USE OF DIAGNOSIS-RELATED GROUPS BY NON-MEDICARE PAYERS

Medicare's prospective payment system (PPS) for hospital cases is base d on diagnosis-related groups (DRGs). A wide variety of other third-pa rty payers for hospital care have adapted elements of this system for their own use. The extent of DRG use varies considerably both by type of Payer and by geographical area. Users include: 21 State Medicaid pr ograms, 3 workers' compensation systems, the Civilian Health and Medic al Program of the Uniformed Services (CHAMPUS), more than one-half of the Blue Cross and Blue Shield Association (BCBSA) member plans, sever al self-insured employers, and a few employer coalitions. We describe how each of these payers use DRGs. No single approach is dominant. Som e payers negotiate specific Prices for so many combinations of DRG and hospital that the paradigm that payment equals rate times weight does not apply. What has emerged appears to be a very flexible Payment sys tem in which the only constant is the use of DRGs as a measure of outp ut.