Defense Health Care
Under TRICARE, Children's Hospitals Paid More Than Other Hospitals After Accounting for Patient Complexity Gao ID: GAO-07-947 July 31, 2007Under the Department of Defense's (DOD) TRICARE health program, hospitals that treat primarily children--designated by DOD as children's hospitals--are paid differently from other types of civilian hospitals through a children's hospital differential payment. Representatives of children's hospitals state that payments for children's hospital services do not fully recognize the higher complexity of children's hospital patients. Acknowledging concerns over payments for children's hospital services, the National Defense Authorization Act for Fiscal Year 2006 directed GAO to study DOD's current system of payments to children's hospitals. This report examines (1) the effect of the differential on TRICARE's base payments to children's hospitals, (2) differences in diagnosis and complexity between TRICARE pediatric patients at children's hospitals and those at other hospitals, (3) the extent to which TRICARE payment differences across hospitals reflect differences in patient complexity, and (4) recent trends in TRICARE pediatric patients' use of children's hospital services. To do this, GAO analyzed pertinent TRICARE claims data for fiscal years 2003 through 2006 and interviewed relevant DOD officials and representatives of children's hospitals.
In fiscal year 2007, TRICARE's base payments, a key component of the program's hospital payment formula, were 61 percent higher for facilities that TRICARE defines as children's hospitals than for other hospital types. Base payments to children's hospitals have been substantially higher than base payments to other hospitals since 1989. However, the relative difference in base payments has decreased over time, and will continue to decrease, as the children's hospital differential is not adjusted for inflation. From fiscal year 2003 through fiscal year 2006, excluding newborns, the types of diagnoses for TRICARE pediatric patients at children's hospitals were similar to those treated at medical centers, hospitals that also provide specialized pediatric services. TRICARE pediatric patients at children's hospitals had a similar level of complexity to those at medical centers and were substantially more complex than those at community hospitals, facilities that focus on more routine children's care. GAO measured the complexity of patients using a tool that classifies hospital stays into a more refined set of groups than TRICARE's system. Indirect measures of complexity, such as the length of a hospital stay, also showed similarities between TRICARE pediatric patients at children's hospitals and those at medical centers. GAO found that after adjusting for differences in patient complexity, TRICARE payments to children's hospitals were substantially greater per admission than TRICARE payments to medical centers and community hospitals. Specifically, holding patient complexity constant, children's hospitals were paid 22 percent more than medical centers and 53 percent more than community hospitals. The number of TRICARE pediatric admissions at children's hospitals increased from 5,027 in fiscal year 2003 to 7,083 in fiscal year 2006. The percentage of TRICARE pediatric admissions in civilian hospitals that occurred at children's hospitals also increased during this time period. The increase in the use of children's hospital services is consistent with statements from representatives of children's hospitals, who said that their hospitals are committed to accepting and caring for TRICARE patients. GAO's findings show TRICARE's hospital payment system functioning largely as DOD expected, as the difference in base payments to children's hospitals and other hospitals was designed to endure but diminish over time. GAO has no data on other factors that might support payment differences, however, GAO's findings suggest that further increasing payments to children's hospitals is not supported on the basis of patient complexity. In commenting on a draft of this report, DOD agreed with GAO's findings and concluding observations.
GAO-07-947, Defense Health Care: Under TRICARE, Children's Hospitals Paid More Than Other Hospitals After Accounting for Patient Complexity
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Report to Congressional Committees:
United States Government Accountability Office:
GAO:
July 2007:
Defense Health Care:
Under TRICARE, Children's Hospitals Paid More Than Other Hospitals
After Accounting for Patient Complexity:
GAO-07-947:
GAO Highlights:
Highlights of GAO-07-947, a report to congressional committees
Why GAO Did This Study:
Under the Department of Defense‘s (DOD) TRICARE health program,
hospitals that treat primarily children”designated by DOD as children‘s
hospitals”are paid differently from other types of civilian hospitals
through a children‘s hospital differential payment. Representatives of
children‘s hospitals state that payments for children‘s hospital
services do not fully recognize the higher complexity of children‘s
hospital patients. Acknowledging concerns over payments for children‘s
hospital services, the National Defense Authorization Act for Fiscal
Year 2006 directed GAO to study DOD‘s current system of payments to
children‘s hospitals. This report examines (1) the effect of the
differential on TRICARE‘s base payments to children‘s hospitals, (2)
differences in diagnosis and complexity between TRICARE pediatric
patients at children‘s hospitals and those at other hospitals, (3) the
extent to which TRICARE payment differences across hospitals reflect
differences in patient complexity, and (4) recent trends in TRICARE
pediatric patients‘ use of children‘s hospital services. To do this,
GAO analyzed pertinent TRICARE claims data for fiscal years 2003
through 2006 and interviewed relevant DOD officials and representatives
of children‘s hospitals.
What GAO Found:
In fiscal year 2007, TRICARE‘s base payments, a key component of the
program‘s hospital payment formula, were 61 percent higher for
facilities that TRICARE defines as children‘s hospitals than for other
hospital types. Base payments to children‘s hospitals have been
substantially higher than base payments to other hospitals since 1989.
However, the relative difference in base payments has decreased over
time, and will continue to decrease, as the children‘s hospital
differential is not adjusted for inflation.
From fiscal year 2003 through fiscal year 2006, excluding newborns, the
types of diagnoses for TRICARE pediatric patients at children‘s
hospitals were similar to those treated at medical centers, hospitals
that also provide specialized pediatric services. TRICARE pediatric
patients at children‘s hospitals had a similar level of complexity to
those at medical centers and were substantially more complex than those
at community hospitals, facilities that focus on more routine
children‘s care. GAO measured the complexity of patients using a tool
that classifies hospital stays into a more refined set of groups than
TRICARE‘s system. Indirect measures of complexity, such as the length
of a hospital stay, also showed similarities between TRICARE pediatric
patients at children‘s hospitals and those at medical centers.
GAO found that after adjusting for differences in patient complexity,
TRICARE payments to children‘s hospitals were substantially greater per
admission than TRICARE payments to medical centers and community
hospitals. Specifically, holding patient complexity constant,
children‘s hospitals were paid 22 percent more than medical centers and
53 percent more than community hospitals.
The number of TRICARE pediatric admissions at children‘s hospitals
increased from 5,027 in fiscal year 2003 to 7,083 in fiscal year 2006.
The percentage of TRICARE pediatric admissions in civilian hospitals
that occurred at children‘s hospitals also increased during this time
period. The increase in the use of children‘s hospital services is
consistent with statements from representatives of children‘s
hospitals, who said that their hospitals are committed to accepting and
caring for TRICARE patients.
GAO‘s findings show TRICARE‘s hospital payment system functioning
largely as DOD expected, as the difference in base payments to
children‘s hospitals and other hospitals was designed to endure but
diminish over time. GAO has no data on other factors that might support
payment differences, however, GAO‘s findings suggest that further
increasing payments to children‘s hospitals is not supported on the
basis of patient complexity. In commenting on a draft of this report,
DOD agreed with GAO‘s findings and concluding observations.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-947].
