REFINEMENT OF THE MEDICARE DIAGNOSIS-RELATED GROUPS TO INCORPORATE A MEASURE OF SEVERITY

This article presents a system under consideration by the Health Care Financing Administration (HCFA) for incorporating a measure of severit y of illness into the Medicare diagnosis-related groups (DRGs). DRG as signment is one of the main factors in determining the payment made fo r hospital inpatient services furnished to Medicare beneficiaries. Spe cifically, the formula used to calculate payment for a single Medicare hospital inpatient case takes an average payment rate for a typical c ase and multiplies it by the relative weight of the DRG to which it is assigned. Thus, it is easy to see that the DRG relative weights have a large impact on the payment a hospital receives. In this article, we describe the Medicare DRG prospective payment system (PPS), evaluate the various classification elements available for assessing severity o f illness, describe the analyses used in formulating this proposal, an d present the proposed DRG severity system.