Question

PART A: PER DIEMS AND DIAGNOSIS RELATED GROUPS: Briefly describe the difference between the Per Diem approach to paying for Non-Physician Hospital Services, and the DRG (Diagnosis Related Group) approach to paying for those services.

PART B: Who is more likely to use DRGs to pay hospitals and Integrated Delivery Systems for inpatient hospital services?: Private commercial insurers, or Medicare?

PART C: Who is more likely to use Per Diems to pay hospitals and Integrated Delivery Systems for inpatient hospital services: Private commercial insurers, or Medicare?

Answer 1

PART A

1. PER DIEMS provide straightforward payment negotiations between payers and hospitals. Per diems offer consumers the potential for cross-hospital cost comparisons, if such information is made transparent to the public. In PER DIEMS , the payer negotiates per diem rates with the hospital and pays that rate without adjustment. If the payer and hospital can accurately predict the number and mix of cases, they can accurately calculate a per diem rate. However, hospitals want to exclude days in an intensive care unit or another specialized unit, unless there is a sufficient volume of regular medical-surgical cases to make the reimbursable costs predictable. Accordingly, multiple per diems are often negotiated on the basis of service type (e.g., medical-surgical, obstetrics, intensive care, heart surgery). Per diem payment is often subject to high-cost items and services, such as surgical implants and expensive drugs. The costs for these items can be passed through, sometimes with a markup for the hospital. Payers may also offer differential per diems for different days in the hospital.

2. A DRG, or diagnostic related group, is how Medicare and some health insurance companies categorize hospitalization costs and determine how much to pay for your hospital stay. Rather paying the hospital for each specific service, Medicare or private insurers pay a predetermined amount based on your Diagnostic Related Group. This encompasses several metrics designed to classify the resources needed to care for you based on diagnosis, prognosis, and various other factors.

3. Recently, payers and hospitals have found DRG-based payment methods attractive because of their much stronger incentives and rewards for shorter stays and reduced costs. Yet some providers, especially ACO-like organizations that actively manage both who gets into the hospital and how they receive care, prefer to use per diems because they can directly control length of stay and do not need to provide hospitals payment for the average length of stay on which DRGs are calculated.

PART B

Under DRG approach, Medicare pays the hospital a predetermined amount under the inpatient prospective payment system (IPPS), with the exact amount based on the patient’s DRG or diagnosis.

PART C

Mostly private commercial insurers preferred per diems to DRG-based case rates because of their ability to deny days at the end of a hospital stay.