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Laurie Ekstrand at (202)
512-7114 or ekstrandl@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
TRICARE's Base Payments to Children's Hospitals Substantially Higher
Than Base Payments to Other Hospitals, Though Relative Difference in
Payments Decreases over Time:
TRICARE Pediatric Patients at Children's Hospitals Similar to Those at
Medical Centers in Terms of Diagnoses and Complexity:
After Adjusting for Patient Complexity, Children's Hospitals Were Paid
More per TRICARE Pediatric Admission Than Other Hospitals:
Rising Number of TRICARE Admissions at Children's Hospitals Suggests No
Decline in Access:
Concluding Observations:
Agency and Professional Association Comments and Our Evaluation:
Appendix I: Scope and Methodology:
Appendix II: Comments from the Department of Defense:
Appendix III: GAO Contact and Staff Acknowledgments:
Tables:
Table 1: Average TRICARE Patient Complexity by Hospital Type, Fiscal
Year 2003 through Fiscal Year 2006:
Table 2: Indirect Measures of TRICARE Pediatric Patient Complexity by
Hospital Type, Fiscal Year 2003 through Fiscal Year 2006:
Table 3: Average TRICARE Payment per Pediatric Admission, Patient
Complexity, and Payment Adjusted for Complexity, by Hospital Type,
Fiscal Year 2003 through Fiscal Year 2006:
Table 4: Average Complexity per TRICARE Pediatric Admission by Hospital
Type, Using Both TRICARE DRGs and APR-DRGs, Fiscal Year 2003 through
Fiscal Year 2006:
Table 5: Change in TRICARE Base Payments to Children's Hospitals
Compared to the Change in Hospital Inflation, Fiscal Year 1992 through
Fiscal Year 2006:
Figures:
Figure 1: Civilian Hospital Types Treating TRICARE Pediatric Patients
in Fiscal Year 2006, by Number of Admissions and Number of Hospitals:
Figure 2: Location of Children's Hospitals That Admitted TRICARE
Pediatric Patients in Fiscal Year 2006:
Figure 3: TRICARE Base Payments to Children's Hospitals Compared to
TRICARE Base Payments to Other Hospitals, Fiscal Year 1989 through
Fiscal Year 2007:
Figure 4: Relative Difference between TRICARE's Base Payment to
Children's Hospitals and Other Hospitals, in Percentages, Fiscal Year
1989 through Fiscal Year 2007:
Figure 5: Most Common TRICARE Children's Hospital Admissions by Major
Diagnostic Category (MDC) and Hospital Type, Excluding Newborns, Fiscal
Year 2003 through Fiscal Year 2006:
Figure 6: TRICARE Pediatric Admissions to Children's Hospitals, Fiscal
Year 2003 through Fiscal Year 2006:
Figure 7: Percentage of TRICARE Pediatric Civilian Hospital Admissions
Occurring in Children's Hospitals, Fiscal Year 2003 through Fiscal Year
2006:
Abbreviations:
APR-DRG: All Patient Refined Diagnosis-Related Group:
ASA: adjusted standardized amount:
CMS: Centers for Medicare & Medicaid Services:
DOD: Department of Defense:
DRG: diagnosis-related group:
MCSC: managed care support contractor:
MDC: major diagnostic category:
MTF: military treatment facility:
NACH: National Association of Children's Hospitals:
TMA: TRICARE Management Activity:
United States Government Accountability Office:
Washington, DC 20548:
July 31, 2007:
Congressional Committees:
Of the more than 9 million individuals who were eligible for TRICARE--
the health program that is managed by the Department of Defense (DOD)-
-at the end of fiscal year 2006, about 2 million were children. Under
TRICARE, beneficiaries can receive care from military treatment
facilities (MTF), which are owned and operated by DOD, or from civilian
providers. Of the $10 billion that TRICARE paid for civilian health
care services in fiscal year 2006, TRICARE spent a small fraction--
approximately $430 million--on inpatient hospital services for
children. Of this amount, about $114 million--26 percent--went to
children's hospitals, defined by TRICARE as hospitals in which the
majority of patients are under the age of 18.[Footnote 1] Children's
hospitals accounted for 7.8 percent of TRICARE's pediatric
admissions.[Footnote 2]
Inpatient care for children admitted as TRICARE patients can be
provided in a variety of civilian hospital settings. Since children's
hospitals treat primarily children, they are generally freestanding,
meaning that they are not part of a larger hospital that focuses on
adult care.[Footnote 3] In contrast, some medical centers that treat
adults have a designated pediatric inpatient unit.[Footnote 4] Both
children's hospitals and medical centers specialize in treating
children with certain rare and complex conditions, performing
procedures such as pediatric heart surgeries.[Footnote 5] Community
hospitals, on the other hand, typically provide children with more
routine services, such as newborn care.[Footnote 6]
Like many other hospitals that participate in TRICARE, children's
hospitals are generally paid under a prospective payment system. In a
prospective payment system, hospitals receive a fixed, predetermined
amount per hospital stay.[Footnote 7] Payment is based on the patient's
diagnosis and procedures performed during the hospital stay. Stays are
classified into diagnosis-related groups (DRG) based on the information
that hospitals submit on their claims. Each DRG is assigned a weight,
which is a measure of the resources typically required to treat
patients whose hospital stays are classified in that DRG, with higher
weights reflecting greater use of resources. Because the most resource-
intensive cases can be considered the most complex cases, the DRG
weight is also called a measure of complexity.
Under the prospective payment system, to determine the amount a
hospital is to be paid for a single stay the DRG weight is multiplied
by the base payment.[Footnote 8] For all hospitals other than
children's hospitals, the base payment equals the adjusted standardized
amount (ASA), which is TRICARE's annual estimate of the average cost
per hospital stay. For children's hospitals, the base payment equals
the ASA plus an add-on payment known as the children's hospital
differential.[Footnote 9] Children's hospitals have received the
differential since their payment began under DOD's prospective payment
system on April 1, 1989. Previously, children's hospitals were paid
based on their charges--the amount they billed for their services--and
DOD viewed payments based on charges as excessive. The purpose of the
differential was to recognize that children's hospitals typically had
higher charges than other hospitals for the same services and to
prevent any reduction in payments to children's hospitals as a result
of the transition from a charge-based system to a prospective payment
system. Medical centers and community hospitals that treat children
admitted as TRICARE patients do not receive the children's hospital
differential.
Representatives of the National Association of Children's Hospitals
(NACH) have stated that TRICARE's prospective payment system does not
adequately compensate children's hospitals.[Footnote 10] In particular,
these representatives contend that TRICARE pays children's hospitals at
rates that are below their costs of care. In addition, NACH
representatives state that the children treated at children's hospitals
typically have more complex conditions than children at other types of
hospitals.
Recognizing concerns over TRICARE's payments to children's hospitals,
the National Defense Authorization Act for Fiscal Year 2006 directed us
to study the effectiveness of the current system of differential
payments to children's hospitals under TRICARE.[Footnote 11]
Specifically, as discussed with the committees of jurisdiction, this
report examines (1) the effect of the differential on TRICARE's base
payments to children's hospitals, (2) differences in diagnosis and
complexity between TRICARE pediatric patients at children's hospitals
and those at other hospitals, (3) the extent to which TRICARE payment
differences across hospitals reflect differences in patient complexity,
and (4) recent trends in TRICARE pediatric patients' use of children's
hospital services.
