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The Effects of Case Mix on Hospital Costs and Revenues in Managed Care Environments

Author: KEON-HYUNG LEE, GLENN A. MELNICK and ROBERT C. MYRTLE
Published in JHHSA, Vol. 28 No. 1

Due to competition and managed care, hospitals have argued
that the rate of increase in hospital cost is greater than the rate of
increase in hospital revenue. It is important to pay hospitals based on
the expected resource use of patients that hospitals treat. However,
managed care organizations pay hospitals based on negotiated prices
that do not consider the expected resource use of patients. The purpose
of this paper is to provide a better understanding of those factors
affecting hospital cost and revenue in California using the hospital
financial and utilization data for selected years from 1986 to 1998. By
developing case mix indexes (CMIs) using all hospital discharges in
California, this study found that the coefficients for CMIs in total and
inpatient hospital revenue models were greater than those in hospital
cost models. Over time, however, the differences in coefficients for
CMIs in hospital revenue and cost models become smaller and smaller.
Thus, this study shows that the difference between hospital revenues
and hospital costs, looking at hospital case mix, has decreased,
although hospital revenues are still greater than hospital costs.

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