DRG SYSTEM AND LENGTH-OF-STAY: AN ECONOMIC ANALYSIS
This examination investigated the effects of DRG pricing on hospital length-of-stay for Medicare patients and for commercial health insurance patients. The examination found that hospital length-of-stay decreased for both patient groups subsequent to the implementation of the DRG system.
The findings were consistent with the economic incentives created for hospitals by the DRG system; however, hospital length-of-stay for both patient groups also declined from 1978 through 1982 prior to the implementation of the DRG system. Thus, it should not be concluded that all of the reductions in hospital length-of-stay were attributable to the implementation of the DRG system.
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. 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...