The relationship between hospital charges and a modified Parsonnet risk score

Health care now consumes approximately 14 percent of the U.S. Gross National Product (GNP). The amount of money spent on health care in America per capita and as a percentage of GNP far exceeds that of any other industrialized country. Currently, the financial burden of health care is being shouldered by government and business. The expenditure of billions of dollars of corporate profits on health care progressively undermines the global competitiveness of American business. These economic realities have emerged as the dominant driving force in health care reform. Cost control efforts to date have focused on strategies to limit inpatient hospital expenditures. The DRG prospective payment system is designed to reimburse a fixed sum based on the diagnostic category of the patient. The DRG payment is essentially independent of underlying patient characteristics that can potentially drive up expenditures. The work reported in this article was done to develop a descriptive formula that could be used to predict resource consumption in the care of patients. The financial viability of a hospital depends on its ability to predict expenditures, allocate resources, and choose its service areas correctly. Errors in financial forecasting in the era of prospective payment will result in financial failures of entire institutions.