From DRGs to deregulation: New Jersey takes the road less traveled

Following a 1992 court ruling that declared New Jersey's system of financing uncompensated care unconstitutional, the state radically changed its 12-year-old hospital payment system that pioneered the use of diagnostic-related groups (DRGs). In its place, New Jersey lawmakers approved a package of reforms that lets hospitals set their own charges and collect bad debts, uses the state's unemployment insurance trust fund to pay for charity care, and reforms the individual and small group insurance markets. Immediate results of the law include new subsidies for inner-city hospitals, lower bond ratings, and hospital layoffs.