Diagnosis Related Groups and AR-DRGs - Introduction

1. Diagnosis Related Groups and AR-DRGs - Introduction Prof Ric Marshall OAM The University of Sydney.

2. QUESTIONS • When asked to use DRGs people want to know. • What are DRGs? • What are DRGs useful for? • People wanting to use DRGs usually have some purpose in mind. • How can DRGs help us to … ? • What people who use them want to know about how they work – their limitations.

3. The usual context:- Paying for health services based on activity rather than expenditure

4. WHY DRG’S? • IF USED EFFECTIVELY AS A FUNDING TOOL • DRG’s help to focus on hospital efficiency and quality. • DRG’s help to contain growth in hospital costs. • THE DRG IS JUST THE TOOL NOT THE POLICY

5. 5 major product groups 18 major product subgroups DRGS

6. Hospital Inpatient Care • Goals, incentives • efficient use of available resources such as same day surgery • close integration with non-acute care settings to support early discharge and effective post discharge care • good health outcomes and minimisation of adverse events • optimisation of patient convenience • Episode focus – eg DRGs

7. What is needed to fund a hospital system by DRG payments??? THE 4 Components of a drg funding system

8. Component 1: Data Elements Required to Assign Cases to DRGs • ICD-10-AM Codes • Principal diagnosis • Additional diagnoses, complication, co morbidity • Procedure/s (ACHI) • Sex • Length Of Stay • Or Admission and Separation Dates • Same-day Status • Patient age • Or Admission Date and Date of Birth • Newborn admission weight • For age 28 days or less, plus older if less than 2500 grams • Mode of separation (discharge status) • National Standard, includes died, transferred • Intensive care flag • Time in ICU, HMV

9. Component 2: WHAT IS THE PRICE? Operation anaesthesia, theatre pack = 1000YTL Three days of nursing = 300YTL Ten pathology tests = 250YTL Eight specialist consultations = 400YTL Three days in hospital = 900YTL • ? 1000+300=1300 • ? 1000+300+400=1700 • ? 1000+900+300+250+400=2850

10. HOW MUCH DOES A DRG COST?

11. Component 3: MODELLED BUDGETS EXAMPLE

12. Component 4:How do you change funding method? • Phasing • Transition strategy • Initial steps • Policy design • Consensus • Modelling and demonstration

13. DRGs Implementation Germany

14. Healthcare system outputs rather than inputs

15. How does your garden grow?

16. DO BUDGET ALLOCATIONS AFFECT HOSPITAL EXPENDITURE?

17. Why Did USA Medicare Program Decide to Use DRGs for Payment? Medicare Spending as a Percent of Total Health Expenditures, 1970–2001 In 1982, Congress mandated the use of a prospective payment system and in 1983 the Medicare program implemented a DRG-based payment system Source: Katharine Levit et al., “Health Spending Rebound Continues in 2002,”Health Affairs (January/February 2004).

18. Provider Payment Methods • ITEMISED BILLING – “Fee for Service” • BUNDLED BILLING – “Per episode” • CAPITATION FUNDING – “Per patient” • GLOBAL BUDGETS – “Historic plus”

19. Why diagnoses are more useful than procedures • They allow clinical discretion • The clinician is the resource manager • Paying on procedures means more procedures results in more payment • Best value for money (outcome) is more important than the lowest cost or the greatest quantity of treatment

20. The idea of resource homogenous categories • Payment within groups should be related to the average or benchmark cost of providing the service. • If cost is too variable: • some providers may select only the least complex lowest cost cases. “cream skimming” • some providers may be at risk of getting the most complex and expensive cases. • ANALYSIS OF DATA – BOTH PAYER AND HOSPITAL

21. The idea of clinically meaningful categories • for describing healthcare services • Classes must contain like with like cases from a clinical point of view – eg • Similar skills and facilities required to treat. • Similar care protocols used • Comparable in terms of outcome expectations.

22. The idea of the Diagnosis Related Group

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25. So, in summary, DRGs:- • Describe the number and type of patients • The Mix of cases – limited number of categories • Resource homogeneity, Clinically meaningful • Used:- • As funding indicator or payment scale BUT ALSO • To compare how different hospitals treat patients in different conditions • To identify treatment trends • In quality improvement activities • To identify the types of patients hospitals treat • For retrospective data analysis for research

26. questions