TDVI REPORT FOR HOSPITAL MANAGERS BASED ON 2004 MEDPAR DATA

BACKGROUND INFORMATION ON TDRG/TDVI REPORTS TRANSFER DRGS/MARKETING/REPORT OVERVIEW -- 11/11/05

1. All reports are based on FY2004 MedPAR data.
2. We assume that the mix of patients does not change.
3. We take into consideration how hospitals’ responded to “old” TDRGs = OTDRGs = DRGs for which transfer rules existed in FY04. We assume hospitals’ responses in FY04 are valuable predictors of hospitals’ response to “new” TDRGs = NTDRGs.
4. The TDVI takes into account:
   a. pct of cases in NTDRGs.
   b. Pct of cases transferred to rehab, nursing home, home health.
   c. Pct of early discharges.
   d. Response to OTDRGs.
5. The TDVI represents the “relative risk,” based on the relative reduction for a particular group, compared to the overall estimated reduction. A “particular group” might be a hospital, an MDC, or a DRG. For example, a hospital CFO might wish to estimate the particular risk overall for his facility. A hedge fund manager may want a single TDVI for an entire publicly traded organization. Mid-level managers may wish to study the TDVI for a Major Diagnostic Category
6. The total risk is the estimated percent reduction in Medicare revenue from the new TDRGs, which became effective on 10/1/2005.
7. We need to double-check which TDRGs became applicable in FY05. Those are OTDRGs, but we don’t know how hospitals responded to these, since we only have FY04 data. We call these OTDRG5.

HOSPITALS

1. Their main question is: How much can we expect to lose, if we don’t change our transfer patterns?
2. Where should we take action, (using Pareto’s Principle), to cut our losses?
   a. What MDCs should we focus on?
   b. Are the reductions in Medicare revenue from the TDRGs greater for surgical or medical cases?
   c. NTDRGs = DRGs for which the new transfer rules began on 10/1/05