Impact of selected diagnosis-related groups on regional neonatal care

The evaluation and reimbursement of hospital use by means of diagnosis-related groups (DRGs) may have a major impact on the utilization of regional neonatal care. Medicare has already implemented the DRG system and other payors, including Medicaid, Blue Cross, and commercial insurance, are also considering adopting it. Under this approach, neonates are assigned to one of seven DRGs, each of which is reimbursed at a relatively fixed rate. An evaluation of hospital utilization by neonates focused on three of these DRGs in four regional neonatal systems located in Upstate New York. Calendar year 1983 data indicated that Level III, II, and I neonatal facilities generated substantially different mean stays for these DRGs in the four regions. The ranges of mean stays between Level III and Level I facilities were greatest for DRGs involving neonates who died or were transferred and those with extreme immaturity and/or respiratory distress syndrome. Federal length of stay and cost standards for these categories failed to address the different utilization experience of these levels of care. The analysis suggests that, as additional payors adopt DRGs, the standards relating to neonatal care must be modified.