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The impact of DRGs: a five-year overview.

Hospital occupancy and length of stay are slowly rising, along with lab budgets and staffing, signaling some relaxation

after the first few years of DRG austerity.

Hospitals and their laboratories appear to have reached their cost-cutting limits after five years of nationwide prospective payment. A trend toward expansion of services has set in, MLJO found in its annual survey on the impact of the Diagnosis Related Groups system:

$Hospital occupancy rose in 1988 after four consecutive years of decline. Average length of patient stay was up for the second straight year after hitting rock bottom in 1986.

$Test volume climbed this year over 1987 levels at a large majority of hospital laboratories. In contrast, one-third of the laboratories surveyed in 1984 reported higher annual test volume. Each MLD survey since then has seen more labs reporting volume gains.

$Two-thirds of the laboratories have bigger budgets this year, compared with about one-third in 1984. As with test volume, the proportion of labs reporting increased budgets grew steadily each year after the low of 1984.

$When DRGs first came on the scene, laboratory staffing freezes and cuts were common; very few of the labs surveyed in 1984 increased the size of their staff. As test volume rose, staffing restrictions eased to the point where nearly half of the laboratories increased their number of employees in 1988. Recruitment became tougher, however: The austerity of prospective payment contributed to a national shortage of medical technologists.

Despite recent signs of expansion, the profit outlook at hospitals has grown slightly dimmer. Only three-quarters of the respondents expect a positive financial margin at their institutions this year, the smallest proportion since MLD's DRG surveys began.

This picture emerges from an overview of MLO's five annual surveys on the impact of DRGs. Part I of our special report will compare the results of the 1988 survey with statistics from previous years. Part 11 will detail how laboratories are handling their finances, personnel, and operations this year.

The majority of laboratorians polled during year 5 of DRGsmainly hospital laboratory directors, managers, and supervisors on our Professional Advisory Panel-felt that quality of laboratory services had not declined under DRGs.

Most of the respondents first started working under the prospective payment system in 1984. The average percentage of Medicare cases in their hospitals is 46 per cent, and more than two-fifths say that other government and private payers have adopted a DRGtype payment system in their area.

Because the DRG system rewards expedited handling of cases, hospitals have struggled to cut patient lengths of stay. In 1988 to date, the average length of stay has been 6.0 days (5.1 days at hospitals with fewer than 300 beds and 7.1 at larger hospi

tals). This compares with 5.4 days in 1987 and 5.1 days in 1986-the low point since DRGs were introduced (see Table I ).

Similarly, hospital occupancy first decreased and now is picking up. This year the average occupancy is 64 per cent (56 per cent at small hospitals, 76 per cent at larger hospitals). The occupancy low point of 62 per cent occurred in 1987.

In three of the four earlier DRG surveys, positive financial margins were recorded at 80 per cent or more of the respondents' hospitals. The proportion dipped below that level in 1985 (77 per cent), but this year it fell to its lowest point under DRGs, 74 per cent (Table 11).

Eighty per cent of the panelists' laboratories have higher test volume this year than in 1987; the average rise is 11 per cent (Table 111). This is a sharp upturn from 1984, when only 32 per cent of the labs had higher test volume.

Outpatient testing seems to be the principal reason the number of tests keeps going up. Among labs marketing outpatient services, 92 per cent increased their volume of such tests, by an average of 22 per cent. In two-thirds of the labs, preadmission test volume increased, by an average of 19 per cent over the previous year.

Some respondents cited reasons for inpatient test volume increases, including more admissions and sicker patients who need more tests. Efforts to curb unnecessary inpatient testing lost some ground; Part 11 of our report provides data on this point.

Fifty-five per cent of laboratories increased their roster of inhouse tests during the last year. Thirty per cent reported no change, and 15 per cent trimmed their test menu (see Table IV).

Jay Proud, laboratory technical director at 44-bed Morgan Country War Memorial Hospital in Berkeley Springs, West Virginia, commented on the lab's introduction of therapeutic drug monitoring assays: "Tests were coming back too late from reference labs, so we added gentamicin in-house, and the doctors started ordering more of it. The same thing happened when we added quinidine and phenytoin. Once our own lab offered the tests, physicians in the area began sending their patients here."

Even though many labs expanded their list of in-house tests, nearly half of them relied more heavily on reference labs in 1988. Twenty per cent sent out less test work, and 31 per cent used reference labs to the same degree (see Table IV).

Lab operating budgets have risen steadily from year to year since 1984, as Table V demonstrates. This year, 66 per cent of the panelists said their lab budgets are bigger than in 1987, by an average of 13 per cent. One lab reported that its budget had doubled between 1987 and 1988!

Budgets were reduced at 17 per cent of the labs in 1988 and left unchanged at 1 7 percent.

Fifty-three per cent of the hospital laboratories had a capital expenditure request rejected during the year. "The only time I get a new instrument is when the old one dies," one rural laboratorian remarked.

To overcome sales resistance, manufacturers often make their offers more attractive. Eighty-one per cent of the panelists found this happening during 1988. Jim Breck, laboratory manager at 268-bed Yuma (Ariz.) Regional Medical Center said: "I think everyone has realized that it's not just the instrument, it's the reagents that go with the instrument. Companies get their instruments into the laboratory and are able to sell proprietary reagents over the long term, which means high profits. For the last couple of years, a few instrument manufacturers have been discounting or giving away instruments as long as people buy their reagents."

Some small labs, however, do not always find the offers enticing. "We don't have the volume to pay for a reagent rental arrangement," Jay Proud said. "Manufacturers say they want me to do at least $2,000 worth of business per month in reagent rentals for the instrument I leased. But I use only $1,700 worth, so I usually end up purchasing the machine."

