PROSPECTIVE PAYMENT SYSTEM (PPS)

DIAGNOSTIC RELATED GROUP (DRG)

MANAGED CARE

CASE MANAGEMENT
 Outlines:

Prospective payment system (PPS)

Introduction
Definition
The Primary Purpose of Prospective payment
Four chief objectives in creating the PPS
Impact of using PPS
Effects of using PPS in nursing
Why a prospective payment system (PPS)?
Methods for prospective payment
Medicare reimbursement
Characteristics of Medicare (PPS)
Role of the Registered Nurse in Prospective Payment
 Diagnostic related group (DRG)
Introduction
Definition
Basic characteristics of the DRG patient classification system:
Steps for Determining a DRG
Diagnosis Related Groups emphasis is on
The basic elements for DRG-based hospital payment system:
Strengths of DRG payment system
How is Patients Allocated to a DRG?
Criticism of DRG
 Managed care
Introduction.
Definitions of managed care
Objectives of Managed Care
Components of managed care system
Impacts of Managed care
Characteristics of Managed care
Managed care techniques
Effectiveness of Managed Care on health
The most common forms of Managed care
Physicians negative react to Managed Care
 Case Management
Introduction
Definitions of case management
Essential elements of nursing case management
Five elements case management
Aims of case management
Characteristics of nurse case manager
Case management involves the following
Case management process include
Component of case management
Case manager’s approaches
Case Management may be helpful if you have
Advantages of case management:
Case management tools:
Models of case management
The role of case manager
Prospective payment system (PPS)
 Introduction:

Payment policy in the United States since the introduction

of the Medicare Program for the elderly and disabled populations
in the 1960s has been evolving from providing little incentive for
hospitals to contain costs to its current form, which creates an
enormous incentive for cost containment. Prospective payment
systems are intended to motivate providers to deliver patient care
effectively, efficiently and without over utilization of services.
The concept has its roots in the 1960s with the birth of health
maintenance organizations (HMOs).
 Definitions:

 Prospective payment is a fixed reimbursement amount for

all the care required for a particular surgical procedure, an
illness, or an acuity category.

 A prospective payment system (PPS) is a term used to

refer to several payment methodologies for which means
of determining insurance reimbursement is based on a
predetermined payment regardless of the intensity of the
actual service provided.
 The Primary Purpose of Prospective:
To better control health care costs by giving hospitals incentives to
promote more cost-effective delivery of health care to patients.

Four chief objectives in creating the PPS:

1. To ensure fair compensation for services rendered and not
compromise access to hospital services, particularly for the
more seriously ill;
2. To ensure that the process for updating payment rates would
account for new medical technology, inflation, and other
factors that affect the cost of providing care;
3. To monitor the quality of hospital services for Medicare
beneficiaries; and
4. To provide a mechanism through which beneficiaries and
hospitals could resolve problems with their treatment.
 Impact of using PPS:
 Shorter hospital stays.

 Fewer unnecessary tests and services.

 Adoption of cost-reducing technology.

 Improvements in hospital management.

 Improvements in hospital administrative data systems.

 Reduction of excess hospital capacity.

 Cost savings for all payers, with resulting reductions in health

insurance premiums.
 Effects of PPS in nursing:

1. Increased availability of services in nonhospital settings.

2. Reduction of post-procedural complications.
3. Reduction of mortality rates
4. Early discharge of clients,
5. decline in admissions,
6. Rise in number and type of outpatient services,
7. Increased focus on the costs of care. 
8. Has also lead to expansion of home care services and
increased use of technology and specialists.
 Why a prospective payment system (PPS)?

 The PPS was created to motivate providers to deliver patient

care in a cost effective,
 Efficient manner without overutilization of services.
 The provider knows the dollar amount they will be reimbursed
in advance and can either make money or lose money.

 Where the traditional fee - for- service payment system can

create an incentive to add unnecessary services, the PPS
system discourages this.
 Methods of paying hospitals

 Under a per diem payment system, payments to a hospital for

each day in the hospital are constant, regardless of how
intensively a patient is treated during a given day.

 Under a Diagnosis Related Group (DRG) payment system,

the hospital is paid a fixed amount per inpatient episode of
treatment. It is easy to see that per diem and DRG payment
systems create an incentive to contain costs within each unit of
payment (per day or per episode).
 Medicare reimbursement
Medicare reimbursement refers to the payments that
hospitals and physicians receive in return for services
rendered to Medicare beneficiaries.

