Review of the Literature on Diagnosis Related Groups

This Note was prepared as background for the Health Care Financing Administration's report to Congress, Refining Case Mix Adjustment in Medicare's Prospective Payment System (PPS). It reviews the literature on diagnosis-related groups (DRGs), the case mix adjustment method used in the PPS. The review encompasses journal articles, prepublication drafts, and technical reports, focusing on the years 1982-1985. Whether the DRGs adjust adequately for case mix is still an open question. A small number of studies which compare DRGs with alternative case mix systems in large datasets suggest that the DRGs are still the best available method. Many studies in the journal literature are critical of the DRGs, but limited in data and methods, thus demonstrating and disseminating misunderstanding of PPS. The technical report literature more successfully accommodates the complexities of PPS, but these reports are not yet widely available. The contrast between the journal and technical report literature is marked, and reveals the need for education about PPS.