To examine the effect of the differential on children's hospital base
payments, we analyzed TRICARE data on base payments from fiscal year
1989 to fiscal year 2007. To compare the diagnoses and complexity of
patients at children's hospitals with patients at other hospital types,
we used information from TRICARE claims data for all pediatric
inpatient admissions to civilian hospitals in the United States for
fiscal year 2003 through fiscal year 2006 and a tool to measure patient
complexity that was developed by a health information company with
input from NACH.[Footnote 12] This tool classifies hospital stays into
a more refined set of diagnostic groups than TRICARE's DRG system. We
used the same claims data and classification tool to determine the
extent to which differences between TRICARE's payments to children's
hospitals and TRICARE's payments to other hospitals reflect differences
in patient complexity. To identify recent trends in TRICARE pediatric
patients' use of children's hospital services, we also analyzed TRICARE
pediatric inpatient claims data from fiscal year 2003 through fiscal
year 2006. In addition, we interviewed DOD officials on hospital
payment policy and representatives of children's hospitals to learn
their perspective on the effect of TRICARE's payment policies on
TRICARE beneficiaries' access to children's hospital services. We did
not attempt to calculate the costs of admissions at children's
hospitals because we determined that sufficiently reliable data on
children's hospital costs for TRICARE admissions were not
available.[Footnote 13] We found that some data fields in the TRICARE
claims data were not sufficiently reliable, and we therefore did not
use these fields in our analyses. We determined the remaining TRICARE
claims data to be sufficiently reliable for the purposes of this
report. (See app. I for a detailed explanation of our scope and
methodology.) We conducted our work from July 2006 through June 2007 in
accordance with generally accepted government auditing standards.
Results in Brief:
In fiscal year 2007, TRICARE's base payments, a key component of
TRICARE's hospital payment formula, were 61 percent higher for
facilities that TRICARE defines as children's hospitals than for other
hospital types. Base payments to children's hospitals have been
substantially higher than base payments to other hospitals since 1989.
However, the relative difference in base payments has decreased over
time. The relative difference in base payments will continue to
decrease, as the children's hospital differential is not adjusted for
inflation.
From fiscal year 2003 through fiscal year 2006, excluding newborns, the
types of diagnoses for TRICARE pediatric patients at children's
hospitals were similar to those treated at medical centers. TRICARE
pediatric patients at children's hospitals had a similar level of
complexity to those at medical centers and were substantially more
complex than those at community hospitals. We measured the complexity
of patients using a tool that classifies hospital stays into a more
refined set of groups than TRICARE's system. Indirect measures of
complexity, such as the length of a hospital stay, also showed
similarities between TRICARE pediatric patients at children's hospitals
and those at medical centers.
We found that after we adjusted for differences in patient complexity,
TRICARE payments to children's hospitals were substantially greater per
admission than TRICARE payments to medical centers and community
hospitals. Specifically, holding patient complexity constant,
children's hospitals were paid 22 percent more than medical centers and
53 percent more than community hospitals.
The number of TRICARE pediatric admissions at children's hospitals
increased from 5,027 in fiscal year 2003 to 7,083 in fiscal year 2006.
The percentage of TRICARE pediatric admissions in civilian hospitals
that occurred at children's hospitals also increased during this time
period. The increase in the use of children's hospital services is
consistent with statements from representatives of children's
hospitals, who said that their hospitals are committed to accepting and
caring for TRICARE patients.
Our findings show TRICARE's hospital payment system functioning largely
as DOD expected, as the difference in base payments to children's
hospitals and other hospitals was designed to endure but diminish over
time. We have no data on other factors that might support payment
differences, however, our findings suggest that further increasing
payments to children's hospitals is not supported on the basis of
patient complexity.
In its comments on a draft of this report, DOD stated that it agreed
with our findings and concluding observations. NACH agreed with our
findings that TRICARE pediatric patients at children's hospitals were
clinically similar to TRICARE pediatric patients at medical centers,
and that TRICARE pays children's hospitals more than other hospitals,
after accounting for patient complexity.
Background:
Children's hospitals constitute a small fraction of civilian hospitals
providing inpatient services to TRICARE pediatric patients. Children's
hospitals have been paid the children's hospital differential since
1989, when they were incorporated under DOD's prospective payment
system.
The Number and Location of TRICARE Admissions at Children's Hospitals:
In fiscal year 2006, there were 7,083 TRICARE pediatric admissions to
children's hospitals (see fig. 1). A similar number of admissions,
6,416, occurred in medical centers. In contrast, 77,866 pediatric
admissions took place in community hospitals.[Footnote 14] The number
of community hospitals that treated TRICARE pediatric patients was
substantially higher than the number of children's hospitals or medical
centers that treated TRICARE pediatric patients in fiscal year 2006.
Specifically, 3,441 community hospitals treated TRICARE pediatric
patients compared with 67 children's hospitals and 62 medical centers.
Figure 1: Civilian Hospital Types Treating TRICARE Pediatric Patients
in Fiscal Year 2006, by Number of Admissions and Number of Hospitals:
[See PDF for image]
Source: GAO analysis of TRICARE claims data.
Notes: A children's hospital under TRICARE is one in which at least 50
percent of a hospital's patients are children. In this report, a
medical center refers to a teaching hospital that includes a pediatric
inpatient unit that is designated by NACH as a "children's hospital
within a hospital." A community hospital is any hospital that was not a
children's hospital or medical center under our definitions.
[End of figure]
TRICARE admissions to children's hospitals were concentrated in a
subset of these hospitals in fiscal year 2006. Of the 67 children's
hospitals that treated TRICARE pediatric patients, 14 accounted for
more than half of the TRICARE children's hospital admissions, and 30
children's hospitals accounted for 84 percent. Children's hospitals
that treated TRICARE pediatric patients in fiscal year 2006 are spread
throughout the United States (see fig. 2). Similarly, children's
hospitals that had more than 200 TRICARE admissions were located in
areas that were diverse geographically. States that were home to these
high-volume children's hospitals include California, Virginia,
Pennsylvania, Texas, Washington, and Alabama.
Figure 2: Location of Children's Hospitals That Admitted TRICARE
Pediatric Patients in Fiscal Year 2006:
[See PDF for image]
Source: GAO analysis of TRICARE claims data and MapInfor (map).
Note: A children's hospital under TRICARE is one in which at least 50
percent of a hospital's patients are children.
[End of figure]
The Establishment of the Children's Hospital Differential:
DOD began paying hospitals under its prospective payment system in
October 1987, although children's hospitals and certain other types of
hospitals were initially exempted.[Footnote 15] TRICARE's prospective
payment system was modeled on Medicare's prospective payment system.
DOD is required by law to follow Medicare's rules with regard to
payment to providers to the extent practicable.[Footnote 16] In 1988,
after discussions with children's hospital representatives, DOD
proposed including children's hospitals under the prospective payment
system and recommended paying those hospitals the children's hospital
differential. In December 1988, DOD issued a final rule placing
children's hospitals under the prospective payment system and
establishing the differential.[Footnote 17] DOD began paying children's
hospitals under the prospective payment system on April 1, 1989.
DOD established the differential with the goal of ensuring that
payments to children's hospitals were not reduced as a result of the
transition from the previous charge-based payment system to the
prospective payment system as well as to recognize that children's
hospitals typically charged more than other hospitals for the same
services. The value of the differential is based on a calculation made
by DOD that sought to ensure revenue neutrality to children's
hospitals. The regulation that established the differential states that
it is not to be updated for inflation, and it has not been.[Footnote
18] As of 2007, the value of the differential was set at $2,635.41, and
it has changed only twice since 1989.[Footnote 19]
When DOD first proposed adopting the children's hospital differential,
it expressed concern about the prospective payment system's ability to
account for the complexity of children's hospital patients.[Footnote
20] DOD noted that children's hospitals could be particularly
susceptible to issues in measuring complexity since children's
hospitals often treat complex cases. Like other prospective payment
systems, DOD's system does not capture every difference in complexity.
