DRGs are not the answer.

Abstract

With almost a $400 billion price tag for medical services rendered in 1984 and annual spending levels increasing at double-digit rates, changes in the financing mechanism for medical care services were unavoidable. The passage of the Tax Equity and Fiscal Responsibility Act ushered in an era of prospective payment for hospitals, and in 1984 total healthcare spending in the United States increased by 9.1%. The medical price component of the consumer price index rose 6.2%. Although these annual increases are improvements over previous years' data, the author's contention is that significant and greater savings can be realized by restructuring several elements of the healthcare environment rather than concentrating efforts solely on reshaping the payment mechanism for the hospital industry.