Characteristics of Medicare (PPS):

o Prepayment amounts cover defined periods (per diem, per

stay, or 60-day episodes).
o The payment amount is based on a unique assessment
classification of each patient.
Cont..
o Patients are classified into one of the categories determined by
the Di­agnoses Related Group patient classification system
(DRG) for the pur­poses of payment.

o With the exception of a limited number of "outlier" patients,

hospitals receive a prospectively set payment per DRG. (These
payments are sup­posed to cover "operating" costs. Hospitals are
reimbursed on a retrospec­tive cost basis for capital and direct
education costs. In the future, PPS may be extended to cover all
costs.
 Role of the Registered Nurse in PPS

1. Registered nurses have an important role in ensuring that

residents in Skilled Nursing Facilities receive the maximum
benefit from their Medicare stay.

2. Registered nurses are responsible for assessment and

reassessment of residents to ensure that appropriate care
planning is performed and appropriate services are delivered
to each resident.
Cont..

3. In addition to ensuring quality care for residents, registered

nurses are responsible for ensuring that the resident's
assessment reflects the resident's condition and the services
provided.

4. It is essential that registered nurses develop systems which

ensure that each section of the assessment is completed
accurately and within the time frames required by the Medicare
reimbursement system.
Diagnostic Related Group (DRG)
 Introduction:

The Diagnosis Related Group (DRG) system

implemented by Medicare for hospital payment in 1983 is
viewed favorably in terms of slowing cost escalation of
inpatient care, while maintaining quality and access.
Prospective payment provides a comprehensive overview of
hospital payment systems based on diagnosis-related groups
(DRGs) in low and middle-income countries. DRG
payments are not fully prospective, in that payments depend
on procedures and outlier payments
 Definition:

Diagnostic Related Group (DRG) a classification

system that groups patient into categories based on the
average number of days of hospitalization for specific medical
diagnosis, considers factors such as the patient's age,
complications and other illness.
 Basic characteristics of the DRG -PCS

1. The patient characteristics used in the definition of the DRGs

should be limited to patient information routinely collected on
hospital abstract systems.

2. There should be a manageable number of DRGs which

encompass all patients seen on an inpatient basis.
3. Each DRG should contain patients with a similar pattern of
resource intensity.
4. Each DRG should contain patients who are similar from a
clinical perspective.
 Steps for Determining a DRG

1. Determine the principal diagnosis for the patient’s

admission.

2. Determine whether or not there was a surgical procedure.

3. Determine if there were any significant comorbid

conditions or complications.

A comorbid condition is an additional medical

problem happening at the same time as the principal medical
problem.
 Diagnosis Related Groups, emphasis is on:

1. Diagnoses,
2. Payments can also reflect whether surgical procedures are
used,
3. Length of stay,
4. Teaching adjustments,
5. Transfer status
6. Cost sharing for outliers, and hence the system is not fully
prospective or solely based on diagnoses.
Basic elements for DRG-based hospital payment system

 A patient classification system to group patients with similar

clinical characteristics and relatively homogeneous.
 Hospital cost information used to determine DRG weights,
usually based on relative average treatment costs of patients
falling within each DRG;
 A standard monetary conversion factor, used to convert DRG
weights into base payment rates for each DRG;
 Actual payment rates, obtained by adjusting the DRG base rates
for structural differences across hospitals.
 Strengths of DRG payment system:

 Because the payment amount per principal diagnosis is fixed,

hospitals have strong incentives to reduce costs per stay.
 Payers can achieve savings over time because hospitals‘
responses to DRG incentives lower average costs per case.
 Hospitals may improve care quality because they will
typically improve internal care pathways and reduce lengths
of stay.
Cont..

 DRGs may be more market-oriented than other hospital

payment systems because hospitals may improve quality
and efficiency.
 Having a uniform, standard classification system facilitates
transparency and permits inter hospital comparisons by
payers and consumers.
 Weaknesses of DRG payment system:

 With a fixed payment per case, hospitals retain an incentive to

increase the number of patients hospitalized, even when
outpatient management is acceptable or preferred.
 Hospitals benefit from increasing revenues per patient, most
easily achieved by changing coding practices of diagnoses and
procedures or by providing services that lead to reclassification
of patients into higher-paying DRGs.
 In comparison to other methods for paying hospitals, DRGs are
more complex, requiring coding expertise, data systems, and
active oversight of coding by payers.
 Cont..

