Source of Admission and Cost: Public Hospitals Face Financial Risk
ERIc Muroz, MD, MBA, RICHARD SOLDANO, BA, MPH, ANN LAUGHLIN, BS,
IRVING B. MARGOLIS, MD, AND LESLIE WISE, MD
Abstract: We studied all admissions to the 11 acute care
hospitals of the New York City Health and Hospitals Corporation
(April 1983-September 1984) matching emergency room (ER) admit-
ted diagnostic related group (DRG) subgroups in each hospital with
at least five non-ER admitted patients (N = 222,961). Mean cost per
ER patient ($8,385) was greater than non-ER mean cost per patient
($4,386) for Medicare and non-Medicare. Our data suggest that
public hospitals with a high proportion of ER admissions may be at
a financial disadvantage under DRG reimbursement. (Am J Public
Health 1986; 76:696-697.)
Introduction
The new Medicare Prospective Payment System (PPS)
based on Diagnostic Related Groups (DRGs) will encourage
providers of medical care to assess the financial risk gener-
ated by various populations. We have demonstrated in four
earlier studies that emergency room (ER) admission predicts
higher cost per DRG in a large voluntary hospital in New
York City in an affluent New York suburb." The current
project was initiated to study the applicability of these
findings to a large public multihospital system serving a
different population.
Methods
Cost data on all admissions to the 11 acute care hospi-
tals of the New York City Health and Hospitals Corporation
(NYCHHC) were analyzed during the 18-month period,
April 1983-September 1984 (N = 379,682). This system is
the largest non-federal public acute care hospital system in
the United States. DRG, route of admission-emergency
room vs non-emergency room (outpatient clinic)-and payor
(Medicare vs non-Medicare) are routinely recorded on data
tapes. At each hospital, for each DRG, only matched DRG
subgroups containing five patients or more per variable
(emergency admission and non-emergency admission) were
analyzed. The study population included 222,961 patients.
A cost per patient comparison was then conducted on
ER vs non-ER admission for each matched DRG subgroup
at each hospital. The only patients admitted via the emer-
gency room are those judged by the attending physicians to
have an emergency presentation of their disease. Analysis
by payor type was also conducted for ER and non-ER
admissions.
We divided the study population into two periods, first
nine months and second nine months. DRGs that had been
shown to be more expensive for ER admissions were com-
piled for each hospital for both periods and compared for
consistency. DRGs that did not fit the study design, i.e., at
least five ER and five non-ER admissions in both periods
were dropped from the analysis.
From the Department of Surgery, Queens Hospital Center and Long
Island Jewish Medical Center, and the State University of New York, Stony
Brook. Address reprint requests to Eric Muhioz, MD, MBA, Head, Research
Division, Department of Surgery, Long Island Jewish Medical Center, New
Hyde Park, NY 11042. This paper, submitted to the Journal August 7, 1985,
was revised and accepted for publication December 17, 1985.
© 1986 American Journal of Public Health 0090-0036/86$1.50
696
Financial Information
The Health and Hospitals Corporation (HHC) costing
methodology is a stepdown allocative process by cost cen-
ter. Four costs are reported on each record: ancillary indi-
rect, ancillary direct, routine indirect, routine direct. Direct
costs are taken from the hospital's inpatient billing master
files and merged with clinical files to produce databases.
Indirect costs are based on 1983 Institutional Cost Reports.
For each cost center, there is a ratio of direct to indirect cost
which is added to the record. Routine costs are based on
census reports and tallied according to the hospital's specific
inpatient daily rates in effect. Ancillary costs are based on
total volume of ancillary tests performed to arrive at a unit
cost per ancillary at each hospital. Teaching costs are
allocated as both direct and indirect components to routine
and ancillary costs. Most hospitals in the system show no
major case-mix variation.
Results
Aggregate costs for the 18-month period for the entire
study population were $1,735,062,632 (mean per patient,
$7,782). For matched DRGs per hospital, 70.9 per cent of the
study population (158,159 admissions) was in DRGs that had
higher cost ER admissions for that DRG (Table 1). On the
other hand, for 64,802 admissions (29.1 per cent) of the study
population, non-ER admissions were at greater cost than ER
admissions. For Medicare admissions (19,132), 73.0 per cent
of admissions (13,958) were in matched DRG subgroups
where ER admissions were more costly than non-ER admis-
sions; ER costs in this group were $10,552 vs non-ER costs
of $5,424. For non-Medicare admissions (203,829), the cor-
responding figures were $6,218 for ER admissions vs non-ER
costs of $3,312.
Table 2 indicates the mean cost per patient for ER and
matched non-ER admissions in those DRGs where ER
admissions were the more expensive for the 11 hospitals in
the New York City system. Highest costs per ER admission
were at Hospital G (750-850 beds), Hospital A (350450
beds), and Hospital D (550-650 beds). Greatest differences in
cost between ER and matched non-ER admission were at
Hospital F (with 550-650 beds) (267 per cent), Hospital K
(with over 1,000 beds) (240 per cent), and Hospital H (with
750-850 beds) (235 per cent).
Emergency admissions were 58.5 per cent of the total
admissions of'the entire study population for the study
period. Mean DRG consistency from one period to the next
for the whole population was only 53.5 per cent (Table 3).
Number of higher cost DRGs fitting the study design that
remained constant between periods ranged from a high of 97
DRGs to a low of 20. Three hospitals had high consistency
between periods.
Discussion
This study suggests that route of admission in this public
hospital system may be a relatively powerful predictor of
costs within each DRG. This difference seems to be only
moderately DRG-specific, however, for reasons that are
unclear.
AJPH June 1986, Vol. 76, No. 6
 PUBLIC HEALTH BRIEFS

