Comparison of alternative relative weights for diagnosis-related groups

During this study, we investigated the extent to which diagnosis-related group (DRG) relative weights based exclusively on charge data differ from DRG weights constructed according to the methodology used in deriving the original relative weights for the Medicare prospective payment system (PPS). The PPS operating cost weights were based on a combination of cost and adjusted charge information (Pettengill and Vertrees, 1982). The results of this study reveal only minor differences between the two sets of weights. Interhospital differences in cost-to-charge ratios do not produce large, arbitrary differences between charge-based and operating cost weights. Whether the data are standardized for differences in capital and medical education costs also appears to make little difference.