Shifting Costs from High-Cost to Low-Cost Diagnosis-Related Groups?

Abstract

Hospitals are commonly compared with each other within diagnosis-related group (DRG) categories. Administrators infer that hospitals with a higher cost per case within a DRG are less efficient than hospitals with a lower cost per case after case mix and severity adjustment. The authors assess whether hospitals that carry a heavy load of high-cost DRGs potentially distribute the added expenses of treating these patients onto their lower cost DRGs using data gathered from the 47 hospitals in the University Hospital Consortium database between January 1994 and December 1995. The results indicate that given standard hospital allocation practices, some of the costs associated with high-cost patients were likely shifted downward, thereby inflating the cost per case for less expensive patients. As researchers adopt more benchmarking methodologies, it is important to recognize that standard accounting practices in which cost shifting from one class of patient to another may impair the ability to understand the actual cost structure for classes of patients.