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

We determine which set of weights is more compressed and which would produce the highest correlation between payment (under current rules) and cost. Finally, we examine which set of weights would have produced a larger increase in the CMI from 1986 to 1988 when coding improvements were a substantial component of the increase.

Data

The primary data set used for this project is a 20-percent sample of inpatient hospital bills for Medicare discharges occurring in fiscal years 1985 through 1989. The records used for this analysis exclude cases at exempt hospitals and units in PPS States and also exclude cases in Maryland and New Jersey where hospitals were not paid under PPS. Although New York and Massachusetts did not join PPS until FY 1986, their bills are included in the sample in all 5 fiscal years. Puerto Rican hospitals are included only since they joined PPS.

In order to calculate charge-based weights, we needed data on the factors used for standardization of charges: the PPS wage index, cost-of-living adjustment, teaching payment factor, and disproportionate share payment factor. For each year, we used an estimate of the factors actually in use in that year. For 1985 and 1986, we used data from RAND's extract of an early version of the Provider-Specific file. For 1987 through 1989, we used a file provided by HCFA that contained the payment adjusters for these years.

In addition to our longitudinal analyses, we present cross-sectional analyses of cases discharged during FY 1989 in order to explicate how the methods result in different weights. Given the constant definition of DRGS during a single Federal fiscal year, this comparison will demonstrate clearly the difference between the two methods. We also analyze cost and other characteristics of cases discharged during PPS5 because cost data are gathered only for a hospital's fiscal year.

In the latter cross-sectional analysis, we draw the total cost per case at each hospital during PPS5 from the "capital regression public use file," which is available from HCFA. All needed data were available on 4,890 hospitals during PPS5.

Methods

The HSRV methodology was applied to charge data from each year's bills to create weights. In the HSRV method, charges are standardized at the hospital level using hospital-specific charges. The total charge for each case is divided by the average charge for the hospital in which the case occurred. The resulting ratio is then multiplied by the hospital CMI to produce a hospital-specific relative charge. The process of calculating the weights is iterative. Initial values are chosen for the CMI of each hospital (for example, the CMI based on the standard charge-based weights). DRG weights are then set in proportion to the average value of the hospital-specific relative charges. Using the new DRG weights, a new CMI can be calculated for each hospital and therefore new hospital-specific relative charges. The process is continued until there is convergence between the weights produced at adjacent steps, for instance when the maximum difference is less than 1 percent.