categories: Medicine and surgery Rehabilitation Blind rehabilitation Spinal cord injury Psychiatry Substance abuse Intermediate medicine Domiciliary Psych. residential rehab. Nursing home

15. Health Economics Resource Center 15 HERC Cost File: Bed Section Data Most studies don’t need this data set Most studies don’t need this data set Used to build HERC discharge data Used to build HERC discharge data Stays that occurred in year, regardless of discharge Stays that occurred in year, regardless of discharge Days and costs by PTF bed section segment (or group of acute medical surgical bed section segments) Days and costs by PTF bed section segment (or group of acute medical surgical bed section segments)

16. Health Economics Resource Center 16 HERC Method: Outpatient costs HERC assigns hypothetical payment HERC assigns hypothetical payment –based on Current Procedure Terminology (CPT) and HCPCS codes, up to 20 per visit –Physician reimbursement rates from Medicare and other payers –Facility reimbursement rates from Medicare Adjusted to reflect expenditures in the category of outpatient care, defined using clinic stop (DSS identifier) Adjusted to reflect expenditures in the category of outpatient care, defined using clinic stop (DSS identifier)

17. Health Economics Resource Center 17 HERC Cost File: Outpatient Cost Data Set Cost of each VA outpatient record in the National Patient Care Database outpatient events file (SE) Cost of each VA outpatient record in the National Patient Care Database outpatient events file (SE) National and local costs National and local costs Hypothetical Medicare payment Hypothetical Medicare payment

18. Health Economics Resource Center 18 HERC Cost File: Person-Level Annual Cost One person per record One person per record FY1998-FY2004 FY1998-FY2004 Total VA cost and costs of five inpatient and five outpatient categories, LOS for inpatient care Total VA cost and costs of five inpatient and five outpatient categories, LOS for inpatient care Includes DSS outpatient pharmacy Includes DSS outpatient pharmacy Stays that cross fiscal years are assigned cost in proportion to the days in fiscal year. Stays that cross fiscal years are assigned cost in proportion to the days in fiscal year.

19. DSS National Data Extracts

20. Health Economics Resource Center 20 DSS determines cost of products Cost assigned to cost center Cost assigned to cost center –Staff activities reports and financial data Cost of overhead departments distributed Cost of overhead departments distributed Products of each department tabulated Products of each department tabulated Relative values assigned to products Relative values assigned to products Unit cost of each product determined Unit cost of each product determined

21. Health Economics Resource Center 21 DSS assigns cost to encounters Unit cost of each intermediate product Workload Count of each intermediate product used in encounter Total cost of encounter (Visit or stay) = X 

22. Health Economics Resource Center 22 Where do DSS data come from? VISTA workload, clinical, & financial data National Data Extracts of DSS (SAS Files at Austin) Time allocation Relative values DSS VISN Level Production Databases (at Austin but limited access)

23. Health Economics Resource Center 23 DSS National Data Extracts Inpatient files Inpatient files –Treating specialty file –Discharge file Outpatient Encounter Files Outpatient Encounter Files Pharmacy files Pharmacy files Intermediate Product Department files Intermediate Product Department files Clinical Files Clinical Files

24. Health Economics Resource Center 24 DSS Cost File: Inpatient Discharge File Care of patients discharged in fiscal year Care of patients discharged in fiscal year Record represents one discharge (even if stay involves multiple bed sections) Record represents one discharge (even if stay involves multiple bed sections) Includes cost incurred in prior fiscal years Includes cost incurred in prior fiscal years May exclude stays that began before DSS implementation May exclude stays that began before DSS implementation

25. Health Economics Resource Center 25 DSS Cost File: Inpatient Treating Specialty File Treating specialty is synonymous with bed section Treating specialty is synonymous with bed section File includes: File includes: –Care provided during fiscal year –Stays not yet over –One record per bed section (treating specialty) per month

26. Health Economics Resource Center 26 DSS Cost Files: Outpatient files One record per patient per day per clinic stop One record per patient per day per clinic stop –NPCD events file allows more than 1 record per clinic stop per day –DSS includes care not in NPCD events file, e.g., prosthetics Four regional files ~100 million records per year Four regional files ~100 million records per year