For example, patients whose hospital stays are classified into DRG 98,
pediatric cases of bronchitis and asthma, may vary in levels of
complexity: one patient may have a severe case of bronchitis, while
another patient may have a mild case.[Footnote 21] However, all
hospital stays in DRG 98 receive the same DRG weight and therefore are
paid the same rate.[Footnote 22] As a result, a hospital that
consistently treats patients with severe cases of bronchitis will be
paid no more for those admissions than a hospital that consistently
treats patients with less severe cases of bronchitis, even though the
hospital would likely incur higher costs for treating the more severe
cases.[Footnote 23] However, it is also expected that at most
hospitals, these differences in complexity will "balance out." In other
words, a hospital may treat some patients who have severe cases of
bronchitis, but the hospital will also treat some patients who have
mild cases of bronchitis, so that overall the hospital will treat
children who are at the average complexity of the DRG.
TRICARE's Base Payments to Children's Hospitals Substantially Higher
Than Base Payments to Other Hospitals, Though Relative Difference in
Payments Decreases over Time:
TRICARE's base payments to children's hospitals have been substantially
higher than base payments to other hospital groups, although the
relative difference in base payments has declined over time. For fiscal
year 2007, TRICARE's base payments to children's hospitals were set 61
percent higher than base payments to all other hospitals. However, the
relative difference between TRICARE's base payments to children's
hospitals and base payments to other hospitals has decreased, and it
will continue to decrease over time.
Due to the Differential, Children's Hospitals Have Received
Substantially Higher Base Payments from TRICARE:
As a result of the children's hospital differential, children's
hospitals have received substantially higher base payments than other
hospitals under TRICARE's prospective payment system--61 percent higher
in fiscal year 2007. Base payments to children's hospitals have been
substantially higher than base payments to other hospitals since the
children's hospital differential was established in 1989 (see fig. 3).
So long as the TRICARE prospective payment system continues to include
a children's hospital differential, base payments to children's
hospitals will always be higher than base payments to other hospitals.
Figure 3: TRICARE Base Payments to Children's Hospitals Compared to
TRICARE Base Payments to Other Hospitals, Fiscal Year 1989 through
Fiscal Year 2007:
[See PDF for image]
Source: GAO analysis of TRICARE payment data.
Notes: A children's hospital under TRICARE is one in which at least 50
percent of a hospital's patients are children. Other hospitals include
medical centers, which in this report are teaching hospitals that
include a pediatric inpatient unit that is designated by NACH as a
"children's hospital within a hospital," and community hospitals, which
in this report are hospitals that were not children's hospitals or
medical centers under our definitions.
This figure reflects the two changes to the children's hospital
differential. The first change occurred in fiscal year 1992, when the
children's hospital differential for hospitals in large urban areas and
hospitals in other areas was adjusted (the adjustment for the
differential for children's hospitals in large urban areas was so
slight that it is difficult to discern from the figure). In fiscal year
2005, the children's hospital differential was increased for hospitals
located in areas other than large urban areas. In this figure, that
change is reflected in the data for fiscal year 2007, which is the
first year shown after the fiscal year 2005 change.
[End of figure]
Relative Difference in TRICARE's Base Payments between Children's
Hospitals and Other Hospitals Has Decreased over Time:
Although TRICARE's base payment to children's hospitals remains higher
than the base payment to other hospitals, the relative difference
between the two base payments has decreased, as the ASA has been
adjusted for inflation and the children's hospital differential has
not. In fiscal year 1989, the base payment to children's hospitals in
large urban areas was 92 percent greater than the base payment to other
hospitals in those areas (see fig. 4). Eighteen years later, the
relative difference in base payments has been reduced. By fiscal year
2007, TRICARE's base payment to children's hospitals in large urban
areas exceeded TRICARE's base payment to other hospitals in large urban
areas by 61 percent.
The relative difference in base payments between children's hospitals
and other hospitals in areas other than large urban areas has also
decreased. In fiscal year 1989, the base payment to children hospitals
in other areas was 79 percent greater than the base payment to other
hospitals in those areas. In fiscal year 2007, the base payment to
children's hospitals in other areas exceeded the base payment to other
hospitals in those areas by 61 percent.[Footnote 24]
Figure 4: Relative Difference between TRICARE's Base Payment to
Children's Hospitals and Other Hospitals, in Percentages, Fiscal Year
1989 through Fiscal Year 2007:
[See PDF for image]
Source: GAO analysis of TRICARE payment data.
Notes: Percentages represent the amount by which children's hospital
base payments are higher than base payments to other hospitals--for
example, 92 means that children's hospital base payments were 92
percent higher than base payments to other hospitals. Projections are
based on the assumption that the ASA continues to increase at an annual
rate of 2.4 percent.
A children's hospital under TRICARE is one in which at least 50 percent
of a hospital's patients are children. Other hospitals include medical
centers, which in this report are teaching hospitals that include a
pediatric inpatient unit that is designated by NACH as a "children's
hospital within a hospital," and community hospitals, which in this
report are hospitals that were not children's hospitals or medical
centers under our definitions.
[End of figure]
The relative difference in base payments will continue to decline so
long as the ASA is increased to account for inflation and the
children's hospital differential is not. Since 1989, the ASA for
hospitals in large urban areas has increased at an average annual rate
of 2.4 percent. If that rate continues, the base payment to children's
hospitals will be 45 percent higher than the base payment to other
hospitals in 2020. The relative difference will never disappear
entirely, however, as long as children's hospitals continue to receive
the children's hospital differential.
TRICARE Pediatric Patients at Children's Hospitals Similar to Those at
Medical Centers in Terms of Diagnoses and Complexity:
From fiscal year 2003 through fiscal year 2006, children's hospitals
treated TRICARE pediatric patients for the same types of diagnoses as
medical centers, with the exception of newborns, which more often
received care at medical centers than at children's hospitals. TRICARE
patients at children's hospitals were similar in complexity levels to
TRICARE pediatric patients treated at medical centers. In contrast,
TRICARE patients at children's hospitals were more than three times as
complex as those at community hospitals.
Children's Hospitals and Medical Centers Treated TRICARE Pediatric
Patients for Similar Types of Diagnoses:
Children's hospitals and medical centers treated TRICARE pediatric
patients for similar types of diagnoses from fiscal year 2003 through
fiscal year 2006, although children's hospitals were less likely to
treat newborns. Once newborns are excluded, the pattern of diagnoses at
children's hospitals was very similar to the pattern of diagnoses at
medical centers (see fig. 5). Newborns accounted for about 10 percent
of TRICARE pediatric patients at children's hospitals, 35 percent of
TRICARE pediatric patients at medical centers, and 73 percent of
TRICARE pediatric patients at community hospitals.
Figure 5: Most Common TRICARE Children's Hospital Admissions by Major
Diagnostic Category (MDC) and Hospital Type, Excluding Newborns, Fiscal
Year 2003 through Fiscal Year 2006:
[See PDF for image]
Source: GAO analysis of TRICARE claims data.
