Regulation, retrenchment--the DRG experience: problems from changing reimbursement practice

Area of Science:

• Health Services Research
• Hospital Administration
• Medicare Policy

Background:

• Hospitals shifted from cost-based reimbursement to a prospective payment system (PPS) based on diagnosis-related groups (DRGs) between 1981 and 1984.
• This policy change aimed to control healthcare costs but potentially altered hospital services and patient care.

Purpose of the Study:

• To compare changes in inpatient services for different Medicare patient age groups (under 70, 70-84, and 85+) before and after the implementation of the DRG-based PPS.
• To assess the impact of the DRG system on hospital practices, service availability, and patient outcomes.

Main Methods:

• Analysis of 227,771 discharge abstracts from short-term, acute care hospitals in one U.S. state.
• Comparison of inpatient market services for distinct Medicare patient cohorts in 1981 (pre-DRG) and 1984 (post-DRG).

Main Results:

• All patient cohorts experienced service retrenchment as hospitals adjusted practices to maximize revenue under the DRG system.
• The oldest Medicare patients (85 and older) faced the greatest reduction in inpatient services, despite being the sickest cohort.
• Increased readmission rates across all cohorts suggest potential premature discharges or 'unbundling' practices driven by DRG incentives.

Conclusions:

• The DRG-based PPS, intended for cost containment, led to service compression and potentially negative consequences for vulnerable patient populations, particularly the oldest old.
• Hospital admission patterns changed to avoid reimbursement denials, indicating a shift in care priorities.
• Policy changes can have unintended, far-reaching effects on healthcare access and quality for specific demographic groups.