Financial Implications of Tariffs for Medical Oxygen on Rwandan Public Hospitals’ Finance Management During the Coronavirus Epidemic

This study shows how variations in patient consumption of medical oxygen can be used to determine tariffs more accurately and highlights the need for a transition from the time-based tariff structure to a case-based or volume-based tariff to incentivize sustainable production of medical oxygen services at hospitals in Rwanda. Key Findings The current fee-for-service tariff model in Rwanda does not account for variation in the duration and quantity of oxygen consumed based on intervention, disease severity, and other factors. Based on the current tariff model and considering variable oxygen flow rates for different patients, most hospital wards in this analysis were operating at a negative profit margin. However, the total hospital margin over all wards was positive because other wards had much higher profit margins from lower average flow rates. Using an alternative tariff model that considers duration and volume of oxygen consumed, particularly when responding to higher needs during future emergencies, will allow hospitals to sustainably procure and supply oxygen. Proper pricing is a critical determinant in the optimal production, procurement, and supply of medical oxygen in hospital management. Key Implication Health insurance policy makers and managers can use our recommendations to design more accurate oxygen pricing models that consider both the duration of the therapy and the volume of oxygen used during the therapy. This will minimize the risk of hospitals operating at a loss and reduce the liability to the insurance company for therapies requiring low flow rates. ABSTRACT In Rwanda, provider reimbursements for oxygen are based on the duration of patient consumption at a fixed hourly tariff rate. This study sought to assess whether the current insurance tariff in Rwanda was adequate to cover the costs of oxygen used in oxygen therapy and to explore alternative tariff models. The assessment found that hospitals make a marginal surplus from low volume flow rate patients and incur losses from patients who require high volume flow rates. In high volume nonspecialized hospitals with a large pool of patients consuming medical oxygen, low flow rate usage patients (e.g., neonates) tend to subsidize high flow usage patients (surgery), if the number of patients consuming low flow oxygen is higher than the latter. The study found that the current tariff was sufficient before the exponential surge in demand for high flow usage during the peak of the COVID-19 pandemic. A variable tariff that factors both the duration (hours) and the volume (liters) used during the therapy may require more work but better reflects the cost of consumption in each ward. A case-based payment model provides a standard pricing framework based on the patient’s diagnosis, intervention, and intensity of treatment. This study highlights the need for a transition from the time-based tariff structure to a case-based or volume-based tariff to incentivize sustainable production and provision (supply) of medical oxygen services at health facilities in Rwanda. Social health insurance reimbursement tariffs for medical oxygen need to reflect both duration and volume of consumption because oxygen therapy varies based on intervention, disease severity, patient age, length of stay, and responsiveness to treatment.