Social policy and professional self-interest: physician responses to DRGs

Prospective hospital reimbursement based on Diagnosis Related Groups (DRGs) began in 1983 for Medicare patients, and many states are adopting similar systems for Medicaid recipients in an attempt to curb rising health care costs. Because of their unprecedented intrusiveness compared to previous cost-containment measures and because they explicitly introduce financial incentives to reduce services, DRGs have great potential to affect health care delivery. To determine the effects of DRGs on hospitals and physicians, six months of ethnographic fieldwork was carried out on the medicine and pediatrics services of a university-affiliated hospital during the first year of DRG-based reimbursement. Observations and interviews were used to discern institutional responses to DRGs and physician knowledge of, experience with, and reactions to this cost-containment effort. Our findings indicate that the hospital instituted many changes to protect its interests. Data gathered from patients' abstracts suggest providers are successfully dealing with the new system; the average length of stay for Medicare patients was reduced by 38% in the first year of prospective reimbursement, compared with a 15% reduction for other patients (P less than 0.05). As a group, the physicians made no organized effort to educate themselves about the new cost-containment regulations. Their knowledge of DRGs was vague and included many misconceptions. Their response was not a coherent one taking broad social concerns into account. Cost-containment was viewed negatively, as a threat to the financial integrity of the hospital, patient care, and professional autonomy.(ABSTRACT TRUNCATED AT 250 WORDS)