Do We Need To Rethink Adjusted Discharges?

Healthcare and hospital finance have changed dramatically over the last few years, and yet there are many things that seem slow to change. One of these is the continued reliance on Adjusted Discharges or Adjusted Patient Days.

Adjusted Patient Days made perfect sense at one time. The percentage of outpatient revenue was less than 20 percent of total operating revenue, and many hospitals were being paid on a cost or per-diem basis. After that, the primary metric for total hospital volume was Adjusted Discharge or an Adjusted Discharge that has been inpatient case mix adjusted. Most facilities still use this measurement.

The problem arises because increases in relative outpatient prices will artificially increase adjusted discharges, while decreases in relative outpatient prices will artificially decrease adjusted discharges. In addition, modifying an adjusted discharge value by the inpatient case mix makes little sense because the complexity of an organization’s outpatient case mix does not always correlate with that of its inpatient case mix.

Equivalent Discharges™ is an alternative metric for hospital volume that is not subject to the same measurement flaws as Adjusted Discharges or Adjusted Patient Days. It can be difficult to change an important cornerstone of financial guidance, and we at Cleverley understand that, but the fact is that Equivalent Discharges is a far better metric for many reasons, the primary of which is that it correlates more significantly with cost than adjusted discharges.

The Adjusted Discharge Metric is expressed in the following formula:

Adjusted Discharges = Inpatient Discharges + [(Gross Outpatient Revenue/Gross Inpatient Revenue) x Inpatient Discharges]

The case mix adjusted discharge metric is determined by multiplying the result of this formula by the inpatient case mix index.

Equivalent Discharges™ is expressed as follows:

Equivalent Discharges = Case Mix Adjusted Discharges + (Conversion Factor x Case Mix Adjusted Visits)

The hospital industry must not rely on a methodology that relies on the flawed assumption that all hospitals are pricing both inpatient and outpatient services on a similar basis. Some may argue that because the adjusted discharge method is universally understood and easily computed, it should be continued. But this position does not make the method valid, and there is ample evidence to suggest that it is heavily biased.

To find out more about our research into Equivalent Discharges™ you can read Bill Cleverley’s white paper here!