Are national DRG rates the best choice for PPS?
PPS is in the midst of a phase-in period where DRG rates are based on a combination of national and regional rates and hospital-specific actual costs. At the end of this period, the regional rates and the hospital-specific payments will be replaced by one national DRG rate. Is this method the best solution for PPS? One national rate does not reflect uncontrollable cost variations due to regional factors and the variability of DRGs. Instead, Medicare hospital payments should be based on a combination of regional and national rates. And, using a coefficient of variation to determine the hospital payment derived from the national rate, a DRG rate can be phased in that recognizes regional and DRG variability.
