Can DRGs be over cooked? Or how fine a refinement is that?

Introduction The thinking behind DRGs contains not only clinical concepts but also ideas drawn from health economics and statistics (particularly sampling theory). One example of the influence of economics is the literature on DRGs in reimbursement systems. DRGs are generally placed between fee for service and risk -adjusted capitation. An example of the influence of statistics is the assumption that within an appropriate group of hospitals, all hospitals will, on average, deliver the same resource content with the same quality of care to each DRG they treat. Economics and statistics play a much wider role in case mix than illustrated by the examples above. For instance, the theory of incentives and the Generalized Central Limit Theorem (DRG swings and roundabouts) serve as a means of broadening hospital groups. This presentation, however, will focus on the economics and statistics to make its point. To begin with, case-mix methods almost always involve a DRG classification system and ancillary information; for example, partitioning of same-day cases. Therefore, the placement of case mix on the continuum between fee for service and capitation is indicative of a range rather than a point. Some placements in the range may be more appropriate for an insurance-based system, while others more appropriate for a universal publicly funded health-care system. Similarly, DRG systems vary in the number of case types they contain. Thus, smaller treatment populations may result in low-volume DRGs which do not provide sufficient central tendency for hospital comparison. The contention of this paper is that an inpatient classification system suitable for the USA or Germany may not be appropriate for New South Wales (Australia) or Ireland. The contribution of this paper is an assessment of the sensitivity of desired outcomes of patient classification to the assumptions underpinning case mix.