Notes: A children's hospital under TRICARE is one in which at least 50
percent of a hospital's patients are children. In this report, a
medical center refers to a teaching hospital that includes a pediatric
inpatient unit that is designated by NACH as a "children's hospital
within a hospital."
[End of figure]
For patients at both children's hospitals and medical centers, the
three most common major diagnostic categories were related to the
respiratory system, nervous system, and digestive system. Common
diagnoses related to these systems include asthma, seizure and
headache, and appendicitis, respectively. Compared to medical centers,
children's hospitals were slightly more likely to treat children with
circulatory system disorders, such as hypertension and heart failure.
TRICARE Pediatric Patients at Children's Hospitals Were Similar to
Those at Medical Centers Based on Measures of Complexity:
We found that from fiscal year 2003 through fiscal year 2006, the
average complexity of TRICARE pediatric patients at children's
hospitals was about 10 percent higher than the average complexity of
TRICARE pediatric patients at medical centers. For the same time
period, the average complexity of pediatric patients at children's
hospitals was more than three times as high as the average complexity
of pediatric patients at community hospitals.
In conducting this analysis, we used a tool that measures the
complexity of diagnostic groups; a score of 1.0 serves as a reference
point for relative complexity.[Footnote 25] Using this reference, we
found that the average patient complexity of pediatric admissions at
children's hospitals was 1.62, while at medical centers the score was
1.47 (see table 1). In contrast, the average pediatric patient
complexity at community hospitals was .52. The relatively low level of
complexity of patients at community hospitals is driven by the large
percentage of normal newborns, babies that do not have any
complications and therefore have a low level of complexity.[Footnote
26]
Table 1: Average TRICARE Patient Complexity by Hospital Type, Fiscal
Year 2003 through Fiscal Year 2006:
Hospital type: Children's hospitals;
Average patient complexity[A]: 1.62.
Hospital type: Medical centers;
Average patient complexity[A]: 1.47.
Hospital type: Community hospitals;
Average patient complexity[A]: .52.
Source: GAO analysis of TRICARE claims data.
Notes: A children's hospital under TRICARE is one in which at least 50
percent of a hospital's patients are children. In this report, a
medical center refers to a teaching hospital that includes a pediatric
inpatient unit that is designated by NACH as a "children's hospital
within a hospital." A community hospital is any hospital that was not a
children's hospital or medical center under our definitions.
[A] The average patient complexity is often called the case mix index.
[End of table]
Indirect measures of complexity--length of hospital stay, hospital
transfers, and in-hospital deaths--show comparable differences. From
fiscal year 2003 through fiscal year 2006, length of hospital stay for
pediatric admissions at children's hospitals and medical centers
averaged about 6 days; transfers from another hospital were somewhat
more frequent at children's hospitals than at medical centers; and
frequency of pediatric admissions ending in death was about 1 percent
in both settings (see table 2). In contrast, stays at community
hospitals averaged 3.5 days and percentages of transfers and in-
hospital deaths at community hospitals were substantially lower, at
about 3 percent and less than 1 percent, respectively.
Table 2: Indirect Measures of TRICARE Pediatric Patient Complexity by
Hospital Type, Fiscal Year 2003 through Fiscal Year 2006:
Hospital type: Children's hospitals;
Average length of stay per admission (in days): 6.1;
Percentage of admissions that are transfers from other hospitals: 8.8;
Percentage of admissions ending in death: 1.1.
Hospital type: Medical centers;
Average length of stay per admission (in days): 6.2;
Percentage of admissions that are transfers from other hospitals: 5.5;
Percentage of admissions ending in death: 1.4.
Hospital type: Community hospitals;
Average length of stay per admission (in days): 3.5;
Percentage of admissions that are transfers from other hospitals: 3.3;
Percentage of admissions ending in death: 0.4.
Source: GAO analysis of TRICARE claims data.
Notes: A children's hospital under TRICARE is one in which at least 50
percent of a hospital's patients are children. In this report, a
medical center refers to a teaching hospital that includes a pediatric
inpatient unit that is designated by NACH as a "children's hospital
within a hospital." A community hospital is any hospital that was not a
children's hospital or medical center under our definitions.
[End of table]
After Adjusting for Patient Complexity, Children's Hospitals Were Paid
More per TRICARE Pediatric Admission Than Other Hospitals:
After comparing pediatric patients at children's hospitals to patients
at other hospital types, we examined hospitals' payments per admission,
adjusting for patient complexity. Using claims data from fiscal year
2003 through fiscal year 2006, we found that after adjusting for
patient complexity, children's hospitals were paid substantially more
per admission than both medical centers and community hospitals (see
table 3).
Table 3: Average TRICARE Payment per Pediatric Admission, Patient
Complexity, and Payment Adjusted for Complexity, by Hospital Type,
Fiscal Year 2003 through Fiscal Year 2006:
Hospital type: Children's hospitals;
Average payment per admission: $16,367;
Average patient complexity: 1.62;
Average payment adjusted for complexity: $10,089.
Hospital type: Medical centers;
Average payment per admission: $12,131;
Average patient complexity: 1.47;
Average payment adjusted for complexity: $8,275.
Hospital type: Community hospitals;
Average payment per admission: $3,401;
Average patient complexity: .52;
Average payment adjusted for complexity: $6,596.
Source: GAO analysis of TRICARE claims data.
Notes: A children's hospital under TRICARE is one in which at least 50
percent of a hospital's patients are children. In this report, a
medical center refers to a teaching hospital that includes a pediatric
inpatient unit that is designated by NACH as a "children's hospital
within a hospital." A community hospital is any hospital that was not a
children's hospital or medical center under our definitions.
The average payment per admission has been adjusted upwards for medical
centers and community hospitals to account for payments for capital and
direct medical education expenses. Average payment adjusted for
complexity equals average payment per admission divided by average
patient complexity. However, due to rounding, the calculations do not
work out perfectly.
[End of table]
We adjusted for patient complexity for the three hospital types by
dividing the average payment per pediatric admission by the average
patient complexity. For example, across the 4-year period, TRICARE
payments to children's hospitals--adjusted for the average patient
complexity--averaged $10,089 per patient, based on an average payment
of $16,367 per admission and an average complexity of 1.62. This
average complexity-adjusted payment to children's hospitals was 22
percent higher than the equivalent amount paid to medical centers,
which was $8,275. TRICARE payments to children's hospitals were 53
percent higher than those made to community hospitals for pediatric
patients, which were $6,596 after adjusting for patient complexity.
Rising Number of TRICARE Admissions at Children's Hospitals Suggests No
Decline in Access:
From fiscal year 2003 through fiscal year 2006, TRICARE pediatric
admissions at children's hospitals rose steadily, suggesting that
access to children's hospital services has not decreased in recent
years. Specifically, the total number of TRICARE pediatric admissions
rose from 5,027 admissions in fiscal year 2003 to 7,083 admissions in
fiscal year 2006 (see fig. 6). This change represents an increase of 41
percent for the time period.
Figure 6: TRICARE Pediatric Admissions to Children's Hospitals, Fiscal
Year 2003 through Fiscal Year 2006:
[See PDF for image]
Source: GAO analysis of TRICARE claims data.
Note: A children's hospital under TRICARE is one in which at least 50
percent of a hospital's patients are children.
