ECONOMIC-IMPACT OF DIAGNOSIS-RELATED GROUPS AND SEVERITY OF ILLNESS ON REIMBURSEMENT FOR CENTRAL-NERVOUS-SYSTEM INFECTIONS

Because the federal government's diagnosis-related group (DRG) classification system for prospective payment has not been widely applied to hospitalized pediatric patients, we analyzed the effectiveness of one DRG category (central nervous system infections) for a single year at a medium-sized children's hospital to control for patient's severity of illness and for hospital reimbursement. Several independent measures of severity of illness (length of stay, duration of fever, Physiologic Severity Index) showed that patients with bacterial meningitis and those with encephalitis (DRG 20) were more ill than those with aseptic meningitis (DRG 21) (p < 0.001 for each measure). Cost analysis revealed that the hospital was only partially reimbursed for its charges (shortfall of $95,547) and that patients with Medicaid or no insurance accounted for 22% of discharges but 88% of losses. Reimbursement by DRG would have increased payment for DRG 21 but decreased that for DRG 20. If DRGs were applied to pediatric central nervous system infections and used in a prospective payment system, they would accurately predict disease severity between but not within groups, and significant financial losses for children's hospitals would still occur.