Improving DRGs: Use of Procedure Codes for Assisted Respiration to Adjust for Complexity of Illness

Medicare's diagnosis related groups (DRGs) payment system has been criticized for not making adequate allowances for severity of illness differences within DRGs. The respiratory diseases major diagnostic category (MDC) has been a particular target; therefore, ability of several procedure codes that identify patients with assisted respiration (temporary tracheostomy, endotracheal intubation, and mechanical respiratory assistance) to identify high-cost patients in that MDC was examined. Total charges were used as the dependent variable in a 10% sample of Medicare hospital discharges from 1985. A consistent and strong association was found between the procedures and total charges for both Medicare "outliers" and "nonoutliers." Patients requiring either intubation or mechanical respiratory assistance had average charges two to three times higher, and patients with tracheostomy four to five times higher than charges for patients without assisted respiration. Patients with assisted respiration tended to resemble each other more than they resembled the other patients in their respective DRGs without assisted respiration. These findings provide the basis for recent revisions in Medicare's classification scheme for the respiratory diseases MDC.