Surgonomics: Health Care Financing Policy for Hospitalized Otolaryngology Patients

• The Medicare diagnosis related group (DRG) prospective payment model is changing hospital payment. Currently many states are using DRG prospective "All Payor Systems" for hospital reimbursement. In All Payor Systems, Medicare, Medicaid, Blue Cross, and other commercial insurers pay by the DRG mode; New York State has been All Payor since Jan 1, 1988. This study simulated DRG All Payor methods on a large sample (N=1074) of adult otolaryngology patients for a two-year period using both federal and New York DRG reimbursement now in effect. Both Medicare and Medicaid patients had (on average) a longer hospital stay and total hospital cost compared with patients from Blue Cross and other commercial payors. Medicare and Medicaid patients also had a greater severity of illness compared with patients from Blue Cross or other payors. All payors (ie, Medicaid, Blue Cross, and commercial insurers), except Medicare, generated financial risk under the DRG All Payor scheme. These data suggest that state and private payors may be underreimbursing for the care of the hospitalized otolaryngology patient using the DRG prospective hospital payment scheme. Health care financing policy described in this study may limit both the access and/or the quality of care for many otolaryngology patients in the future. (Arch Otolaryngol Head Neck Surg 1988;114:1317-1320)