[End of figure]
The proportion of TRICARE pediatric civilian hospital admissions that
occurred in children's hospitals also increased in recent years. In
fiscal year 2006, children's hospitals accounted for 7.8 percent of all
TRICARE pediatric admissions to civilian hospitals, up from 6.2 percent
in fiscal year 2003 (see fig. 7).
Figure 7: Percentage of TRICARE Pediatric Civilian Hospital Admissions
Occurring in Children's Hospitals, Fiscal Year 2003 through Fiscal Year
2006:
[See PDF for image]
Source: GAO analysis of TRICARE claims data.
Note: A children's hospital under TRICARE is one in which at least 50
percent of a hospital's patients are children.
[End of figure]
The increase in the use of children's hospital services is consistent
with statements made by representatives of children's hospitals about
their policy toward TRICARE patients.[Footnote 27] These
representatives stated that children's hospitals are committed to
treating all children, including TRICARE patients, because of their
legal obligations as nonprofit hospitals as well as their mission to
serve all patients.[Footnote 28] These statements, coupled with recent
trends in utilization, suggest that TRICARE pediatric patients' access
to children's hospitals has not declined in recent years.
Concluding Observations:
The current children's hospital payment system is functioning largely
as DOD expected. In establishing a policy of inflation updates to the
ASA, but no inflation updates to the children's hospital differential,
DOD set up a system in which the difference between children's hospital
base payments and base payments to other hospitals would endure, but
would be reduced gradually over time. This reduction has taken place as
planned.
Given the lack of reliable data, we cannot know the cost to children's
hospitals of treating TRICARE beneficiaries and thus cannot know how
their costs compared to payment amounts. Although greater patient
complexity has been cited as a rationale for larger payments to
children's hospitals, our analysis shows that patient complexity for
children's hospital admissions was roughly comparable to those at
medical centers. While we have only limited indicators of the extent to
which TRICARE pediatric patients have access to children's hospitals,
we did not find data that would support concerns about access problems.
Agency and Professional Association Comments and Our Evaluation:
We obtained written comments on a draft of this report from DOD, which
are reprinted in appendix II. DOD concurred with our findings and
conclusions and said that the report was technically accurate.
We also obtained oral comments from representatives of NACH. They
agreed with our finding that TRICARE pays children's hospitals more
than other hospitals, after accounting for patient complexity, and
agreed with our finding that TRICARE pediatric patients at children's
hospitals were clinically similar to TRICARE pediatric patients at
medical centers. Despite this similarity, NACH said the two types of
hospitals have important differences--most notably that medical centers
are typically larger institutions than children's hospitals and
therefore can achieve greater economies of scale. Given this
difference, NACH officials noted the importance of examining whether
TRICARE's payments met children's hospital costs. However, as we state
in the report, this analysis was beyond the scope of our work--as
agreed to with the committees of jurisdiction--because sufficiently
reliable data on children's hospital costs were not available.
NACH officials raised a concern related to our analysis of the
percentage difference in complexity-adjusted payments to children's
hospitals and other hospital types. Specifically, they suggested that
the percentage difference between complexity-adjusted payments at
children's hospitals and other hospital types would change if outlier
claims--claims with unusually high charges given their DRGs--were
analyzed separately. We could not perform this analysis because the
TRICARE claims data base could not be used to reliably identify all
claims that were cost outliers.
Noting that utilization of children's hospital services is an imperfect
measure of access, NACH officials suggested that the increase in the
use of children's hospital services could have resulted from community
hospitals providing fewer specialty pediatric services. NACH officials
also said that our findings could have resulted from increases in the
number of children enrolled in TRICARE. However, as noted in our
report, the percentage of all TRICARE pediatric admissions that
occurred in children's hospitals also increased, supporting our finding
that access to children's hospitals does not appear to have declined.
Additionally, we received technical comments from NACH, which we
incorporated as appropriate.
We are sending copies of this report to the Secretary of Defense, and
other interested parties. We will also provide copies to others on
request. In addition, the report is available at no charge on GAO's Web
site at http://www.gao.gov.
If you or your staff have any questions about this report, please
contact me at (202) 512-7114 or ekstrandl@gao.gov. Contact points for
our Offices of Congressional Relations and Public Affairs may be found
on the last page of this report. GAO staff who made major contributions
to this report are listed in appendix III.
Signed by:
Laurie Ekstrand:
Director, Health Care:
List of Committees:
The Honorable Carl Levin:
Chairman:
The Honorable John McCain:
Ranking Member:
Committee on Armed Services:
United States Senate:
The Honorable Daniel K. Inouye:
Chairman:
The Honorable Ted Stevens:
Ranking Member:
Subcommittee on Defense:
Committee on Appropriations:
United States Senate:
The Honorable Ike Skelton:
Chairman:
The Honorable Duncan Hunter:
Ranking Member:
Committee on Armed Services:
House of Representatives:
The Honorable John P. Murtha:
Chairman:
The Honorable C.W. Bill Young:
Ranking Member:
Subcommittee on Defense:
Committee on Appropriations:
House of Representatives:
[End of section]
Appendix I: Scope and Methodology:
To analyze the change in TRICARE base payments over time, we obtained
data on the adjusted standardized amount (ASA) and the children's
hospital differential from the TRICARE Management Activity (TMA), the
office that manages TRICARE. Using these data, we calculated the base
payment to children's hospitals and to other hospitals for each year
since 1989.
Most of the remainder of our analysis was based on claims data we
obtained from TMA. The data include TRICARE claims from U.S. civilian
hospitals from fiscal year 2003 through fiscal year 2006 for all
patients under the age at 18 at the time of admission. To analyze the
claims data, we divided providers into three separate categories:
children's hospitals, medical centers, and community hospitals. We
identified children's hospitals as those designated as such by TRICARE.
A children's hospital under TRICARE is one in which at least 50 percent
of a hospital's patients are children. We identified hospitals as
medical centers if they contained a pediatric inpatient unit that was
designated as a "children's hospital within a hospital" by the National
Association of Children's Hospitals (NACH). We classified all other
hospitals as community hospitals.
In analyzing diagnoses and complexity, we examined a subset of claims.
Our analysis was of TRICARE's prospective payment system, and therefore
we aimed to exclude all claims that were paid outside the prospective
payment system. We excluded claims from hospitals that are exempt from
TRICARE's prospective payment system. This group of providers includes
psychiatric hospitals, rehabilitation hospitals, sole community
hospitals, and all institutions in Maryland (hospitals in Maryland are
exempt from TRICARE's prospective payment system).[Footnote 29] We
excluded claims that had an indicator stating that they were paid
according to an alternative payment system, such as a per diem payment
system. We excluded claims that were paid by a health insurance program
other than TRICARE, since these claims can be paid according to the
payment rules of the other payer, with TRICARE as the secondary payer.
We excluded all claims related to bone marrow transplants, cystic
fibrosis, or care for children with HIV, since those claims are
excluded from TRICARE's prospective payment system in cases for which
the patient is a child. As a result of these exclusions, our universe
of claims was reduced from 348,225 claims to 265,857 claims.
We included claims that were paid under a discount rate agreement.
These claims accounted for about half of the claims in our analysis.
The discounted claims can be paid as a percentage discount off the
prospective payment rate, or they can be paid under an alternate
payment methodology. We included these claims even though some of these
claims may not have been paid under the prospective payment system. We
concluded that regardless of whether these claims were paid under a
prospective payment system, the terms of the discount rate agreement
were based on the fact that the hospital was eligible to be paid under
a prospective payment system.
