Cover: Use of diagnosis-related groups by non-medicare payers

Use of diagnosis-related groups by non-medicare payers

Published 1995

by Grace M. Carter, Peter Jacobson, Gerald Kominski, Mark Perry

Medicare's prospective payment system (PPS) for hospital cases is based on diagnosis-related groups (DRGs). A wide variety of other third-party payers for hospital care have adapted elements of this system for their own use. The extent of DRG use varies considerably both by type of payer and by geographical area. Users include: 21 State Medicaid programs, 3 workers' compensation systems, the Civilian Health and Medical Program of the Uniformed Services (CHAMPUS), more than one half of the Blue Cross and Blue Shield Association (BCBSA) member plans, several self-insured employers, and a few employer coalitions. The authors describe how each of these payers uses DRGs. No single approach is dominant. Some payers negotiate specific prices for so many combinations of DRG and hospital that the paradigm that payment equals rate times weight does not apply. What has emerged appears to be a very flexible payment system in which the only constant is the use of DRGs as a measure of output.

Originally published in: Health Care Financing Review, v. 16, no. 2, Winter 1994, pp. 127-158.

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