George Koutsakos


At a Glance  

Equivalent acute patient days (EAPDs) offer a more accurate means than adjusted patient days (APDs) to analyze a hospital's overall cost increases from one period to another in situations where there are significant differences among inpatient types in terms of acuity.  


In the course of monitoring hospital expenses, most hospital senior finance leaders have used some type of unit of service as a means to measure overall hospital costs. One such unit of measure traditionally has been adjusted patient days (APDs). APDs have historically been a way for finance leaders to account for activity not directed at inpatients, such as referred outpatient and emergency department visits, relative to inpatient volumes. For the most part, this approach is effective as long as the finance leader is careful to consistently apply either gross or net revenues as a means of weighting the units of service (both inpatient and noninpatient), and as long as inpatient types are similar for the most part. APDs have usually been adequate as a first step in providing cost comparability from one period to another.

However, quite often, the second condition of having a great deal of homogeneity among the various inpatient types may not exist. A significant disparity among inpatient types can become a problem in comparing costs from one period to another when there are material differences in volume changes among the disparate inpatient types between the periods. The senior finance leader can arrive at some misleading conclusions deploying APDs in such circumstances.

Such is the case where the hospital has a significant inpatient psychiatric volume along with traditional medical-surgical activity. Obviously, a traditional medical-surgical patient incurs a significantly higher ancillary utilization (lab, radiology, and surgery) than does a psychiatric patient. Moreover, most of a hospital's medical-surgical cases will involve anywhere between 10 and 20 percent utilization of the intensive care unit. As a result, in addition to being reflected in the higher average charges, the typical medical-surgical patient will incur much higher costs than the typical psychiatric patient. When this occurs, a better tool than APDs for monitoring costs is equivalent acute patient days (EAPDs).

EAPDs basically treat psychiatric patient days in the same way all noninpatient activity is treated. As an example, if the typical psychiatric patient generates only one-third the charges that a typical medical-surgical patient generates, three psychiatric patient days are needed to equate to a single medical-surgical patient day. That is, instead of seeing (measuring) hospital activity through the eyes of all patient days (as is the case with APDs), EAPDs measure hospital activity only as seen through the eyes of acute patient days and their equivalents.

To illustrate, the exhibit below displays data related to a hypothetical hospital. The information is separated between the "data given" shown, in rows 1-19, and the "calculations" that result from the use of the data to compare costs, in rows 20-36. For purposes of comparison, the resulting calculations are displayed for both EAPDs and APDs for periods one and two to allow for comparison of the two methodologies and the resulting differences. In addition, for further clarity, the calculation formula is shown referencing each related row number.

Exhibit 1

fa_accounting_exh1  

As the exhibit shows, although total patient days increased by 11.6 percent, there was a significant difference in the increase between medical-surgical days and psychiatric days. Although the less-expensive patient days in psychiatry increased only 3.1 percent (from 32,000 to 33,000), the more expensive medical-surgical patient days grew by 36.4 percent (11,000 to 15,000). As a result, if all patient days were treated the same (given equal weighting), as is the case when using APDs, the CFO could arrive at some potentially misleading conclusions.

Specifically, in this example, the CFO would compare a 17 percent increase in total expenses (row 19) with the 11.6 percent combined patient day volume increases during the same period. The potentially misleading result of such a comparison is shown in row 36, indicating a 6.3 percent cost increase on an APD basis. The components of APDs are shown in rows 31-33, reflecting simply all inpatients and outpatients.

Also shown in the exhibit are the same data calculated using the EAPD methodology. It is here where we now see the differences stemming from the separation of the less acute psychiatric patient days from medical-surgical patient days. Because the charge per patient day for medical-surgical services is more than twice that of the psychiatric service (dividing row 21 by row 22), the EAPD methodology requires more than two psychiatric patient days to equal a single medical-surgical patient day. With this calculation included, the results show only a 1.4 percent cost increase (row 35), which much better reflects the change from period one to period two.

The components of the total units of service using EAPDs are shown on rows 26-29. The resulting difference in the reported cost increase between the two methodologies (6.3 percent versus 1.4 percent) is clearly the result of EAPDs giving proportionately more credit to the much larger increase in the higher-acuity medical-surgical patient days (36.4 percent) less to the much smaller increase in lower-acuity psychiatric services (3.1 percent).

Another way of looking at the differences between the two methodologies is to perform a variance analysis for the two periods for both APDs and EAPDs. The exhibit above displays the calculations. It is possible to see the difference between the two methodologies when accounting for the $8 million cost increases if one separates cost increases due to volume changes from cost increases due to price.

Using APDs to measure volume increases accounts for only 59 percent of the total cost increase ($4,718,908), leaving price increase to account for 41 percent, or the balance. However, if EAPDs are used, volume increases account for nearly 91 percent of the total cost increases, with price increases accounting for a little more than 9 percent of the variance in costs. The composition of cost increases is shown on rows 17-19.

Exhibit 2

fa_accounting_exh2

In short, under the EAPD methodology, the volume increases also account for the change in patient mix (medical-surgical versus psychiatry) and thus reflect cost increases due to both patient acuity and volumes. Using EAPDs thus better reflects the increase in acuity due to the significant change in patient mix (higher growth rate of medical-surgical patients versus psychiatric patients). The use of EAPDs as a cost indicator, instead of APDs, therefore can be illuminating to a hospital senior finance leader who wants to understand cost changes between periods in situations where the level of acuity differs significantly among inpatient types.


George Koutsakos, CPA, is CFO, Silver Lake Medical Center, Los Angeles, and a member of HFMA's Southern California Chapter (gkoutsakos@silverlakemc.com).

 
 

Publication Date: Tuesday, November 01, 2011

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