Medicaid and Blue Cross DRG payment plans: a comparison

Six states--Michigan, New Jersey, Ohio, Pennsylvania, Utah, and Washington--have enacted DRG-based Medicaid prospective payment plans. These systems closely parallel Medicare's due to the time and expense involved in developing and implementing an alternative case-mix payment method. A comparison of peer groups, capital costs, blend factors, outlier payments, medical education costs, etc., reveals similarities and differences in the plans that these states have adopted. Ten Blue Cross/Blue Shield plans have adopted prospective payment systems, mostly without setting DRG rates. These systems differ from Medicare and Medicaid DRG systems and from each other in a variety of ways. More state Medicaid programs probably will adopt prospective payment systems similar to Medicare's and Blue Cross/Blue Shield plans will continue to modify their hospital contracts. Hospitals' efforts to contain costs will be impeded if the major insurers within a state base their prospective payment systems on different product lines or units of output.