Performance Improvement 2009. How Do Alternative Methods of Calculating Diagnosis-Related Groups' Relative Weights Impact Their Values and Accuracy?


The study used alternative methods of estimating cost and standardizing for systematic cost differences among hospitals to calculate 5 sets of alternative relative weights which were compared to the relative weights constructed using the current method. This was done to learn the implications of different methods on payments and payment accuracy in the hospital Inpatient Prospective Payment System. To assess the payment implications, researchers compared the relative weights and average payments using each alternative method to the relative weights and average payments across hospital groupings using fully phased-in Medicare severity diagnosis-related group (DRG) cost weights. Researchers assessed each relative weight method in terms of its ability to explain cost differences among DRGs and its impact on payment accuracy.

The study found substantial differences in the weights for DRGs across the alternative methods and large redistributions across hospitals. But there was little difference across the methods in their ability to predict cost at either the discharge or hospital levels. None of the alternative methods represented a marked improvement over the current method. The indirect medical education and disproportionate share payment adjustments had a larger impact on payment accuracy than did calculating DRG relative weights.

Report Title: Evaluation of Alternative Methods to Establish DRG Relative Weights
Agency Sponsor: CMS-ORDI, Office of Research, Development, and Information
Federal Contact: Philip Cotterill, 410-786-6598
Performer: Rand Corporation
PIC ID: 8957

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