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DRG-based per diem payment system matches costs more accurately
1Blue Cross-Blue Shield, NH, USA.
Abstract:
Some managed care organizations use the DRG hospital payment method developed for Medicare to set case rates. Unfortunately, when such a method is used in a risk-sharing arrangement, hospital and physician incentives are misaligned. Hospitals and payers would benefit from using a hospital reimbursement model that calculates inpatient per diem payments for medical and surgical cases by classifying DRGs in tiers and ranking the tiers according to how resource-intensive they are. DRGs provide the means for a rational classification system of per diem rates that recognizes cases where the expected resources are going to be higher or lower than the average per diem amount. If payers use per diem rates that are weighted according to a DRG classification, hospital payments can correlate closely with the actual costs per day for a specific case, rather than an average for all surgical or medical admissions.
Insights
Managed care organizations can improve hospital payments by using Diagnosis-Related Groups (DRGs) to create tiered per diem rates. This aligns incentives and better reflects actual costs per case.
Area of Science:
- Health economics
- Hospital administration
- Healthcare finance
Background:
- Managed care organizations often use Medicare's Diagnosis-Related Groups (DRGs) for hospital case rate payments.
- This approach can lead to misaligned incentives between hospitals and physicians in risk-sharing arrangements.
Purpose of the Study:
- To propose an improved hospital reimbursement model for managed care organizations.
- To align hospital and payer incentives through a more accurate payment structure.
Main Methods:
- Classifying Diagnosis-Related Groups (DRGs) into tiers based on resource intensity.
- Developing a per diem payment system weighted by these DRG tiers for inpatient medical and surgical cases.
Main Results:
- The proposed model allows per diem rates to reflect varying resource needs across different DRGs.
- This weighting system enables hospital payments to more closely match actual daily costs per case.
Conclusions:
- Implementing a DRG-tiered per diem reimbursement model can enhance financial alignment between hospitals and payers.
- This method offers a rational system for setting per diem rates that account for case-specific resource utilization.