Institutional Responses to Prospective Payment Based on Diagnosis-Related Groups

OVER the next three years, cost-based reimbursement for hospital services rendered to Medicare recipients will be eliminated.1 Medicare's decision to adopt instead a prospective payment system based on diagnosis-related groups (DRGs) represents a potential revolution in the nation's health care delivery system. Under the new system, hospitals will be paid on a per case basis with fixed payment for each of 467 DRGs. Proponents of the DRG system believe that it will solve many of the ills now attributed to cost-based reimbursement. In his report to Congress, former Secretary of Health and Human Services Richard Schweiker suggested that a DRG-based . . .