TABLE 1-Costs by Source of Admission for Matched DRG Subgroups

Matched
ER Cases Non-ER Cases Matched
Category (sample size) ER Mean Cost* (sample size) Non-ER Mean Cost*
ER admissions greater cost than non-ER 79,540 $8,385 78,619 $ 4,386
Non-ER admissions greater cost than ER 50,814 $7,021 13,988 $11,538
'mean per patient cost.

TABLE 2-Costs of ER and Non-ER Admissions Per Matched DRG, Aggregated by Hospital

Mean Cost*
Hospital Type/Size Mean Cost* ER Admission Matched Non-ER Admission

350-450 beds
Hospital A $13,174 ( 4,857)** $9,959 ( 4,268)**
Hospital B 6,693 ( 5,698) 3,327 ( 5,291)
Hospital C 6,357 ( 7,800) 3,563 ( 9,696)
550-650 beds
Hospital D 10,889 ( 6,356) 5,211 ( 4,876)
Hospital E 7,653 ( 5,725) 4,746 ( 6,664)
Hospital F 5,802 ( 4,637) 2,169 ( 7,170)
750-850 beds
Hospital G 13,222 ( 5,228) 5,774 ( 8,292)
Hospital H 7,220 ( 6,789) 3,065 ( 6,051)
Hospital 5,621 ( 3,590) 3,435 ( 2,443)
Over 1000 beds
Hospital J 8,567 (15,141) 3,866 ( 9,212)
Hospital K 7,045 (13,719) 2,935 (14,656)
Mean for All Hospitals $ 8,385 (79,540) $4,386 (78,619)

'mean cost per patient in category: ER admission cost greater than non-ER admission cost.
**sample size.

TABLE 3-Proportion of Matched Admissions Where Cost per ER Ad- By injecting economic risk into the health care market-
mission Exceeds That of Non-ER Admission and Percentage place, the public policy forces that promoted the DRG
of DRG Consistency According to Hospital system may have fostered research that can be used to
Per Cent of Admissions in Per Cent of DRG
improve efficiency.6 Research can also lead to more equita-
Category ER Cost Consistency Period ble reimbursement. The implications of this study need to be
Hospital Greater Non-ER Cost 1-Period 2** further defined by clinical specialty; and the factors that may
produce these higher cost ER admissions need to be more
A 79.8 (+0.75)* 85.2 (23) precisely defined. Thus incentives may be provided for
B 70.4 (-0.04) 62.9 (44) hospitals to negotiate subsidies for the higher costs of ER
C 86.6 (+1.33) 48.8 (40) admissions.
D 62.0 (-0.75) 53.6 (37)
E 64.2 (-0.57) 45.5 (35)
F 58.9 (-1.01) 50.0 (30)
G 87.7 (+1.42) 57.7 (30) ACKNOWLEDGMENTS
H 52.7 (-1.54) 27.8 (20) The authors wish to acknowledge the support of this project by the New
63.4 (-0.64) 57.7 (30) York City Health and Hospitals Corporation, Division of Management
J 82.6 (+1.02) 64.7 (97) Information Systems, Finance, Case-Mix Management, and Reimbursement
K 71.9 (+0.08) 51.5 (53) Planning.
Mean for All Hospitals 70.9% (0) 53.5%
REFERENCES
*difference from the mean of the population (expressed as + standard deviations). I. Mufhoz E, Tinker MA, Margolis I, Wise L: Surgonomics: the cost of
-number of DRGs consistent from period 1-period 2. cholecystectomy. Surgery 1984; 96:642-646.
2. Mudioz E, Regan D, Margolis IB, Wise L: Surgonomics: the identifier
concept: hospital charges in general surgery and surgical specialties under
PPS. Ann Surg 1985; 302:119-125.
The findings raise the question of whether the DRG 3. Mufloz E, Laughlin A, Regan D, Teicher I, Margolis IB, Wise L: The
system adequately compensates hospitals for emergency financial effects of emergency room generated admissions under PPS.
JAMA 1985; 254:1763-1771.
room generated admissions. The effect of higher cost ER 4. Mufioz E, Laughlin A, Regan D, Margolis IB, Wise L: Surgonomics: the
admissions will be to make this population "financially" financial effect of emergency room generated general surgical admissions
unattractive to hospitals; the 6,000 non-federal acute care and factors affecting cost variance under PPS. Am J Surg.
hospitals may be motivated to redirect ("dump") these 5. Omenn GS, Conrad DA: Sounding Board: Implications of DRGs for
Clinicians. N Engi J Med 1984; 311:1314-1317.
patients. Public hospitals may be more vulnerable to "dump- 6. Inglehart JD: Medicare begins prospective payment of hospitals. N Engl J
ing" than voluntary or for-profit institutions.5 Med 1983; 308:1428-1432.

AJPH June 1986, Vol. 76, No. 6 697