Cost-variance analysis by DRGs; a technique for clinical budget analysis

In this article it is shown how a cost accounting system based on DRGs can be valuable in determining changes in clinical practice and explaining alterations in expenditure patterns from one period to another. A cost-variance analysis is performed using data from the orthopedic department from the fiscal years 1993 and 1994. Differences between predicted and observed cost for medical care, such as diagnostic procedures, therapeutic procedures and nursing care are analyzed into different components: changes in patient volume, case-mix differences, changes in resource use and variations in cost per procedure. Using a DRG cost accounting system proved to be a useful technique for clinical budget analysis. Results may stimulate discussions between hospital managers and medical professionals to explain cost variations integrating medical and economic aspects of clinical health care.