 In commonly used DRG designs, performing a surgical procedure

produces a substantially higher payment net of cost for the same
diagnosis without a procedure.
 Hospitals may discharge prematurely, or if the patients are
readmitted. (unless the DRG design does not permit a new
payment for readmission within a specified time period, e.g., 30
days).
 Hospitals may transfer patients to other hospitals or post-acute
care facilities, generating overpayments from the artificially low
length of stay.
Cont..

 More administrative complexity.

 It would impede the introduction of new advanced
technology to healthcare services provided by health
insurance.
 Individual medical needs could not be addressed
appropriately.
 Patient selection would be risky, and medical providers
would tend to avoid very ill patients.
 How is Patients Allocated to a DRG?

The information required to allocate the DRG is usually

obtained from each patient‘s medical records via the Medical
Record Department after discharge. Before classifying a
patient, it is important that all diagnoses, pre-existing
conditions and surgical procedures are fully documented or
the patient may be placed in an incorrect DRG category. This
means that the data items must be present at discharge to
ensure that the episode of hospitalization is correctly
assigned.
 Criticism of DRG:

 The first criticism: payment formula requires payments to

be calculated for a given year well in advance, introducing
the possibility that actual cost inflation will be higher or
lower than anticipated.

 A second criticism, particularly in the 1980’s, is that DRGs

may discourage quality or create too strong an incentive for
providers to reduce costs.
Cont..

 There are no convincing studies that demonstrate quality

or excessive cost containment, and proposes to move
toward greater, not lesser use of prospective payment.
 DRGs challenging to incorporate new technologies.

 Perhaps the greatest criticism of the DRG system is that

it creates distortions on its boundaries.
Managed care
 Introduction:
The term managed care (MC) or managed health care is
used to describe a health insurance plan or health care system or,
a variety of techniques intended to reduce the cost of providing
health benefits and improve the quality of care ("managed care
techniques") for organizations that use those techniques or
provide them as services to other organizations ("managed care
organization" or "MCO"), or to describe systems of financing and
delivering health care to enrollees organized around managed
care techniques and concepts ("managed care delivery systems").
 Definition:

 Managed care: is an approach to delivering and financing

health care that is aimed at both improving the quality of
care and saving costs.
 Managed health care: is a system of health care delivery
that attempts to manage the cost and quality of health care
as well as access to that care
 Impacts of Managed care:
1. Increased efficiency,
2. Improved overall standards, and
3. Better understanding of the relationship between costs and
quality.
Objectives of Managed Care:
1. Less cost of work time by the employee
2. Fewer and shorter hospitalization
3. Less costly of health care
4. Increased efficiency
5. Improved overall standards
 Components of a Managed Care System:
 Managed care plans establish networks of service providers
who agree to the conditions of a contract and choose providers
based on the cost, quality and range of services they provide.

 Access to a plan is often through a ‘gatekeeper’ or single point

of entry, a primary care provider.

 The primary care provider usually manages patient access to

specialists and other plan service providers.

 The managed care plans shift financial risk to service providers

by a variety of reimbursement systems.
 Characteristics of a Managed Care System:

1. Quality is monitored and evaluated.

2. Utilization management and data support care decision.

3. Primary care is central importance.

4. Interdisciplinary care and interdependence are necessary

components of health care delivery.

5. Contracts are used to detail finances and delivery of services.

 Managed care techniques:

• A set of designated doctors and health care providers

called, known provider network,

• standards for selecting providers

• Formal utilization review and quality improvement

programs

• An emphasis on preventive care

• Financial incentives to encourage use of care efficiently

Increasing Effectiveness of Managed Care:

 Employers should set practice guidelines or standards of

care to be followed by the physicians.
 Employer’s managed care program should not be
dominated by a single person or authority.
 Tools of employer’s managed care programs should be
these:
1. Networks
2. Case management
3. Utilization review
4. Quality assurance
Cont..

 Employer-dominated authority to keep these tools at

maximum effectiveness is needed.
 Participant communications should be practiced.
 Quality data to measure effectiveness should be stressed.
 Wellness and behavioral changing products/services
should be offered.
 Anti-fraud audits are needed as well as close monitoring
of noninvasive diagnostic testing and laboratory charges.
The most common forms of Managed care:

1. Health Maintenance Organization (HMO)

2. Independent Practice Association (IPA)

3. Preferred Provider Organization (PPO)
4. Point Of Service (POS)
5. Private Fee-For-Service (PFFS) as Managed care in
indemnity insurance plans
6. Exclusive provider organization
Physicians negative react to Managed Care:

 Quality care is being denied.

