Regulation, retrenchment- The DRG experience: Problems from changing reimbursemwnt practice

A study of 227,771 discharge abstracts from one U.S. state's short-term, acute care hospitals compares changes in the inpatient market available to the oldest old Medicare patients (85 and older) with those less than 70 and those 70-84 between 1981, the last year when all hospitals were under cost-based reimbursement, and 1984, the first year in which all hospitals were under a prospective payment system based on diagnosis related groups (DRGs). All three populations experienced retrenchment in services as hospitals pursued practice changes to enhance revenue potential. An older, sicker client was admitted as hospitals implemented changes in admission patterns to avoid denial of reimbursement for an admission deemed inappropriate by the Peer Review Organization (PRO). Evidence demonstrates compression in service markets and retrenchment in services for less profitable DRGs and/or cohorts. Inpatient services were reduced the most for the oldest old population although this cohort was the sickest. Changes were observed in utilization of special care units, such as in coronary and intensive care units. Large increases in readmissions in all three cohorts suggests that DRG incentives to reduce length of hospital stay may have promoted premature discharge. Or, perhaps these readmissions resulted from 'unbunding', a practice of splitting patient problems into multiple admissions, as hospitals sought ways to enhance revenue instead of practicing cost-containment. Policy, perceived to be economically stringent, can affect hospital practice and produce undesired results with long-reaching untoward effects on certain segments of the population.