Savings Claimed for the Oklahoma Hospital Utilization Review System Were Overstated

HRD-80-42: Published: Jan 11, 1980. Publicly Released: Jan 21, 1981.

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The Oklahoma Utilization Review System (OURS) is an alternative to the Professional Standards Review Organization (PSRO) system which reviews Medicare and Medicaid patients' needs for medical care while they are in the hospital. Essentially, OURS is a statistical screening system to assess each hospital in the State in terms of specific performance measures related to utilization. It was funded as a demonstration project through a Department of Health, Education, and Welfare (HEW) grant, and managed by the Oklahoma Foundation for Peer Review. The 12 month demonstration period was extended for another 3 months with no additional Federal funding. In its study of OURS, GAO reviewed Medicare and Medicaid claims data and population statistics relating to Medicaid and Medicare eligibles. Six hospitals in the State were visited to discuss OURS, and officials responsible for monitoring the managing foundation's performance were interviewed.

The foundation used two methods to prepare estimates of cost savings that resulted from the operation of OURS. One method estimated a savings of $6.8 million based on a reduction in the number of days Medicare and Medicaid patients spend in the hospital. The other method estimated a savings of $15.1 million based on a reduction in the number of Medicare and Medicaid claims for hospital care. However, these estimates were based on many items of incorrect or imcomplete data. The foundation also failed to consider some other factors. Its estimates did not recognize the cost of operating OURS which GAO computed as being $911,019. It also ignored the fact that there is not a one-to-one relationship between a hospital day saved and the reduction in per diem reimbursement because of the fixed cost of maintaining an empty bed and offsetting costs for alternate forms of care. HEW estimated that an average of only 36 percent of per diem costs are saved when a PSRO eliminates a day of hospitalization. In the opinion of GAO, the claimed savings were questionable because other factors that may have contributed to the reductions were not taken into consideration.

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