 Managed care is profit-driven.
 Managed care will bring on a single payer national plan.
 Physicians get hassled and burdened with paperwork.
 Traditional physician-patient relationship is poisoned.
 Physicians’ income is reduced.
 Managed care induces physicians to be manipulators.
Case Management
 Introduction:

Case management is a care delivery model designed to

coordinate and manage patient care across the continuum of
health care systems. Case managers are usually involved over an
“entire episode of illness/ disability or need for services”. Nurse
case managers actively participate with their clients to identify
and facilitate options and services for meeting individuals' health
needs. Nurse case manager manages a caseload of patient (10-
16patients) from preadmission to discharge.
 Definition:

 Case management: "a dynamic and systematic collaborative

approach to provide and coordinate health care services to a
defined population. The framework includes five components:
assessment, planning, implementation, evaluation, and
interaction.
 Case management as "a collaborative process which assesses,
plans implements, coordinates, monitors, and evaluates options
and services to meet an individual's health needs through
communication and available resources to promote quality cost-
efficient outcomes"
Essential elements of nursing case management:

1. Collaboration of all health care members.

2. Identification of expected patient outcomes with time
frames.
3. Use of principles of continuous quality improvement and
variance analysis.
4. Promotion of professional practice.
 Five elements of case management:

Five elements are essential to successful implementation

of case management:
1. Support by key members of the organization
(administrators, physicians, nurses).
2. Selection of a qualified nurse case manager.
3. Collaborative practice teams.
4. A quality management system.
5. Established critical pathways.
 Aims of case management:
1. Decreasing fragmentation and duplication of care.
2. Enhancing quality, cost-effective clinical outcomes.

3. Collaborative practice and planning among all health care.

4. Focus on outcomes achievement.
5. Improve professional satisfaction with practice.
6. Focus attention on quality, outcomes, and cost of care
throughout the patient's episode of illness and to assist the
patient to move through the continuum of care.
7. Nursing case management provides a continuum of health care
services for defined groups of patients.
 Characteristics of nurse case manager:
 The nurse case manager must possess clinical expertise.
 Effective communication and problem-solving skills.
 Broad knowledge of the health care system, including
financing, regulations, and resources

Case management involves the following:

1. Case manager- a nurse responsible for evaluating the care plan
of patients.
2. Care plan composed of critical paths, objectives of care, and
time lines.
3. Evaluation of variance – if the patient cares from the critical
path, a report is made to reduce the impact of the complication.
 Case management process:

1. Identifying a patient population,

2. Accomplishing a complete assessment,

3. Defining outcomes with time frames for accomplishment,
4. Negotiating the plan with the patient and the caregivers,

5. Implementing and monitoring the plan, analyzing results,

6. Taking action as needed, and

7. Evaluating and adjusting the plan.

Component of case management:

1. Assessment

2. Planning

3. Implementing

4. Evaluating

5. Interaction
 Case manager’s approaches:

 Case mangers employed by the hospitals follow a

patient from the time admission is planned through the
time of discharge. This case manager might plan the
admitting process to ensure that all preadmission work-
ups are completed and that the patient is being admitted
at the appropriate time to facilitate follow-up through on
problems.
Cont..

 Case managers in private practice may focus on a

particular group of client. For example, the geriatric case
manager focuses on managing care. the older client. The
private case manager is paid by the client or family usually
based on the hours of service provided. The case manager
may help the family to identify all the options for care and
treatment, ask questions to obtain greater understanding of
the overall problem, and work with the family in the
decision-making process.
Case Management may be helpful if you have:

 Chronic or multiple health problems

 A serious or terminal illness

 More than one Provider for different specialties

 Lack of family or community support

 Difficulty following your Provider's plan of care.

 Advantages of case management:
a) For the patient:
 Establishing and achieving a set of “expected” or standardized
patient care outcomes for each patient.
 Facilitating early patient discharge or discharge within an
appropriate length of stay.
 Using the fewest possible appropriate health care resources to
meet expected patient care outcomes.
 Facilitating the continuity of patient care through collaborative
practice of diverse health professionals.
b) For the nurse:
 Enhancing nurse’s professional development and job
satisfaction.
 Facilitating the transfer of knowledge of expert clinical staff to
novice staff.
 Case management tools:

1. Case Manager Plan (C M P): Is a multicolumn plan with

accompanying time line that includes medical and nursing
diagnosis, desired care outcomes, intermediate daily goals to
supports each outcome, and the daily activities required of
nurse, physicians, and other care givers to achieve
intermediate goal.

