Since Congress established the Medicare prospective payment program in 1983, hospitals have been suffering from pinched finances.

The program established 270 diagnostic-related groups based on 11,000 possible medical diagnoses, and set Medicare payments for treatments falling within each category. That is, it established an amount the federal government would pay for most types of ailments, regardless of actual treatment costs.For example, diagnostic-related group category 209 covers total hip replacements, and provides a payment of $7,000 for such treatment. But a total hip replacement at a facility such as American Fork Hospital costs approximately $11,000, which means the hospital loses $4,000 on every hip replacement it does.

"Those hospitals that have a majority of Medicare patients are really hurting," said Craig Smedley, administrator at American Fork Hospital.

Even hospitals such as American Fork, where Medicare patients make up only 24 percent of total patient volume, have seen their Medicare losses skyrocket in the past five years.

"American Fork Hospital is looking at 10 times more write-offs than five years ago," Smedley said.

The hospital does not take the loss in repayment alone, however. It is passed along to other patients - patients covered by private insurance - in the form of ever-rising costs for treatment services.

During the past year, American Fork Hospital has launched a three-pronged approach aimed at maintaining quality health-care while still addressing the financial constraints resulting from changes in the Medicare payment program. (Orem Community Hospital, Utah Valley Regional Medical Center and Mountain View Hospital in Payson have adopted similar programs.)

"The incentive is to manage patients under the (Medicare payment level) to avoid a loss," said Troy Carlton, patient care manager. "And, to get the community agencies in to help manage patients better."

The hospital has developed pre-surgery and pre-admission education programs to help coordinate patient needs prior to arrival at the hospital for treatment. This includes evaluating what needs a patient will have upon discharge from the facility, and ensuring a patient has arranged for that care prior to hospitalization.

But hospitals also have a stake in making sure that a Medicare patient will receive proper care following hospital treatment. Because of the caps placed on treatment repayments, there is a national trend to release patients from hospitals sooner than they might have been in the past. Patients are thus often not as fully recovered, and have more of a need for care in a skilled nursing facility. Also, Medicare will not pay for the treatment of a patient who returns to a hospital within 15 days of being discharged.

At American Fork Hospital, cost control was also achieved by administrative staff and physicians working at the hospital who evaluated the top 10 Medicare loss categories, looking for ways to make treatment in those categories more efficient without compromising quality. For example, it was found that the hospital was stocking three types of prostheses for use in total hip replacements; while the quality of the prostheses was the same, prices varied considerably. It was decided to stock the least expensive protheses.

And the hospital developed interdisciplinary teams to manage patient cases. A team is assigned to every patient and consists of a representative from each of the following areas: pharmacy, physical therapy, dietetics, social work, unit manager, nursing manager, medical records and home health services. Use of the interdisciplinary team provides better correlation of patient care, Carlton said.

"Maybe the prospective payment system is appropriate because we are trying to do things with better quality and more efficiency than before," Smedley said.

Hospitals may be gaining in efficiency, but they are also becoming more politically active because of changes in programs such as Medicare. In January, petitions signed by one million people were sent to Congress asking them not to cut Medicare back any more, Smedley said.

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(CHART)

The growing write-off gap

1984 1989 (projected) Percent Medicaid patients

American Fork

Hospital $64,987 $1.25 million 24 percent

Orem Community

Hospital $5,966 $44,632 2.1 percent

Utah Valley Reg.

Med. Center $0 $10.5 million 29.7 percent

Mtn. View Hospital $1.27 million $2.43 million 40 percent