Whether the activity-based financing of hospitals provides staff with incentives to reduce the length of each hospital stay is an empirical question that needs investigation. In this paper, we analyse how the activity-based component of a hospital’s financing system influences the average length of hospital stays (LOS) for elderly patients suffering from ischemic heart diseases in Norway.
Studies that evaluate the effects of introducing prospective financing systems that are based on the DRG system in US hospitals during the 1980s indicated a significant reduction in LOS in the range of -3 to -9% [1–10]. The results of European research are divergent, but most EU studies indicate that introducing a prospective payment system ultimately engenders negative effects on LOS, such as -24% in Hungary [11] and -4.6% in Austria [12]. All of the studies that are listed in this section have analysed the effects of fundamental system changes. In contrast, we concentrate our analysis on the effects of incremental changes in the activity-based component. The hospitals in many countries are likely to find our focus to be relevant, because many countries have implemented systems that combine activity-based financing in the DRG system with a component based on fixed payments.
Chalkley and Malcomson already delineated a theoretical understanding of changes in the financing system for non-profit hospitals [13, 14], and Biørn et al. adapted this theory to the Norwegian setting [15, 16]. These models often assume a trade-off between efficiency and quality in hospital production that can be shifted by various reimbursement systems. Low-powered financing systems, i.e., reimbursement systems with weak economic incentives, can give rise to serious inefficiencies in the hospital system, yet the public’s perception of the system’s healthcare services can meanwhile improve. High-powered prospective payment systems, on the other hand, increase efficiency, but can generate severe quality problems due to creaming (overtreating low-risk patients), skimping (reducing quality in various ways, such as reducing LOS), or dumping (avoiding the treatment of high-risk patients).
We have examined the level of the activity-based component over a period of 8 years, and analysed how the level correlates with LOS. To reduce the problem of intradiagnostic heterogeneity in LOS, we limit the present analysis to 3 ischemic heart diseases: angina pectoris, congestive heart failure, and myocardial infarction. We analysed our data with a log-linear regression model.
Institutional setting
The hospital sector in Norway is predominantly public with only a few non-profit, private hospitals and some for-profit hospitals that specialise in elective surgery. For a general description of the Norwegian health care system, see [17, 18]. The hospital sector is organised into 4 regions that are each administered by a regional health authority. The health regions are sub-divided in geographical catchment areas that are administered by health enterprises. A health enterprise usually consists of 1–3 acute hospitals and several institutions that provide addiction therapy and psychiatric services. Each health region’s hospitals are organised hierarchically according to functions and specialties with the regional, university hospital at the top of the specialty hierarchy. Since July 1st 1997, Norwegian hospitals have had a mixed financing system consisting of a risk-adjusted capitation component and an activity-based component. The nature of the activity-based component depends on the number of patients the institution treats, the patients’ DRGs, and the national, standardised price per treatment. The activity-based component has changed several times, and constituted between 40% and 60% of expected hospital revenues in the period from 2000 to 2007 (Figure 1). The central government chooses the size of the activity-based component after holding political discussions in the parliament, so the size is exogenous to the different hospitals in Norway. Finally, Norwegian hospital physicians work on a salary basis [17].
Treatment of patients with heart diseases
The patients’ data were extracted from the Norwegian Patient Register. These data include all individuals in Norway who were suffering from at least one of 3 different ischemic diagnoses at the time the data were originally collected.
Angina pectoris is temporary chest pain or a sensation of pressure on the chest that occurs when the heart muscle is deprived of oxygen. It is caused by a partially narrowed artery. Its treatment is typically determined by the stability and the severity of the symptoms. When symptoms are stable and manifest mildly or moderately, the common choice of treatment is medication and modification of risk factors (e.g., smoking). When symptoms are unstable, immediate hospitalisation is usually required so that doctors can closely monitor a more intensive drug therapy and can consider the necessity of invasive procedures, such as percutaneous coronary intervention (PCI) or coronary artery bypass grafting (CABG).
Myocardial infarction is usually a medical emergency situation in which some of the heart’s blood supply is suddenly and severely reduced or cut off, causing the heart muscle (myocardium) to die because of oxygen supply deprivation. Myocardial infarction is caused by a totally blocked coronary artery, so it requires prompt intervention. In addition to drug therapy, doctors often elect to apply both PCI and CABG to patients with myocardial infarction.
Congestive heart failure is generally defined as the heart’s inability to supply sufficient blood flow to meet the body’s needs. Myocardial infarction is one of the most common causes of congestive heart failure. Treatments of congestive heart failure vary to address the various potential causes. Surgery is a valid treatment if the cause of heart failure is a narrowed or leaking heart valve or an abnormal connection between heart chambers. Blockage or severe narrowing of a coronary artery is likely to require drugs, surgery, or angioplasty. Heart transplantation may also be an option for a few otherwise healthy people who have not responded well to traditional therapy.
Both PCI and CABG treatment in Norway are centralised to specialised hospitals. PCI, which is the procedure most frequently used, is centralised to eight intervention centres. For this reason, patients, especially myocardial infarction patients who live in a catchment area with only local hospitals, may first be admitted to a local hospital and then transferred to an intervention centre outside the catchment area. In such a case, they would return to the local hospital before discharge. Since our data are hospital-based and not episode-based, the LOS for these patients might be separated into 2 or even several parts. We discuss this problem later in this paper.