This research examines the relationship between the Diagnosis Related Groups (DRGs) health care reimbursement protocol used by the United States government and the length-of-stay of patients in hospitals. One research question is investigated in this examination. This research question is as follows: "What effects have DRG pricing had on hospital length-of-stay for Medicare patients and for commercial health insurance patients?" This question is analyzed with data for the 1978-1995 period, as this period (1) reflects the length-of-stay experience both prior to and subsequent to the implementation of the DRG system and (2) provides complete data for each of the variables prior to the time that managed care became the dominant force in health care delivery in the United States. As a major objective of managed care is a reduction in the cost of health care services, and as hospital length-of-stay is a major factor in health care cost determinations, the inclusion of data from the dominant managed care period would tend to distort the analysis of the relationship between the FRG system and hospital length-of-stay (Goldman, 1995).
By 1982, the regulatory structure for government health insurance for the elderly (Medicare) was based on a new hospital reimbursement methodology and utilization control mechanism in the form of the Peer Review Organization (PRO) program. Soon thereafter (in 1983), the Diagnosis Related Groups (DRG) program of quality and cost review was implemented. Before then, reimbursement had been paid on fee-for-service basis (Skinner, 1997). Enforcement procedures included denial of payment for unnecessary care, an intensified review for those providers not meeting a threshold of compliance, and exclusion from Medicare and monetary penalties for failure to meet professionally recognized standards of care quality (Gosfield, 1994).
DRG procedures, with respect to provider reimbursement, were introduced by the fe...