Methods for Estimating Private Sector Payments for VA Acute Inpatient Stays

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Abstract
To describe methods for estimating hypothetical private sector payments for Veterans Health Administration (VA) acute inpatient stays. We assumed all VA hospitalizations would have occurred under a hypothetical VA system that paid private sector providers but had the current benefit package for VA patients. We compared aggregate budgets for VA inpatient care (less physician salaries) at six VA hospitals over federal fiscal year 1999 to aggregated hypothetical private sector payments developed using VA diagnosis-related groups matched to metropolitan-based average Medicare payments. Counts of care came from the VA's statistical analysis system (SAS) inpatient files. Inpatient stays with both medical or surgical and psychiatric or rehabilitation care were counted as two stays. An external auditor conducted three reviews of VA coding practices during the study year, and the appropriateness of admissions was examined using a commercial utilization review tool. For 30,518 inpatient discharges, hypothetical payments were $188 million, compared with the VA budget of $171 million. Fifteen of the 25 most frequent diagnosis-related groups in the VA were also in the top 25 for Medicare in 1998 and 1999. Audits established that the overall financial impact of VA coding problems was similar to that in the private sector. Differences in organization, practice, and incentives limit estimates of the financial impact of shifting VA acute inpatient care to the private sector.