Medicare, the Social Security-funded program that began in the 1960s, promised cost-free care for the nation’s retirees and reimbursement to America’s doctors and hospitals. But the reimbursement became too costly and the retirees too many. In the 1980s, Medicare realized it had to reduce health care costs. Enter “Diagnostic Related Groups.”
Understanding these strictly regulated “illness categories” and how Medicare operates could mean the difference between contained costs and a high bill you cannot afford to pay. The 470 or so DRG medical condition categories have made hospitals more accountable for true costs and, therefore, impact you, the consumer, because Medicare will not pay for treatment unrelated to the “category” for which you were admitted, nor more than a predetermined “price” for that category.
Say you need a hernia operation. Medicare will only reimburse the hospital a set amount of money, based on the average cost for hernia operations. If the hospital and physician perform the service for a smaller amount, the hospital pockets the difference. If the cost exceeds the estimate, the hospital must absorb the overage.
This has brought a dramatic drop in the number of days you are likely to stay in hospital and led to a boom in outpatient visits, day surgery and other cost-cutting health care.
On the surface, this appears to be the answer to saving the taxpayer’s money and to promoting efficient health care, but there is a negative side. The system requires extensive documentation and has complicated health care for patients, physicians and hospitals, as they are carefully regulated through “utilization review committees” to ensure the system is not abused.
But the biggest threat is that DRGs do not cover every medical condition. If you undergo some types of surgery without first talking to a Medicare representative, physician or hospital finance officer, you could find a huge bill in your mailbox. So familiarize yourself with the types of health care open to coverage under Medicare.
Another “negative” is that the patient is responsible for a portion of the initial costs. If you are unaware of this, you could be in for a shock. Consider supplemental private insurance coverage to offset these unexpected expenses.
As with any service that appears problem free, buyer beware!
Dr. Michael M. Warren is Ashbel Smith professor of surgery at University of Texas Medical Branch Division of Urology.
