Severity variations within DRGs: measurement of hospital effects by use of data on significant secondary diagnoses...

The Diagnosis Related Group classification has provided an excellent basis for enhancing the equity of resource allocation between public acute hospitals. However, it underestimates the higher levels of severity and consequent costliness of referral hospitals. This paper describes a practical way of measuring within-DRG variations in severity, which can be used to increase the precision of casemix-based funding. It involves the regression of length of stay against the numbers of significant diagnoses and procedures, and bence the prediction of additional justified costs. An example is given of its application to data from South Australian public hospitals.