27. Health Economics Resource Center 27 DSS Cost Files: Pharmacy files Daily outpatient pharmacy cost files Daily outpatient pharmacy cost files –One record per day –Cost but not names of drugs dispensed Prescription level files Prescription level files –One record per dispensed prescription –Includes drug, cost, quantity, dose –Includes file with inpatient prescriptions

28. Health Economics Resource Center 28 DSS Cost Files: Intermediate Product Department Files Both inpatient and outpatient files Both inpatient and outpatient files One record with costs incurred in each intermediate product department in stay/visit One record with costs incurred in each intermediate product department in stay/visit Not yet documented Not yet documented

29. Health Economics Resource Center 29 Clinical DSS National Data Files Laboratory Tests Laboratory Tests –All tests, inpatient and outpatient Radiology Radiology –Cost of each procedure Laboratory Results Laboratory Results –59 laboratory tests

30. Which data to use: HERC or DSS?

31. Health Economics Resource Center 31 Criteria: Is costing method consistent with study goals? Is costing method consistent with study goals? What is study time frame? What is study time frame? Are pharmacy or contract care costs needed? Are pharmacy or contract care costs needed? Are data needed on characteristics of care? Are data needed on characteristics of care? Are cost-subtotals needed? Are cost-subtotals needed? Which data are more accurate? Which data are more accurate?

32. Health Economics Resource Center 32 Is costing method consistent with study goals? Study to determine cost-effectiveness for U.S. health care system Study to determine cost-effectiveness for U.S. health care system –HERC uses non-VA relative values, HERC costs more like costs typical of non-VA health care settings Study to determine efficiency of different VA providers Study to determine efficiency of different VA providers –DSS costs estimate reflect differences in productivity, efficiencies, economies of scale, etc. –Strong assumptions make HERC estimates inappropriate for this type of study

33. Health Economics Resource Center 33 Time Frame HERC begins with FY98. HERC has documented how to estimate cost of earlier years HERC begins with FY98. HERC has documented how to estimate cost of earlier years DSS begins same year, but early years of uncertain accuracy DSS begins same year, but early years of uncertain accuracy

34. Health Economics Resource Center 34 Outpatient Pharmacy Cost DSS has pharmacy data, HERC does not DSS has pharmacy data, HERC does not Pharmacy data also available from Pharmacy Benefits Management system Pharmacy data also available from Pharmacy Benefits Management system –No direct access, must file request and wait for it to be fulfilled –PBM costs include only drug cost (not dispensing or overhead cost) –PBM data are available for years before DSS

35. Health Economics Resource Center 35 VA Contract Care VA purchases about 4% of care from non-VA providers VA purchases about 4% of care from non-VA providers DSS data on contract care DSS data on contract care –Community nursing home costs in DSS outpatient file –Increasing effort to include contract care in DSS HERC excludes contract care HERC excludes contract care See VA fee basis files for cost of this care See VA fee basis files for cost of this care –Fee basis files are also incomplete!

36. Health Economics Resource Center 36 Data Needed on Care Characteristics? Cost data sets have limited information on patient, stay, or encounter Cost data sets have limited information on patient, stay, or encounter –These data must be obtained from PTF or NPCD outpatient care files –HERC or DSS inpatient discharge data easily merged –HERC outpatient data more easily merged to NPCD HERC average cost data are easier to use HERC average cost data are easier to use

37. Health Economics Resource Center 37 easy Med/surg Rehab, mental health, long term care, etc. PTF Bed section files hard Discharge PTF Discharge files easy Outpatient Outpatient NPCD easy VA Utilization Data HERC Cost Data Ease of merging HERC files with utilization files

38. Health Economics Resource Center 38 Treating specialty PTF Bed section files very hard DischargePTF Discharge files easy OutpatientNPCD Outpatient Files moderate VA Utilization DataDSS Cost Data Ease of merging DSS NPCD with utilization files

39. Health Economics Resource Center 39 Are cost subtotals needed? HERC inpatient discharge dataset HERC inpatient discharge dataset –10 sub-total fields HERC outpatient dataset HERC outpatient dataset –Category of care (CAT) can be used to generate cost sub-totals

40. Health Economics Resource Center 40 Are cost-subtotals needed? DSS inpatient discharge DSS inpatient discharge –No totals by type of care (e.g., medical-surgical vs. long term care –Must be done using treating specialty, but hard to aggregate treating specialty records when stay crosses a fiscal year  HERC plans to create file with cost subtotals DSS outpatient DSS outpatient –User must define categories based on clinic stop HERC average cost data are easier to use. HERC average cost data are easier to use.