2. Clinical pathways (critical paths. Practice protocols,

care maps) Successful case management relies on critical
pathways to guide care. It refers to the expected outcomes
and care strategies developed by the collaborative practice
team. Critical paths provide direction for managing the care
of a specific patient during a specific time period.
Some features are included on all critical paths:

 Specific medical diagnosis

 The expected length of stay
 Patient identification data
 Appropriate time frames

Advantages:

1. Accommodate the unique characteristics of the patient

2. Use resources appropriate to the care needed and, thus, reduce
cost and length of stay.
3. Used in every setting where health care is delivered.
4. Quickly orients the staff to the outcomes that should be
achieved for the patient for that day.
Essential component of clinical pathways:

1-Consult 2- Laboratory and diagnostic tests

3-Treatments and medications 4-Nutriotion
5-Safety and self-care activities 6-patient and family education
needs
7-Discharge planning 8-May address triggers

Clinical pathway goals:

1. Identify patient family needs

2. Determine time frames required to achieve quality patient
outcomes
3. Reduce length of stay and inappropriate use of resources
4. Clarify the appropriate care setting, providers, and timeliness of
interventions.
Development of clinical pathways:
 Based on accepted standards of practice
 Medical especially boards have developed clinical practice
guidelines for a variety of conditions
 Developed for the health care organizations most common or
costly diagnosis.
 A team supported by management, with representatives from
various disciplines including nursing medicine, therapy,
pharmacy, and dietary develop clinical pathways.
 Models of case management:

1. One popular case management model is unit based with

single nurse filling the primary nurse and case manager roles
simultaneously. This person is responsible for patient care from
admission to discharge, with emphasis on length of stay, writing
the nursing care plan and nursing orders, and delegating to care
associates on all shifts.

Advantages:
- Using assignment patterns close to those already in effect in
many places.
- Case manager is not too different from the primary nurse except
for the strong focus on outcomes.
Cont..

2. Models separate care giving and case management. The

case management role shifts to a planning/evaluating mode
and is less associated with direct care giving. The case
manager in this design is responsible for a patient's care and
related outcomes throughout the entire episode of illness, no
matter who deliver the actual care. Nurse case manager is
linked with case specific attending physicians, sometimes the
caseload is determined based on geography, keeping a nurses'
case load on one or limited number of units.
Cont..

3. Pro-act plan. The pro act plan involves three separate

registered nurse roles, the head nurse, the primary nurse, and
the clinical nurse manager (the case manager), licensed
practical nurses (LPNs) and nurse's aides are also used in
direct care.
This plan called for expansion of clinical and nonclinical
support services. The clinical manager (case manager)
coordinating with physicians, nursing staff, and other professional
to ensure that patient outcomes are achieved in established time
frames.
Cont..
- The clinical care manager assesses each patient before
admission, provides clinical consultation for primary and has
24 hours accountability for patient in her case load.
- She assesses each patient's progress throughout his hospital
stay, also, plans for his discharge and necessary discharge
teaching. Approximately three clinical managers operate on
each unit with case load of 10 to 11 patient.
- In pro act plan, the clinical care manager is accountable to the
head nurse of her unit.
Cont..

- The primary nurse in this plan manages the patient's on 24

hour basis, participating in direct and indirect care delivery.
She assesses her patients each shift, delegating tasks to
licensed practical nurses (LPNs) and aids, her case load of
patients' changes only as patients admitted or discharge.

- The head nurse in this model has the traditional managerial

responsibility, coordinating the work of all the nursing staff,
including primary nursing, clinical managers and others.
 The Role of Case Manager:
1. Collect comprehensive assessment data, including: physical
status, mental states, emotional status, family community, and
financial resources.
2. Communicate problem statements to appropriate resources.
3. Develop a plan of care in collaboration with patient, family,
and other health care worker.
4. Consider cost containment.
5. Intervene, monitor delivery of care.
6. Achieve case coordination.
7. Make referrals provide follow up.
8. Assess monitor patient outcomes 
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