Evaluation of Severity-Adjusted DRG Systems

Addendum to the Interim Report

by Barbara O. Wynn, Molly M. Scott

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The Centers for Medicare & Medicaid Services (CMS) asked RAND to evaluate five “off-the-shelf” severity-adjusted DRG systems that might be considered for Medicare’s inpatient prospective payment system (PPS). RAND released an interim report evaluating the five systems as a working paper in March 2007(WR-434-CMS). Shortly thereafter, CMS proposed in the Fiscal Year 2008 (FY08) proposed rule to adopt a different system (Medicare-Severity or MS-DRGs. This addendum reports our findings with respect how the MS-DRGs compare to the other severity-adjusted systems. It addresses three questions:(1) How well does the MS-DRG system explain variation in resource usage? (2) How would the classification system affect a hospital’s patient mix? (3) Are the groupings manageable, administratively feasible, and understandable?

The research described in this report was prepared for the Centers for Medicare and Medicaid Services and performed under the auspices of RAND Health.

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