In 1988, turnaround time speeded up at 36 per cent of labs, slowed down at 17 per cent, and remained unchanged at 47 per cent. Five years earlier, in our 1984 DRG survey, only 16 per cent of the responding laboratories had managed to cut turnaround time, (MLO also conducted a survey this year that specifically dealt with turnaround time. As reported in the August issue, 44 per cent of the panelists said their labs had cut turnaround time since the phase-in of nationwide prospective payment.)

Noting that "we have a lot of Stats," Rick Tucker, assistant administrative director for pathology at 650-bed North Mississippi Medical Center in Tupelo, said tumaround time had been shortened in his laboratory. He called TAT "the key factor under DRGs."

Kay Blake, administrator of laboratory services at 607-bed Kennedy Memorial Hospitals in Cherry Hill, N.J., agreed. "Turnaround time has got to be the number one change since I came here in 1984. We have constantly tried to push for faster tumaround time and have looked at the turnaround aspects of doing more work in-house. It's often more cost-effective to perform tests here than it is to send them out."

Staffing has had its downs and ups (Table VI). In 1984, 57 per cent of the laboratories decreased their number of full-time equivalent employees, and only 4 per cent increased their FTEs. By 1986, staff size still was being held down: Only 16 per cent of the labs had increased their FTEs. But this year, 44 per cent of the panelists said their labs had expanded staff size.

Adding FTEs wasn't easy. About half the panelists said their labs had trouble keeping employees in the last year, and 69 per cent had difficulty recruiting new help. Forty-two per cent increased their use of temporary help during this period.

At 30-bed Audubon (Iowa) County Memorial Hospital, laboratory manager Carmen P. Adams said only two of her three employees work on a full-time basis, and even that represents a recent improvement in staffing. "Our outpatient workload is increasing to such an extent that when I hired a replacement, I hired a full-time person, or we would never have made it. We just picked up another nursing home, about 15 miles from here, so we'll be impacted by more time away from hospital lab activities. I would like to hire a part-time phlebotomist, but we haven't been able to find one. Recruiting is difficult." Adams recently hired a high school student to clear up the clerical work, but until last year had no one to do that work for her.

A laboratory supervisor at a large Midwestern hospital said the lab has cut supervisors rather than lower-level employees because hospital personnel policy dictates that more employees should do their work with less supervision. "This works for us, because we have real good people. But people are spread thin, and this policy puts more responsibility on the bench technologist. I think we might have to reevaluate the policy if the medical technologist shortage forces us to hire people with less education and experience."

This year, hours of available service increased at 23 per cent of the laboratories surveyed and remained the same at 74 per cent. Overtime hours increased at 52 per cent of labs, decreased at 13 per cent, and remained unchanged at 35 per cent.

Overtime because of unnecessary work is especially irksome to John D. Fitzgibbon, laboratory manager at 29-bed Harbor Beach (Mich.) Hospital. "When I worked at a 750-bed hospital, we never ran cardiac enzymes after 8 p.m. They were always drawn and held until the next morning. But now physicians use the excuse, 'DRGs-I have to have it at 2 a.m., 3 a.m.,' whenever the orders come in. That increases our overtime.

"Administration looks at our bottom line, says we're over budget, and the only way we can reduce the budget is to cut employees . I respond by saying, 'Tell the physicians not to order tests that aren't necessary in the middle of the night, and we can cut overtime.' But nobody wants to do that."

Productivity rose in two-thirds of the laboratories in 1988. These labs estimated a 13 per cent increase in employee output.

The laboratory manager at a 337-bed hospital in the South said his department is doing 45 per cent more work than it did in 1985 because of higher patient acuity levels. "The patients are sicker and require more resources. The doctors are looking for a much faster tumaround time. Now we run profiles 16 hours a day, seven days a week, so that's 122 hours a week versus the old level of 48. We have more than doubled employee hours and are giving better turnaround time, but I still don't see the numbers to justify increased staffing on our second shift."

Timothy G. McManamon, Ph.D., clinical chemist at 500bed Mercy Hospital Medical Center, Des Moines, Iowa, explained his lab's 10 per cent productivity jump this way: "We're running fuller batches now. New equipment has helped, and having more volume makes our operation efficient. "

Sixty-five per cent of the panelists said their laboratories in the last year acquired automated instruments that improved productivity.

When asked how the DRG system had affected the quality ,of laboratory service, 14 per cent said it had increased quality or efficiency, and 11 per cent noted a decrease in quality or an increase in errors. Others said quality had not changed.

Carmen Adams said that keeping quality and cost per test within acceptable limits were equally big problems. "You have to pay to keep your technical employees and to do quality control. And yet you also have to stay within the parameters of the DRG payment system, so you're really walking a tightrope sometimes, trying to make things work out."

An upstate New York laboratory manager said the perception of the level of quality is now higher because of the emphasis by JCAHO and other inspection agencies on quality assurance. He said, "Quasity to me means getting the best information with the fewest errors back as quickly as we can. As long as we perceive that quality is important, it will improve."

See Part 11, which follows, for a rundown on how laboratories nationwide are dealing with DRG-related issues.
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Title Annotation:special report, part 1; diagnosis related groups
Author:Gore, Mary Jane
Publication:Medical Laboratory Observer
Date:Dec 1, 1988
Previous Article:Panel gives recommendations on Pap, HIV, cholesterol, drug abuse testing.
Next Article:The impact of DRGs: after five years, coping comes naturally.

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