The Effect of Referral and Transfer Patients on Hospital Funding in a Capitated Health Care Delivery System

The study was undertaken to determine whether patients referred to Veterans Affairs (VA)hospitals from outpatient settings or transferred to VA hospitals from other VA hospitals have costs associated with them that are not accounted for by risk-adjustment systems. VA hospitals were the focus of the study, in part, because funding for VA facilities is allocated to each VA network at the beginning of the year via capitated funding, based on the number and characteristics of veterans served. Thus, tertiary hospitals that receive a high volume of transferred and referred patients may be shouldering a disproportionate amount of the financial burden associated with these patients.

The authors also examined differences in illness burden and mortality between transferred and nontransferred patients. Analysis was conducted on 365,865 patients at 129 hospitals, using the VA National Patient Care Database (NPCD) for 2004. Of these 129 hospitals, 55 were designated tertiary care facilities.

To answer these questions, the study compared what a particular patient actually cost the hospital with the amount that would be allocated by the existing system to pay for that patient using the decision support system (DSS) used by the VA to track its costs. The DSS is designed to balance total costs for all patients at a facility with the total allocation for patient care at that facility. The authors also calculated what they refer to as a patient's "fair share" of network allocation, based on assigning relative illness burdens (RRS) to each patient, and a score computing an amount of funding per unit of illness (FIB), and multiplying them. The VA system does not currently use this methodology to allocate resources; however, the authors noted that their system matches the patients' reimbursement more closely with illness burdens than does the system in use by the VA network.