41. Health Economics Resource Center 41 Which cost data are more accurate: DSS or HERC average costs?

42. Health Economics Resource Center 42 Costing Methods Direct measurement Pseudo-bill Reduced list costing Clinical cost function Average cost per visit More preciseLess precise Inpatient HERC Med/Surg Outpatient HERC AC Costs Inpt. Rehab, HERC MH, LTC DSS

43. Health Economics Resource Center 43 Potential errors in HERC methods Inpatient costs: Inpatient costs: –Regression may not do a good job of estimating cost of acute medical surgical stays costs that are at the extremes Outpatient costs estimates depend CPT codes Outpatient costs estimates depend CPT codes –Codes may be used inappropriately  E.g.. At one site methadone visits ($10) coded as medical care ($150) –CPT modifiers not used  Not possible to tell if medical equipment code represents one time purchase or daily rental

44. Health Economics Resource Center 44 Potential errors in DSS methods Outlier costs Outlier costs –Mismatch of cost and utilization can result in unit costs that are very high cost, or negative DSS quality assurance efforts DSS quality assurance efforts –Audit that costs in DSS agree with general ledger –Extreme high outliers are filtered out when DSS national data extracts (NDE) are built

45. Health Economics Resource Center 45 Which is more accurate? HERC cost estimates HERC cost estimates –based on strong assumptions –reflect relative resource use in non-VA settings DSS cost estimates DSS cost estimates –reflect actual VA experience –have more variance –may be more prone to inappropriate outliers Both data sets rely on DSS distribution of costs to departments Both data sets rely on DSS distribution of costs to departments

46. Health Economics Resource Center 46 Data validation

47. Health Economics Resource Center 47 Which stay has been assigned inappropriate costs? Cost of stay (dollars) A97,309 B190,202 C183,732 D50,120 E129,209 F2,391,219

48. Health Economics Resource Center 48 What do you want to know about the stay to know if costs were inappropriately high or low?

49. Health Economics Resource Center 49 Type of Care Cost A97,309 Acute Medical-Surgical B190,202 C183,732Rehabilitation C50,120Psychiatric D129,209Psychiatric E2,391,219 Nursing Home with Acute Medical-Surgical

50. Health Economics Resource Center 50 Length of Stay Cost Type of Care DaysCost/Day A97,309Med-Surg713,901 B190,202Med-Surg447,551 C183,732Rehab262701 D50,120Psychiatric271185 E129,209Psychiatric161803 F2,391,219 LTC & Med-Surg2,498957

51. Health Economics Resource Center 51 DRG Weight DRG weights predict costs of Acute Medical Surgical Stays, but not other types of hospital care CostDaysCost/Day DRG Weight Cost per day per DRG Weight A97,309713,9012.126,557 B190,202447,5510.8257,988

52. Health Economics Resource Center 52 Why would there be a VA outpatient visit with a cost of $20,000?

53. Health Economics Resource Center 53 Validation of data and handling of outliers No easy solution No easy solution Compare to clinical characteristics, e.g., DRG, procedure code Compare to clinical characteristics, e.g., DRG, procedure code Compare to other VA cost data set Compare to other VA cost data set Avoid routine trimming of data Avoid routine trimming of data

54. Data Access and Documentation

55. Health Economics Resource Center 55 HERC Data at Austin Please register with HERC to access http://www.herc.research.va.gov/resources/register_data.asp

