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Health care is managed by insurance entities and managed care organizations by the terms and conditions used to pay providers. There are certain elements necessary for managed care to work. One of the elements is a common language of services provided. A classification system is used to allow for uniform accounting and billing.

For example, Diagnosis Related Groups ("DRG’s) was implemented by the U.S. federal government in the early 1980's as a payment tool for hospitalized Medicare patients. This Medicare inpatient prospective payment system ("PPS") was developed to be useful for managerial purposes and takes into account the following:

1. Class definitions based on information routinely collected on hospital abstracts

2. Manageable number of classes

3. Similar patterns of resource intensity within a given class

4. Similar types of patients in a given class from a clinical perspective.

The success of the inpatient PPS and the rise in ambulatory services has prompted the federal government and payers, clinicians and health services researchers to look to an outpatient equivalent to inpatient PPS. This would be a system to accurately measure resource consumption and quality of care for ambulatory care services. The most important hurdle managed care systems face in both pricing and quality of care decisions is the development of an effective case mix adjustment of the capitation rate for managed care enrollees. The inadequacy of the tools currently used to adjust these rates is a fundamental stumbling block to enable MCO’s and physicians to confidently compare and contrast the quality of care and cost of service rendered.

Accurate understanding of resource consumption and clinical coherence are two keys to developing a valid ambulatory classification for payment. The massive variation of outpatient services and the complexity of such services is a fundamental challenge to making a reliable and valid Ambulatory Case Mix System ("ACMS"). This also requires that different classes statistically reflect differences in resource consumption.

The two main obstacles to creating an ACMS are: the complexity of ambulatory encounters and problems inherent in current coding systems. In comparison, the content of inpatient care is much more easily measured because there is clearly beginning and end points for inpatient care that occur within a hospital setting. In an ambulatory setting, there is constant interplay between physicians’ office, home or other location and there is as issue of pinpointing what defines a "new" ambulatory care patient. Several of the visit-based systems use "new" vs. "Old" patients as a classifying variable. This variable assumes that a "new" patient" consumes a different quantity of resources that an "old" patient. This "newness" classification as a reasonable predictor of resource consumption becomes suspect because on further examination it may be a superficial standard that does not clearly or reliably specify doctor-patient encounter.

Accordingly, ambulatory encounters are difficult to classify. Some of the reasons for this difficulty include: deficiencies in clinical knowledge, varied patient responses to the same poorly understood clinical condition, different settings from which the patient can choose to obtain ambulatory services, minimal coordination of the varied services that patients may obtain (though, the rendering for a total "continuum of care" is currently progressing with the development of integrated delivery systems), difficulty in defining a "new" ambulatory patient, facility-specific variables such as queuing (time in line for appointments), and inadequacy of coding systems for describing ambulatory services.

Two coding systems commonly used in the United States: International Classification of Disease, 9th Edition, United States version ("ICD-9-CM") primarily for inpatient care and Current Procedures and Terminology -4 (CPT-4) primarily for office-based and procedures oriented care.

Pay For Performance Alert:  

Is it used as camouflage for cost containment or can it be measured like preventive care and improves patient care

This year (2004) Medicare imposed for the first time a pay for performance requirement on the nation's hospitals giving them a full inflationary increase in reimbursement it they submit certain data measuring quality of care.  The AMA at its annual meeting warns doctors that this concept will be applied to doctors as well in the near future as employers and insurers attempt to reign in health care costs to slow spending.  Physicians say they support the initiatives that can be measured such as preventive care where for example doctors earn bonuses if higher numbers of their patients were screened for colon or breast cancer and patient improvement could be measured but doctors fear pay for performance initiatives that merely reward doctors if they keep practice expenses down in ways that shortchange patient care in which pay for performance is really used as camouflage for cost containment. (Chicago Tribune, section 3,page 3, 12-8-04)