Use of diagnosis-related groups by non-Medicare payers - Medicare Payment Systems: Moving Toward the Future

Health Care Financing Review, Winter, 1994 by Grace M. Carter, Peter D. Jacobson, Gerald F. Kominski, Mark J. Perry

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DRG Definitions

Thirteen of the 21 PPS Medicaid State programs have chosen to use the Medicare DRGs without change.(10) Four additional States expanded the Medicare DRGs slightly to tailor their systems to their population. Wisconsin expanded the DRGs in major diagnostic category (MDC) 15 (neonatal care) and in MDC 19 (psychiatric care). Wisconsin's DRGs in MDC 19 are based in part on the kind of hospital providing the care. Oregon expanded the neonatal care DRGs and provides three rehabilitation DRGs. Illinois added four DRGs for care in neonatal intensive care. Ohio added neonatal DRGs based on both birth weight and level of care. New York has opted to develop its own State-specific DRGs, also known as the 3M All-Patient DRGS.(11) These DRGs were adopted by neighboring New Jersey, and, in July 1993, by Washington.

The remaining State, Minnesota, bases its system primarily on Medicare DRGs, but compresses them into 76 diagnostic categories. Typically, these diagnostic categories are groups of DRGs in the same MDC.

The BCBSA members also frequently found the Medicare DRGs to be suitable. Sixty-eight of our respondents used the Medicare DRGs for 71 percent of the sample products.(12) The New York DRGs appear to be used almost exclusively by BCBSA members in New York and New Jersey where their use is or was mandated. A few of the remaining BCBSA members expanded the Medicare DRGs by adding categories for neonates and cardiology.

One BCBSA member plan with four products negotiates different payment categories with different hospitals, using a much smaller number of categories than in the Medicare DRGs. Prices are directly negotiated for each of these categories, rather than using DRG weights. However, a case-mix index based on Medicare DRG weights is calculated within each of these payment categories and used during price negotiations.

Of the five HMOs not affiliated with BCBSA, three use the Medicare DRGs, one the New York State DRGs, and one an expanded version of Medicare's DRGs.

DRG Weights

Payments to a hospital are usually proportional to DRG weights. The majority (55 percent) of BCBSA products calculate their own weights, with an additional 21 percent using weights from other BCBSA members or a mixed system. Only 10 percent of the BCBSA members use HCFA Medicare weights. As mentioned, one BCBSA member plan does not use DRG weights for payment. Two non-BCBSA HMOs calculate their own weights, two use published weights, and one uses different payment rates for DRG-hospital pairs and thus never calculates a DRG weight.

Medicaid Weights

All States develop their own State-specific Medicaid weights. In most cases, Medicaid weights are derived using claims data for the State's own Medicaid program so that the weights reflect the services actually delivered to the payment system's clients. A variety of strategies are used for those DRGs for which insufficient State-Medicaid-specific data are available. Oregon mixes and matches, using Medicaid data when the sample is large enough and utilizing all Oregon claims (or even Medicare weights or other sources) when the Oregon Medicaid sample is too small. New Mexico also imports relative weights from other sources, including Medicare and CHAMPUS. North Dakota calculates its own weights for 60 DRGs that account for 73 percent of Medicaid expenditures and uses weights from Montana for the remaining, low-frequency DRGs. In New York, a statewide data base (reflecting claims for all payers) is used for all DRGs. Both Medicaid and BCBSA members in New York use the weights published by New York State. In New Jersey, standard amounts per DRG are based on payer.