DRGs: an overview of the issues

The prospective payment system based on diagnostic related groups adopted by Medicare in 1983 has many deficiencies with respect to psychiatric care. Due to the efforts of the American Psychiatric Association, psychiatric units in general hospitals have been temporarily exempted from this system of per-care payment. A number of problematic issues need to be addressed in the design of any modified or alternative system of financing psychiatric care. These issues include the problems of premature discharge, code manipulation, cost-shifting, and equitable patient access to psychiatric services. The potential effects of a DRG system of payment on clinical practice are reviewed. The reasons for the shortcomings of the DRG system in predicting utilization of services are discussed, and areas for future research are suggested.