Managing DRGs: knowing what to cut--and when

Medicare's new DRG prospective reimbursement is based upon a methodology diametrically opposed to the incentives of its traditional retrospective, cost-based system. The agreement to a phase-in period for DRGs, with reimbursements based on both the cost-based and DRG-based methodologies for three years, creates a fundamental conflict and unique managerial challenge for radiology and other hospital administrators. It means they must know both what to cut under DRGs and when to cut them during and after the phase-in.