Principles for funding on a case mix basis: construction of case weights (RIWs)

The construct of Resource Intensity Weights (RIWs) contains implicit financial incentives if they are used for hospital funding purposes. This paper compares the RIW (funding) credit to the expected average per diem cost for each of the new subcategories (typicals, deaths, transfers, signouts and outliers) of Case Mix Groups (CMGs). RIW construction, and inherent incentives for a hospital to reduce costs or length of stay (LOS), differ significantly for each subcategory. At some point or points in a patient's LOS, when RIW credit equals case cost, RIWs are incentive neutral. However, it can also be demonstrated that RIW credit is not generally congruent with average costs on each day of a patient's stay. Financial incentives (both positive and negative) arise when RIW credit and costs differ. Only by being fully aware of these differences can hospitals determine how to respond to the introduction of case mix funding to maintain financial viability. Funding agencies, too, need to appreciate the sometimes subtle policy implications that come with the adoption of RIWs for funding purposes.