Development and adaptation of a hospital cost and budgeting model for cross‐national use

Abstract

Concern over the rising cost of medical care has caused many countries to investigate and implement different methods of cost containment, particularly for hospital services. In the United States, Medicare replaced its ‘cost‐based’ reimbursement system, in which hospital payments were based on the actual costs incurred in treating patients, with a system that pays hospitals a fixed price per case. Under this new system, all hospital discharges are classified into 467 Diagnosis Related Groups (DRGs) or types of cases based on the patient's age, sex, principal diagnosis, additional diagnoses (comorbidities and complications), surgical procedures performed, and the discharge status. During the first three years of the programme, the payment rate for each DRG is a function of a DRG weight (reflecting relative resource consumption), the hospital's historic costs of treating patients in that DRG, and a federally established rate adjusted for urban/rural differences and census region. In the fourth year the price will be based only on the DRG weight and the federally established rate.

Citation

Freeman, J.L., Fetter, R.B., Newbold, R.C., Rodrigues, J. and Gautier, D. (1986), "Development and adaptation of a hospital cost and budgeting model for cross‐national use", Journal of Management in Medicine, Vol. 1 No. 1, pp. 38-57. https://doi.org/10.1108/eb060431