The impact of the New Jersey all-payer DRG system

Two prospective payment systems that operated concurrently in New Jersey during 1980-1982 created a natural experiment and a unique opportunity to compare the effectiveness of the two systems in restraining cost increases. Our results indicate that during that period, annual increases in the cost per case were significantly less in hospitals that were subject to the all-payer DRG system than in those institutions that were paid under the Standard Hospital Accounting and Rate Evaluation (SHARE) program. We also found that, relative to the SHARE program, the DRG system appears to have increased admission rates and reduced length of stay.