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In this paper, we use an interrupted time series analysis to assess the effect of a 30 per cent reduction in the Medicaid reimbursement fee for physician services on the rate at which eight elective surgical procedures were performed in the Massachusetts Medicaid population. Tonsillectomy/adenoidectomy is the only procedure in which there was a statistically significant decline in the rate of surgery in most areas of the state following the fee cut. There is some evidence of an increase in the rate of disc surgeries/spinal fusions. The rate of other procedures increased in some areas of the state and decreased in other areas in the period after the fee cut.

To increase our understanding of case mix as a major contributor to variability in hospital costs, we examined the relationship among case mix, resource consumption, and payments for all Medicare, Medicaid, and Blue Cross Plan patients discharged from 28 hospitals in New York State. Case mix differences among the three payers were found to contribute to differences in overall average cost per case, although residual differences in costs existed at the DRG level. Medicare and Medicaid payments more often covered the actual costs of their patients than did Blue Cross Plan payments. Our results indicate the importance of payer-specific data in the design of effective and equitable reimbursement and cost containment strategies.

The case loads of 11 teaching and 20 nonteaching hospitals are compared, using the original 383 diagnosis-related groups (DRGs) to analyze the extent to which case-mix differences contribute to differences in average cost per case. Case-mix differences are concentrated in a small proportion of DRGs. Teaching hospitals have relatively more surgery cases and neoplasms, and nonteaching hospitals have more cases with heart conditions and infectious diseases. Most nonteaching hospitals have a similar case mix, but among the teaching hospitals, there are two distinct case-mix types, one with which only teaching hospitals are correlated, one that correlates with both teaching and nonteaching hospitals. The average cost per case is more than 60% more expensive in teaching hospitals. Only approximately one quarter of this higher cost is accounted for by case-mix differences. The rest results from the fact that patients in the same DRGs cost more, on average, in teaching than in nonteaching hospitals.