Possible Refinements to the Construction of Function-Related Groups for the Inpatient Rehabilitation Facility Prospective Payment System

Examines possible refinements to the function-related groups (FRGs) that Medicare uses to predict the cost of treating particular Medicare patients, to identify potential improvements in the alignment between Medicare payments and actual hospital costs. Identified several potential areas of refinement for the payment system-missing indicators, the importance of such “function modifiers” as distance walked in addition to “walking,” indices and weighting, and refinements to the FRGs-asuming the analysis effects we observed hold up on 2003 data.