Structure and performance of different DRG classification systems for neonatal medicine

There are a number of Diagnosis-Related Group (DRG) classification systems that have evolved over the past 2 decades, each with their own strengths and weaknesses. DRG systems are used for case-mix trending, utilization management and quality improvement, comparative reporting, prospective payment, and price negotiations. For any of these applications it is essential to know the accuracy with which the DRG system classifies patients, specifically for predicting resource use and also mortality. The objective of this study was to assess the adequacy of the three most commonly used DRG systems for neonatal patients-Medicare DRGs, All Patient Diagnosis-Related Groups (AP-DRGs), and All Patient Refined Diagnosis-Related Groups (APR-DRGs). A 2-part methodology is used to assess adequacy. The first part is a descriptive analysis that examines the structural characteristics of each system. This provides a framework for understanding the inherent strengths and weaknesses of each system and for interpreting their statistical performance. The second part examines the statistical performance of each system on a large nationally representative hospital database. The analysis identifies major differences in the structure and statistical performance of the three DRG systems for neonates. The Medicare DRGs are structurally the least developed and yield the poorest overall statistical performance (cost R2 = 0.292; mortality R2 = 0.083). The APR-DRGs are structurally the most developed and yield the best statistical performance (cost R2 = 0.627; mortality R2 = 0.416). The AP-DRGs are intermediate to Medicare DRGs and APR-DRGs, although closer to APR-DRGs (cost R2 = 0.507; mortality R2 = 0.304). An analysis of payment impacts and systematic effects identifies there are major systematic biases with the Medicare DRGs. At the patient level, there is substantial underpayment for surgical neonates, transferred-in neonates, neonates discharged to home health services, and neonates who die. In contrast, there is substantial overpayment for normal newborns. At the facility level, there is substantial underpayment for freestanding acute children's hospitals and major teaching general hospitals. There is overpayment for other urban general hospitals but this pattern varies by hospital size. There is very substantial overpayment for other rural hospitals. The AP-DRGs remove the majority of the systematic effects but significant biases remain. The APR-DRGs remove most of the systematic effects but some biases remain.