Budgeting and Cost Control in Healthcare

Budgeting and Cost Control Health Care

Budgeting and Cost Control in Health Care: Significance of Diagnosis-Related Groups and Defenders and Critics of the Current DRG system

Diagnosis-related groups, otherwise known as DRGs, are considered to be one of the building blocks of the modern healthcare and hospital system, for better or, some would say, for worse. DRGs are present in America as well as Australia, and the United Kingdom and are thus compatible with various systems of public and private funding of hospital services. Such hospitals provide individual healthcare consumers with the ability to receive hospital reimbursement under the Medicare Prospective Payment System (PPS), so long as their treatment is commensurate with the reimbursement guidelines outlined by that system.

Currently, DRGs are seen as a potential but problematic solution to rising health care costs. They offer the ability to combine quality and specific diagnostic services that target individual suffers with specific medical conditions. They also allow health care consumers to allocate lower payments to their health services because of the patient's ability to utilize Medicare and other health benefits programs for their treatment. Furthermore, comparative financial and clinical data suggest that the DRG structure of hospital care forces practitioners to cut costs, encouraging them to limit their services in an effective and efficient fashion to those who require them the most.

Diagnosis-related groups (DRGs) first began in name as classification of hospital case types into groups expected to have similar hospital resource use. Diagnostic related groups (DRG) have now evolved a very complex system, of categorizing patients based on the primary and secondary diagnoses, primary and secondary procedures, age, and length of stay. "The categories established a uniform cost for each category. DRGs set a maximum amount that would be paid for the care of Medicare patients." (Grohar-Murray & DiCroce, 1997, cited by Nursing Home Page of Pittsburgh State University, retrieved on February 21, 2004 at (http://www.pittstate.edu/artsc/diagnosproced.htm).

It was thought that DRG's guidelines, in setting of maximum amounts would give hospitals and health care providers an incentive to keep health care costs down, since they would experience a profit only if their costs were less than the amount indicated by the DRG category. Theoretically, this should limit the existence of unnecessary treatment costs for patients and sufferers. Patient advocates have alleged, however, that such a payment structure means that hospitals now have an incentive to not provide necessary, as well as unnecessary treatments.