Reimbursement under DRGs: implementation in New Jersey

This paper addresses the general concept of incorporating DRGs (Diagnosis Related Groups) into health care reimbursement systems and specifically addresses the problems and issues encountered in implementing a DRG-based hospital reimbursement system in the State of New Jersey during the period 1978-1982. We will frame the problem by briefly discussing the traditional problem with cost-based reimbursement systems, the objective and general methodology of patient classification, and the use of DRGs in hospital reimbursement. We then explore in some detail each phase of the process of constructing a workable prospective case-mix reimbursement system as it occurred in the State of New Jersey, discussing in particular the major reimbursement policy issues, their resolution, and impact on the system as a whole. Specific concerns addressed are patient data requirements, financial and statistical data requirements, the allocation of costs to patients, the development of prospective rates, the actual mechanics of payment, and current developments in New Jersey.