56. Health Economics Resource Center 56 DSS Data See HERC guide on DSS See HERC guide on DSS VISN Support Services Center Web Site (KLF Menu) VISN Support Services Center Web Site (KLF Menu) –Summaries of DSS data –Documentation of DSS and new DSS datasets DSS Program Office Web Site DSS Program Office Web Site See HERC intranet web site for links See HERC intranet web site for links

57. Health Economics Resource Center 57 HERC Guidebooks Research Guide to Decision Support System National Cost Extracts 1998-2004 Research Guide to Decision Support System National Cost Extracts 1998-2004 HERC’s Average Cost Datasets for VA Inpatient Care 1998 - 2005 HERC’s Average Cost Datasets for VA Inpatient Care 1998 - 2005 HERC's Annual Person Level Cost Dataset User Guide: Fiscal Years 1998-2003 HERC's Annual Person Level Cost Dataset User Guide: Fiscal Years 1998-2003 HERC's outpatient average cost dataset for VA care: fiscal years 2000-2004 HERC's outpatient average cost dataset for VA care: fiscal years 2000-2004 http://www.herc.research.va.gov/publications/guidebooks.asp

58. Health Economics Resource Center 58 HERC Technical Reports #9. Reconciliation of DSS Encounter-Level National Data Extracts and the VA National Patient Care Database: FY2001-FY2002 #9. Reconciliation of DSS Encounter-Level National Data Extracts and the VA National Patient Care Database: FY2001-FY2002 #10. A Comparison for Inpatient Costs from the HERC and DSS National Data Extract Datasets #10. A Comparison for Inpatient Costs from the HERC and DSS National Data Extract Datasets #13. Comparison Between DSS National Data Extracts and HERC Average Costs: Aggregate and Person-Level Costs, FY2001 #13. Comparison Between DSS National Data Extracts and HERC Average Costs: Aggregate and Person-Level Costs, FY2001 http://www.herc.research.va.gov/publications/technical_reports.asp

59. Health Economics Resource Center 59 VIREC Documentation VIReC Research User Guides VIReC Research User Guides –DSS Clinical National Data Extracts –DSS pharmacy data –Medical SAS Datasets (PTF and NPCD) www.virec.research.va.gov http://www.virec.research.va.gov/References/RUG/RUG.htm

60. Health Economics Resource Center 60 Useful Non-VA Links Medicare Public Use Files ( www.cms.hhs.gov ) www.cms.hhs.gov Physician Fee Schedule Payment Amount File National/Carrier Physician Fee Schedule Payment Amount File National/Carrier National Physician Fee Schedule Relative Value File National Physician Fee Schedule Relative Value File DRGs Relative Weight File DRGs Relative Weight File Clinical Diagnostic Laboratory Fee Schedule Clinical Diagnostic Laboratory Fee Schedule

61. Health Economics Resource Center 61 Non-VA Links (Cont.) Ingenix Ingenix –Source of relative values for CPT codes that are not reimbursed by Medicare (known as “gap codes): –www.ingenix.com www.ingenix.com

62. Health Economics Resource Center 62 Additional Reading HERC 2003 Supplement in Medical Care Research and Review HERC 2003 Supplement in Medical Care Research and Review –Methods on average costs –Discussion of pharmacy data –Overview of VA cost options http://www.herc.research.va.gov/publications/supplements.asp http://www.herc.research.va.gov/publications/supplements.asp http://www.herc.research.va.gov/publications/supplements.asp

63. Health Economics Resource Center 63 Additional Viewing HERC Course Archives HERC Course Archives –More detail on each dataset http://www.herc.research.va.gov/resources/training_course_archives.asp

64. Health Economics Resource Center 64 Next Class 4/11/2007:Overview of Economics Analysis with Experimental Data 4/18/2007: Elements of a Complete Cost Effectiveness Analysis 5/2/2007: Estimating the Cost of the Intervention: Costing Methods 5/16/2007: Estimating the Cost of Health Care: VA Costs 5/30/2007: Estimating the Cost of Health Care: Non-VA Costs 6/13/2007: Effectiveness, Patient Preferences and Utilities 6/20/2007: Introduction to Decision Analysis 7/11/2007: Economic Analysis and Implementation Research 7/18/2007: CEA Alternatives: Lost Productivity, Willingness to Pay