Health Insurance and Public Policy: Risk, Allocation, and Equity

By Miriam K. Mills; Robert H. Blank | Go to book overview

10
The Codification of Compassion: Impact of DRGs on Hospital Performance

Miriam K. Mills


INTRODUCTION

The traditional view within the health industry has been that the interest of the patient or client is the key concern of the field. This view has now become adapted to state that the interest of the patient or client is paramount, but within defined fiscal constraints. In 1965 Medicare was established, representing a significant change in the financing of health care. In 1983 another important modification was enacted: Congress approved a system of prospective payments for hospital inpatient services, whereby hospitals received a fixed sum per case according to a preestablished schedule of Diagnosis Related Groups (DRGs). The hospital economically benefits when the patient's stay is within the low range (in this case, 4 to 9 days) and loses when the stay falls in the high range. Once the hospital stay exceeds the day outlier limit or trimpoint, the hospital is reimbursed on a per diem basis according to a formula devised by HCFA ( Maurer, 1987). The program that began in October 1983 has been phased in over a four- year period. The goal was to stem the rise in hospital costs, promote the financial solvency of New Jersey's hospitals, and to maintain if not improve the quality of care delivered throughout the state ( Wasserman, 1985).

The data used to calculate the rates were published in September 1983 as part of the interim final regulations. The implications for most hospital services is to put greater emphasis on reduced hospital length of stay, increased outpatient care, increased productivity, and much more detailed documentation and accounting, which is now expedited through the use of technology ( Davis, 1984).

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