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Reimbursement under diagnosis-related groups: the Medicaid experience
Abstract:
The implementation of the Medicare prospective payment system has sparked the growth of similar Medicaid systems. Eight State Medicaid agencies now employ a system based on diagnosis-related groups (DRG's), and another four State Medicaid agencies are planning to implement such systems in the near future. The eight DRG-based systems in existence in 1986 are examined in this article. Preliminary evidence presented herein indicates that Medicaid DRG-based systems have experienced reduced rates of increase in expenditures for hospital services and that hospital admission rates have not increased under these systems.
Insights
State Medicaid agencies are adopting diagnosis-related group (DRG) systems, similar to Medicare. Early data show these Medicaid DRG systems reduce hospital spending growth without increasing admissions.
Area of Science:
- Health economics
- Public health policy
- Healthcare management
Background:
- The Medicare prospective payment system's success has influenced state Medicaid programs.
- Eight states have implemented Medicaid systems based on diagnosis-related groups (DRGs).
- Four additional states plan to implement similar systems.
Purpose of the Study:
- To examine the impact of DRG-based systems in state Medicaid programs.
- To assess changes in hospital service expenditures under Medicaid DRG systems.
- To evaluate the effect of Medicaid DRG systems on hospital admission rates.
Main Methods:
- Analysis of eight existing state Medicaid DRG-based systems from 1986.
- Review of preliminary evidence on expenditure trends.
- Assessment of hospital admission rate data.
Main Results:
- Medicaid DRG-based systems show reduced rates of increase in hospital service expenditures.
- Hospital admission rates have not increased in states with Medicaid DRG systems.
- Preliminary evidence suggests financial and operational benefits.
Conclusions:
- Medicaid DRG systems appear effective in controlling hospital cost growth.
- These systems do not negatively impact hospital access as measured by admission rates.
- DRG-based payment models offer a viable strategy for Medicaid cost containment.