Reimbursement Under Diagnosis-related Groups: the Medicaid Experience

The implementation of the Medicare prospective payment system has sparked the growth of similar Medicaid systems. Eight State Medicaid agencies now employ a system based on diagnosis-related groups (DRG's), and another four State Medicaid agencies are planning to implement such systems in the near future. The eight DRG-based systems in existence in 1986 are examined in this article. Preliminary evidence presented herein indicates that Medicaid DRG-based systems have experienced reduced rates of increase in expenditures for hospital services and that hospital admission rates have not increased under these systems.