Alternative Systems for Case Mix Classification in Health Care Financing

When Congress designed and implemented the prospective payment system (PPS), the best available method to adjust for differences in case mix was the diagnosis-related groups (DRGs). The DRG system classified all patient cases, and had already been implemented in New Jersey's prospective payment system. While some of the problems in an earlier version of the DRGs have been resolved, concern remains that DRGs may need to be refined or replaced to better reflect variation in patient condition. This report was prepared as background to a report that the Congress requested from the Health Care Financing Administration. It compares the structure and performance characteristics of case mix adjustment measures being considered as replacements for or refinements to the diagnosis-related groups. The authors reviewed published papers, prepublication drafts, and technical reports on five case mix systems: APACHE II, Disease Staging, MEDISGRPS, Patient Management Categories, and Severity of Illness Index. The alternative systems differ in classification structure, data requirements, and stage of development. The findings suggest that, at present, no system appears to perform better than the DRGs.