OCA outlines approach to measure hospital spending; seeks work‑group input on outpatient intensity adjustment

The Office of Health Care Affordability (OCA) briefed its Health Care Affordability Advisory Committee on June 16 on a new approach to measuring hospital spending that would adjust for case complexity in inpatient care and for variable intensity in outpatient services. The most important change: OCA plans to produce a per‑unit price measure for hospitals that separates volume and case intensity from price. For inpatient services, OCA will use the well‑established case mix index (CMI) to convert discharges into case mix adjusted discharges (CMADs) and then divide inpatient net patient revenue by CMADs to calculate inpatient revenue per case‑mix‑adjusted discharge. Why it matters: Hospital spending accounts for a large share of health care costs, but simple measures that count each inpatient or outpatient visit equally can mask underlying changes in service mix and intensity. The proposed method aims to isolate price changes from changes in utilization or patient complexity. On outpatient care, OCA told the committee that it will develop an outpatient intensity adjustment (OIA) because outpatient services vary widely in complexity—emergency visits, imaging, infusion or outpatient surgery are not equivalent. OCA is considering two technical approaches to compute weights from HPD claims data: (1) CMS outpatient prospective payment system APC weights, a public grouper, and (2) the 3M Enhanced Ambulatory Patient Group (EAPG) grouper, which is proprietary but can produce payer‑specific weights. The OCA presentation flagged tradeoffs: APCs are transparent and publicly documented but are Medicare‑based and may underrepresent intensity for children's hospitals or maternity care; EAPGs can reflect all‑payer use but are proprietary and less transparent. OCA staff said their preference is to prioritize a public grouper where feasible but to explore EAPG if APCs fail validation checks. Validation and data sources: OCA will use its Health Care Payments Data (HPD) all‑payer claims database to apply the chosen grouper to hospital outpatient claims, sum relative weights to produce an average outpatient weight per hospital, and then multiply hospital‑reported outpatient visit counts (from hospital financial reports submitted to HCAI/OCA) by the weight to reach adjusted outpatient visits. Per‑unit outpatient revenue would then be outpatient net patient revenue divided by adjusted visits. OCA reported initial validation work showing the HPD captures roughly 80% of California utilization (82% of total population, 89% of insured population) and similar aggregate utilization and revenue trends to hospital financial data. The agency will continue correlation analyses, compare CMI calculated from HPD against patient discharge datasets, and evaluate representativeness by payer type and service line. Next steps and governance: OCA will reconvene the hospital spending measurement work group this summer to obtain input on the outpatient intensity approach, continue validation against hospital financial reports and patient discharge datasets, and present updated methodology to the OCA board and public later this year. What was not decided: No final methodological choice was made; OCA asked the work group for feedback about APCs versus EAPG and how to handle special facilities (children's hospitals, psychiatric or long‑term acute care).