Reimbursement under diagnosis-related groups: the Medicaid experience

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Published on: January 8, 2020

F J Hellinger

    Health Care Financing Review
    |December 6, 1986
    PubMed

    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.

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