Using Case Mix Index within Diagnosis-Related Groups to Evaluate Variation in Hospitalization Costs at a Large Academic Medical Center

Abstract

In analyzing direct hospitalization cost and clinical data from an academic medical center, commonly used metrics such as diagnosis-related group (DRG) weight explain approximately 37% of cost variability, but a substantial amount of variation remains unaccounted for by case mix index (CMI) alone. Using CMI as a benchmark, we isolate and target individual DRGs with higher than expected average costs for specific quality improvement efforts. While DRGs summarize hospitalization care after discharge, a predictive model using only information known before admission explained up to 60% of cost variability for two DRGs with a high excess cost burden. This level of variability likely reflects underlying patient factors that are not modifiable (e.g., age and prior comorbidities) and therefore less useful for health systems to target for intervention. However, the remaining unexplained variation can be inspected in further studies to discover operational factors that health systems can target to improve quality and value for their patients. Since DRG weights represent the expected resource consumption for a specific hospitalization type relative to the average hospitalization, the data-driven approach we demonstrate can be utilized by any health institution to quantify excess costs and potential savings among DRGs.