Improving Health Care Costs And Improve Quality

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Introduction Policymakers in the U.S. have always looked for ways to control health care costs and improve quality. Diagnosis-related groups (DRGs) are by far the most important cost-control and quality improvement tool that governments and private payers have implemented. Initially developed as a tool for hospital management, DRGs became the basis of the inpatient prospective payment system (PPS) that Medicare implemented in 1983. The strong incentives were revolutionary in their impact. Medicare spending growth slowed sharply, and, more remarkable, hospitals posted record profits. After the link between cost and payment was broken, hospitals moved quickly to cut costs. The DRG experience offers lessons about the effectiveness of financial incentives, the likelihood of adverse effects, the usefulness of case-mix measures, the risks of growing complexity, and the example that sensible policy need not be the domain of any one political party.
Government’s Role Imagine a government initiative that was supported by Republicans and Democrats alike, saved billions of dollars, improved health care, and was adopted around the world. October 2013 marked 30 years since Medicare began paying hospitals by DRG, arguably the most influential innovation in the history of health care financing. Development of DRGs began at Yale University in 1967 with the intent of creating a hospital management tool; coincidentally, the effort began just after the enactment of Medicare in 1965

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