Use of Risk Adjustment Models for Provider Reimbursements - Text Mining Techniques for Healthcare Provider Quality Determination - page 357

Chapter 10
Use of Risk Adjustment Models
for Provider Reimbursements
IntroductIon
In this chapter, we will focus on the use of patient severity indices to determine the reimbursement to
healthcare providers. In order to do this, we must first examine the standard practice of reimbursing
hospitals for specific DRG codes, and for reimbursing other providers based upon a point system that
designates the level of service. We especially want to investigate the problem of upcoding, or “gaming”
in more detail to determine if it can be detected and corrected, so that providers are reimbursed based
upon the actual level of care, and not upon better coding practices.
Each hospital has a contract with a healthcare provider that designates the level of reimbursement.
The reimbursement is based upon a general formula, with consideration of locat costs. However, these
formulas are linear, suggesting that the standard assumption is made that the patient costs are normally
distributed. As discussed in Chapter 3, this assumption is not valid. Therefore, we will also examine the
issue of reimbursement based upon the normal distribution to determine whether such reimbursements
are reasonable, or whether providers are losing money because of the need to treat patients who need
extraordinary care. Unfortunately, regression assumes that the relationship of cost to need is linear; if
the distribution is gamma or exponential, the relationship will not be linear and the cost will be skewed.