Measuring Complexity of Admissions:
To account for the complexity of admissions, we obtained the All
Patient Refined Diagnosis-Related Group (APR-DRG) grouper program from
3M Health Information Systems (3M). The APR-DRG grouper program was
developed by 3M with input from NACH, which offered its expertise on
classifying pediatric admissions. The APR-DRG grouper program divides
claims into groups, known as APR-DRGs. We applied the APR-DRG program
to the subset of claims that we analyzed. (We also excluded claims that
the APR-DRG grouper program could not categorize). We also obtained a
file of APR-DRG weights from 3M, and we merged this file with our
claims data based on the APR-DRG assigned to each claim. We used this
APR-DRG weight as our refined measure of complexity.
Like TRICARE's DRG grouper program, the APR-DRG grouper program assigns
claims to a diagnosis group (called an APR-DRG in the case of the APR-
DRG grouper) based on diagnostic, procedural, and demographic
information on the claim. However, the APR-DRG grouper divides claims
into a greater number of categories than the TRICARE DRG grouper
program. The APR-DRG grouper program divides claims into 1,258
categories; in comparison, the TRICARE DRG grouper program divides
claims into 553 categories. Since the APR-DRG grouper divides claims
into more groups that are more clinically homogeneous, there is less
variation in complexity within those groups. For example, TRICARE's DRG
grouper program would classify a severe case of pediatric asthma into
the same category as a mild case of pediatric asthma, so long as the
patient did not require ventilator support. The APR-DRG grouper
program, on the other hand, would place these two cases into separate
categories and therefore assign them different weights. As a result,
the APR-DRG grouper program produces a more refined measure of
complexity, as compared to the TRICARE DRG grouper program.
The average complexity of children's hospital claims varied depending
on which grouper program was used to measure complexity. The average
complexity of TRICARE pediatric admissions to children's hospitals was
1.62 using the APR-DRG grouper, 4 percent higher than the average
complexity of TRICARE pediatric admissions to children's hospitals when
the TRICARE DRG grouper was used to measure complexity (see table 4).
The average complexity of TRICARE pediatric admissions at medical
centers was approximately the same, regardless of which grouper program
was used to measure complexity. In contrast, the average complexity of
TRICARE pediatric admissions at community hospitals was lower when the
APR-DRG grouper was used to measure complexity than when the TRICARE
DRG grouper was used to measure complexity.
Table 4: Average Complexity per TRICARE Pediatric Admission by Hospital
Type, Using Both TRICARE DRGs and APR-DRGs, Fiscal Year 2003 through
Fiscal Year 2006:
Hospital type: Children's hospitals;
Average complexity per admission: Using TRICARE's DRGs: 1.56;
Average complexity per admission: Using APR-DRGs: 1.62;
Percentage difference between APR-DRG complexity and TRICARE DRG
complexity: 4.
Hospital type: Medical centers;
Average complexity per admission: Using TRICARE's DRGs: 1.47;
Average complexity per admission: Using APR-DRGs: 1.47;
Percentage difference between APR-DRG complexity and TRICARE DRG
complexity: 0.
Hospital type: Community hospitals;
Average complexity per admission: Using TRICARE's DRGs: .56;
Average complexity per admission: Using APR- DRGs: .52;
Percentage difference between APR-DRG complexity and TRICARE DRG
complexity: -8.
Source: GAO analysis of TRICARE claims data.
Notes: A children's hospital under TRICARE is one in which at least 50
percent of a hospital's patients are children. In this report, a
medical center refers to a teaching hospital that includes a pediatric
inpatient unit that is designated by NACH as a "children's hospital
within a hospital." A community hospital is any hospital that was not a
children's hospital or medical center under our definitions.
[End of table]
In comparing payments to complexity, we adjusted for complexity by
dividing the payment for the claim by the APR-DRG weight. For claims
that occurred at medical centers and community hospitals, the payment
on the claim was increased by a percentage adjustment. We applied this
percentage adjustment to account for payments that medical centers and
community hospitals receive for their direct medical education and
capital expenses, payments that children's hospitals do not receive. We
calculated a percentage adjustment of 8.7 percent for community
hospitals and 9.6 percent for medical centers based on data on capital
and direct medical education payments provided by TMA.
Measuring Inflation:
To assess the level of hospital inflation, we analyzed data from the
Centers for Medicare & Medicaid Services (CMS) on the agency's
Inpatient Prospective Payment System Hospital 2002 Input Price Index
and compared it to TRICARE base payments to children's hospitals. Since
1992, the percentage increase in TRICARE base payments to children's
hospitals has been less than the percentage increase in hospital costs.
From fiscal years 1992 through 2006, hospital inflation has increased
an average of 3.2 percent annually (see table 5). In contrast, base
payments to children's hospitals in large urban areas have increased by
1.2 percent annually, while base payments to children's hospitals in
other areas have increased by 2.1 percent annually.
Table 5: Change in TRICARE Base Payments to Children's Hospitals
Compared to the Change in Hospital Inflation, Fiscal Year 1992 through
Fiscal Year 2006:
Measure: Hospital inflation;
Percentage increase, FY 1992 through FY 2006: Average annual increase:
3.2;
Percentage increase, FY 1992 through FY 2006: Cumulative increase:
56.0.
Measure: Base payment to children's hospitals in large urban areas;
Percentage increase, FY 1992 through FY 2006: Average annual increase:
1.2;
Percentage increase, FY 1992 through FY 2006: Cumulative increase:
18.5.
Measure: Base payment to children's hospitals in other areas;
Percentage increase, FY 1992 through FY 2006: Average annual increase:
2.1;
Percentage increase, FY 1992 through FY 2006: Cumulative increase:
34.5.
Source: GAO analysis of TRICARE payment data and CMS hospital inflation
data.
Notes: A children's hospital under TRICARE is one in which at least 50
percent of a hospital's patients are children. Hospital inflation is
measured by the CMS Inpatient Prospective Payment System Hospital 2002
Input Price Index.
[End of table]
TRICARE base payments to children's hospitals in other areas increased
at a faster rate than TRICARE base payments to children's hospitals in
large urban areas for two primary reasons. In fiscal year 2003, the ASA
for children's hospitals in other areas was increased to match the
higher ASA for children's hospitals in large urban areas. In addition,
in fiscal year 2005 the differential for children's hospitals in other
areas was increased to the level of the higher differential for
children's hospitals in large urban areas. As a result of these two
changes, TRICARE base payments to children's hospitals in other areas
increased by 24 percent from fiscal year 2003 through fiscal year 2005.
We conducted our work from July 2006 through June 2007 in accordance
with generally accepted government auditing standards.
[End of section]
Appendix II: Comments from the Department of Defense:
Health Affairs:
The Assistant Secretary Of Defense:
1200 Defense Pentagon:
Washington, DC 20301-1200:
Jul 16 2007:
Ms. Laurie Ekstrand:
Director, Health Care:
U.S. Government Accountability Office:
441 G Street, N. W.
Washington, DC 20548:
Dear Ms. Ekstrand:
This is the Department of Defense (DoD) response to the General
Accountability Office (GAO) draft report, GAO-07-947, "Defense Health
Care: Under TRICARE, Children's Hospitals Paid More than Other
Hospitals After Accounting for Patient Complexity," dated June 27, 2007
(GAO Code 290560).
