title: The impact of intra-DRG severity of illness on hospital profitability: implications for payment reform.
abstract: We examined the relationship between variations in intra-DRG severity of illness classifications and hospital profitability. Unlike in previous studies, we created a direct hospital-level measure of severity, formed from MedisGroup severity scores. We estimated separate regression equations for total margin, operating margin, net revenue per admission, and expense per admission. We examined data for 201 Pennsylvania hospitals and found that hospital profits were inversely related to the severity of illness index. Expense per admission was positively related to severity; however the relationship between severity and net revenue per admission was not significant. The results suggest that hospitals with a more severe case mix may not recover the full costs of providing services. Thus payment reform should include adjustments for severity of illness.
authors.affiliation: Graduate Program of Health and Medical Services Administration, Widener University, Chester, PA.
authors.forename: M D
authors.initials: MD
authors.lastname: Rosko
authors.forename: C E
authors.initials: CE
authors.lastname: Carpenter
mesh_terms: D004469:Economics, Hospital / Q000706:statistics & numerical data*; D006302:Health Services Research / Q000379:methods; D007182:Income / Q000706:statistics & numerical data; D006278:Medicare / Q000458:organization & administration*; D018803:Models, Economic; D010414:Pennsylvania; D011445:Prospective Payment System; D012107:Research Design; D012720:Severity of Illness Index; D014481:United States