Casemix: the building blocks.

This paper distinguishes three separate ways in which casemix measurement serves as a foundation for hospital and health system reform. At the hospital level, diagnosis related groups provide a means of describing kinds of acute inpatient care which in turn facilitates utilisation review activities essential to modern clinical and financial management. At the system level, casemix adjusters such as diagnosis related groups provide the basis for comparisons of productive efficiency across institutions, and reduce the risk of adverse funder reactions to higher per case costs which are attributable to differences in casemix. States are increasingly using casemix as the basis for funding hospitals in order to reduce non-casemix related differences. Finally, health reform experiments in using market-like mechanisms (such as managed competition, purchaser-provider split) require at a minimum that the product purchased be precisely specified, and that clinical risks of cost overruns be equalised amongst insurers or providers.