discharged to home health care, and neonates who died (Muldoon, 1999). The analysis also concluded that Medicare DRGs underpaid for care provided by freestanding acute care children’s hospitals and major teaching general hospitals.28

Because the diagnosis component of DRGs is tied to the clinical modification (CM) of the International Classification of Diseases (ICD), weaknesses in this coding scheme can translate into weaknesses in DRGs. Experts on pediatric disease classification have criticized the current version of the classification system, ICD-9-CM, for the lack of specificity for many congenital anomalies and perinatal conditions. For example, a few codes contain as many as 100 different conditions. As one critic noted, “Although many of these diseases may be rare or low in prevalence they can account for extensive inpatient hospital stays, multiple surgical encounters and outpatient health care consumption” (Wing, 1997, p.1). ICD-9-CM codes undergo constant revision and adjustment, but pediatric groups have complained that the pace of revision is too slow. Implementation of a major revision of the codes, ICD-10-CM, is pending. NACHRI, in collaboration with Children’s Hospital and Medical Center in Seattle, is developing a grouping system called Classification of Congenital and Chronic Health Conditions (CCCHC).

Even if an appropriate diagnosis-related classification and grouping scheme is used for inpatient care, the factors selected to convert relative values into actual payments may be set too low to cover the cost of efficient, appropriate services. Analyses show that Medicaid’s payment-to-cost ratio improved during the 1990s, although the much higher ratios of private payers were beginning to drop (MedPAC, 2000b).

Payment for Inpatient Palliative Care

Although most inpatient palliative care programs will benefit adults (since adults account for most deaths), the development of more such pro-


In June 2000, the commission that advises Congress on Medicare payment recommended that the Secretary of the Department of Health and Human Services direct the adoption of a system such as APR-DRGs so that payments would more accurately reflect differences in severity of illness for hospitalized patients (MedPAC, 2000b). The APR-DRG system has about 1,400 groups compared to about 500 for Medicare DRGs. The commission’s analysis indicates that such a change, combined with other recommended changes related to calculation of DRG weights and outlier payments, would raise payments for hospitals that treat more seriously ill patients. In response, HCFA agreed that the change could reduce distortions in the current system. However, the agency stated that it would not propose such a change unless it had statutory authority to offset any increases in payments that resulted from changes in hospital DRG coding practices associated with a new classification system (HCFA, 2000f, p. 47103).

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