Refining DRGs. The example of children's diagnosis-related groups

Congress exempted certain types of specialty hospitals from the Medicare Prospective Payment System because it was recognized that Diagnosis-Related Groups (DRGs) may not properly define the case mixes in such institutions. This study is part of a larger investigation into case mix and payment in children's hospitals, one category of exempted institutions. A national sample of approximately 500,000 cases was developed with intentional oversampling of children's and university hospitals to allow detection of specialized types of cases. Five case-mix classification schemes--DRGs, Disease Staging, Patient Management Categories, Severity of Illness Score, and Pediatric Diagnosis System groups--were applied to the data set, and data items not included in the Uniform Hospital Discharge Data Set were collected. A set of Children's Diagnosis-Related Groups (CDRGs), based on modification of the current DRG system, resulted from the study. When CDRGs were applied to an independent sample of children's hospital data, length of stay variance was reduced by 47.6% compared with 32.3% for DRGs (length of stay outliers removed). These results suggest that incremental approaches to DRG refinement in other clinical areas where current definitions are inadequate may be better than rejecting the large amounts of statistical and clinical analyses existing in the DRG system. Similar methods can be used to correct problems brought on by changes in medical practice.