Contributions of Case Mix and Intensity Change to Hospital Cost Increases

by Thomas B. Bradley, Gerald Kominski

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The 28 percent change in average Medicare inpatient cost per case between 1984 and 1987 is decomposed into three components: input price inflation, changes in average cost within diagnosis-related groups (DRGs) (intensity), and changes in the distribution of cases across DRGs (case mix). The authors estimate the contributions of technology diffusion and outpatient shifts to within-DRG and across-DRG cost changes. The authors also use California data to estimate the contribution of changes in the quantity of services provided during a stay. The factors examined account for approximately 80 percent of the real increase in average cost per case.

Originally published in: Health Care Financing Review, v. 14, no. 2, Winter 1992, pp. 151-163.

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