Reports released Monday evaluated the CMS methodologies for converting its inpatient hospital payment system from being charge-based to one that is cost-based and which more fully reflects the severity of a patients condition.
RTI International found that converting to cost-based weights might lead to distortions in the value of diagnosis-related groups, where low-cost DRGS are overvalued and high-cost ones are undervalued.
Theres also the issue of charge compression, which refers to the practice of assigning a lower markup to relatively high-cost items and a higher markup to lower-cost items. RTI determined that charge compression could underestimate or overestimate cost estimates for specific DRGs, biasing the weights.
Separately, a working paper from RAND Health found that a severity-adjusted classification system developed by 3M Co. does the best job of paying for patients appropriately and explaining or differentiating DRGs based on cost.
The RAND paper compared five systems that could be used to classify discharges into severity-adjusted DRGs with the CMS current DRG system. The paper found that all five systems would reduce the amount of cost variation within DRGs, and that each of the five systems did a better job of explaining differences in cost across Medicare discharges than the current system. Although 3Ms consolidated, severity-adjusted DRGs system rated highly in these categories, its drawbacks are that it is a proprietary system that is very difficult to understand.
RAND on Sept. 1 plans to publish a final report that will expand on its analysis. -- by Jennifer Lubell