Thank you for the opportunity to review and provide comments on the
Draft Report. We have reviewed the report for technical accuracy and
agree with all of the findings. In addition, I concur with the Draft
Report's conclusions. DoD is pleased that the GAO found that TRICARE's
hospital payment system for children's hospitals is functioning largely
as expected.
My points of contact are Ms. Reta Michak (Functional) at (303) 676-3440
and Mr. Gunther Zimmerman (Audit Liaison) at (703) 681-3492.
Sincerely,
Signed by:
S. Ward Casscells, MD:
[End of section]
Appendix III: GAO Contact and Staff Acknowledgments:
GAO Contact:
Laurie Ekstrand, (202) 512-7114 or ekstrandl@gao.gov:
Acknowledgments:
In addition to the contact above, Phyllis Thorburn, Assistant Director;
Alexander Dworkowitz; Hannah Fein; Jenny Grover; Darryl Joyce; Richard
Lipinski; and Dae Park made key contributions to this report.
FOOTNOTES
[1] In this report, a children's hospital refers to a hospital that
TRICARE identifies as a children's hospital. At least 50 percent of a
hospital's patients must be children in order for TRICARE to identify
the hospital as a children's hospital. In addition, TRICARE officials
use information from the American Hospital Association to confirm that
a hospital is a children's hospital.
[2] In this report, we define pediatric admissions as admissions of
children under age 18.
[3] Examples of children's hospitals are Children's Hospital of
Philadelphia and Children's Hospital of The King's Daughters in
Norfolk, Virginia.
[4] Examples of medical centers with a designated pediatric inpatient
unit are the University of Michigan Health System, which includes C.S.
Mott Children's Hospital, and the University of California Los Angeles
Medical Center, which includes Mattel Children's Hospital.
[5] In this report, we define medical centers as hospitals that contain
a pediatric inpatient unit that is designated by the National
Association of Children's Hospitals as a "children's hospital within a
hospital." Some hospitals commonly described as medical centers are
included in this category--if these hospitals do not contain a
specialized pediatric unit and do not meet the criteria of a children's
hospital, they are categorized as community hospitals. See app. I for
more information.
[6] In this report, we define any hospital that is not a children's
hospital or a medical center as a community hospital. This group of
community hospitals includes some hospitals that may be referred to as
medical centers elsewhere.
[7] Prospective payment systems are designed to give hospitals
incentives to contain costs in that hospitals are allowed to retain any
funds not spent on care.
[8] Hospitals also have their payment adjusted based on the area wage
level and for their indirect medical education expenses, which are
calculated based on the ratio of medical residents to hospital beds. In
addition, all hospitals except children's hospitals can receive
separate payments for their capital and direct medical educational
expenses.
[9] The term base payment is not used by TRICARE in the same context.
In this report, our definition of base payment is the amount that is
multiplied by the DRG weight to determine actual payment, before
adjustments for the area wage level and indirect medical education
expenses are applied. Our use of the term reflects language used by the
Centers for Medicare & Medicaid Services.
[10] Members of this organization include more than 120 hospitals that
focus on treating children.
[11] See Pub. L. No. 109-163, § 734, 119 Stat. 3136, 3353-55; S. Rep.
No. 109-69, at 337 (2006).
[12] Our unit of analysis was a hospital admission. Multiple admissions
of the same patient during our period of analysis would be counted
separately.
[13] Prior to the release of this report, DOD and NACH were planning to
produce a reliable measurement of children's hospital costs of treating
TRICARE beneficiaries.
[14] An additional 61,438 pediatric admissions occurred in U.S.-based
MTFs in fiscal year 2006.
[15] TRICARE does not pay all hospitals under a prospective payment
system. Rehabilitation hospitals and psychiatric hospitals, among
others, are by regulation exempt from the system. In addition, TRICARE
maintains networks of providers, and hospitals can join that network
and negotiate a discount rate agreement with managed care support
contractors (MCSC), organizations that manage provider networks on
behalf of TRICARE. This discount can take the form of a discount off
the prospective payment rate. Alternatively, MCSCs can negotiate to pay
hospitals under a different methodology, such as a per diem rate.
Claims that were paid at a discount were included in our analysis. For
more information, see app. I.
[16] See 10 U.S.C. § 1079(j)(2).
[17] See 53 Fed. Reg. 50515-20 (Dec. 16, 1988). This final rule was
consistent with the Department of Defense Appropriations Act for Fiscal
Year 1989, Pub. L. No. 100-463, § 8091, 102 Stat. 2270, 2270-33 to 2270-
34 (1988).
[18] See 32 C.F.R. § 199.14(a)(1)(iii)(E)(4)(v) (2006).
[19] From April 1, 1989, to April 1, 1992, children's hospitals that
had a high volume of TRICARE admissions (defined as 50 or more TRICARE
admissions per year) received a hospital-specific children's hospital
differential, and the remaining hospitals were assigned one of two
national differentials: one for children's hospitals in large urban
areas and another, lower differential for children's hospitals in other
areas. (A hospital was considered to be located in a large urban area
if was located in a metropolitan statistical area, as defined by the
Office of Management and Budget, that had a population of more than 1
million, or in a New England County Metropolitan Area with a population
of more than 970,000.) On April 1, 1992, DOD stopped paying high-volume
hospitals a hospital-specific differential and recalculated the values
of the national differentials to include data from the high-volume
children's hospitals. This was the first change in the differential.
The second change occurred at the beginning of fiscal year 2005, when
the value of the differential for children's hospitals in other areas
was increased to the value of the differential for children's hospitals
in large urban areas.
[20] See 53 Fed. Reg. 20576, 20579-80 (June 3, 1988).
[21] Children who are suffering from asthma or bronchitis and need to
be placed on a ventilator are typically classified into DRGs other than
DRG 98.
[22] This assumes the admission is not classified as an outlier.
[23] This assumes the two hospitals have the same wage adjustment and
are paid the same amount for their indirect medical education expenses.
[24] The decline in the relative difference in base payments between
children's hospitals and other hospitals in other areas was mitigated
by the 2005 increase in the children's hospital differential for
children's hospitals in other areas.
[25] We measured complexity using the All Patient Refined Diagnosis-
Related Group (APR-DRG) grouper program, which is a more refined
measure of complexity than that used by TRICARE. The company that
developed the APR-DRG grouper refers to patient complexity as severity
of illness. For more information, see app. I.
[26] From fiscal year 2003 through fiscal year 2006, the average
pediatric patient complexity, excluding normal newborns, was 1.65 at
children's hospitals, 1.73 at medical centers, and .96 at community
hospitals.
[27] Any hospital that participates in Medicare is legally required to
accept TRICARE patients, and many children's hospitals accept Medicare
patients. See 42 U.S.C. § 1395cc(a)(1)(J). However, hospitals are not
required to join TRICARE's network of providers. TRICARE beneficiaries
who need a referral to see an out-of-network provider could face
restrictions in accessing children's hospital services if many
children's hospitals declined to join TRICARE's network.
[28] Children's hospital representatives did express concern about the
level of TRICARE payments affecting their ability to maintain readily
available services and noted that this could have a negative impact on
patient waiting times.
[29] Maryland hospitals are also exempted from Medicare's prospective
payment system.
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