Analysis of nationwide pharmacy charges per DRG

The national hospital data used by the Health Care Financing Administration (HCFA) to construct the DRG-payment weights for the Medicare prospective-pricing system are analyzed and evaluated. The database represented a 20% sample of all Medicare hospital bills in 1981. Each record contained 96 bytes of data in 28 field elements, including DRG assignment, Standard Metropolitan Statistical Area code, length of stay (LOS), pharmacy charges, and total hospital charges. There was considerable variation in the relative weight of pharmacy charges to total ancillary charges among DRGs; however, the degree of variation appeared to be similar for both rural and urban hospitals. Examination of the pharmacy charges for the top-10 Medicare DRGs revealed that the median pharmacy charge per DRG was consistently less than the average pharmacy charge per DRG. Average pharmacy charges per DRG were generally 50% greater for urban hospitals than rural hospitals. Average and median LOS per DRG also differed substantially, and the LOS for urban hospitals was approximately 20% longer than it was in rural hospitals for all DRGs. The standards derived from the pharmacy-charge and LOS data used by HCFA in developing the DRG-payment weights should be used cautiously. The heterogeneity of these data confirms the imprecision in constructing these weights and the need to use median rather than average statistics as standards in use-review programs.