How recalibration method, pricing, and coding affect DRG weights - diagnosis-related group

Health Care Financing Review, Winter, 1992 by Grace M. Carter, Jeannette A. Rogowski

Table 7 shows that the apparent cross-subsidization was not limited to any one segment of the CMI distribution and does not determine whether hospitals would win or lose under HSRV. Table 7 does, however, illuminate the causes of the variation among "other" hospitals in the change in CMI under the HSRV method. Among other hospitals, the average standardized charge per unit of DRG weight (either method) decreases with an increase in the size of the gain under HSRV. The low charges for higher weight DRGs of the hospitals that won the most contributed to causing their typical cases (which are predominantly very low-weight medical cases) to have higher weights under the HSRV method than under the standard method.

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Compression

An important criterion on which to compare recalibration methods is the extent to which cost per case and CMI correspond at the hospital level. If highweight DRGs are systematically underweighted and low-weight DRGs systematically overweighted, then compression will occur for CMIS calculated at the hospital level as well as for the DRGs. CMI compression can also be caused by problems in the classification system or by a correlation between the CMI and a tendency to provide more resources per case. Although we can't observe DRG compression, it is possible to test for CMI compression using a regression of each hospital's average cost per case on its CMI. In the absence of CMI compression, the coefficient on the CMI would be 1.

The first four columns of Table 8 present regressions of total Medicare cost per case on the CMI and other payment factors. (The last four columns of Table 8 will be discussed in the next section.) Because the hospital cost data we are using is from PPS5, it covers different calendar periods. Thus, to control for the effects of differing time periods over which costs are measured, a variable giving the fraction of the year from the start of Federal FY 1988 until the start of the hospital's PPS5 year is included in the regressions. (Mean values for the variables in the regressions may be found in Carter and Rogowski, 1993.)

Under the HSRV method, the CMIs are more compressed than under the standard method. The coefficient on the HSRV CMI, 1.083, is significantly different from 1. However, the coefficient based on the standard weights, 1.020, is not significantly different from 1.

In FY 1988 there were substantial improvements in coding as a response to refinements in the grouper. The effects of this change on compression can be seen in Table 8. Our methodology calculates weights for the grouper in effect in each year. For actual payment purposes, HCFA calculates weights for each grouper based on the cases in an earlier year's file. The weights used for payment in FY 1988 were calculated based on HCFA'S FY 1986 file, before the coding improvements occurred. These paid weights are compressed when applied to cases classified after the coding improvements occurred (with a coefficient of 1.060), whereas the weights calculated using the same methodology on the file with the improved coding are not compressed (with a coefficient of 1.020, not significantly different from 1). In order to test whether our sampling methodology affected this conclusion, we also created DRG weights based on the 1988 grouper for our sample of FY 1986 data. Again, we found more compression with the 1986 file weights than with the 1988 file weights.