The impact of DRG reimbursement on strategic planning

DRG reimbursement has been in effect in New Jersey since 1980 and has resulted in significant changes in the way hospitals conduct strategic planning. These effects are identified and categorized according to how they have changed the process, the participants and the products of strategic planning. Strategic planning under DRGs increasingly focuses on market segmentation, competitive position analysis, strategic business units and financial simulation. More significant roles in the process are assumed by physicians, community, chief financial officers and data sources. Planning strategies emphasize marketing, unbundling and vertical and horizontal integration. Strategic planning is moving toward more detailed market and financial analyses, including the measurement of the financial impact of physician performance on the hospital and subsequent modification of physician practices.