A comparison of the resource intensity of inpatients in urban and rural nonteaching hospitals.

PL 98-21 mandated a prospective payment system based on diagnosis related groups (DRGs) for all Medicare inpatients. The predetermined payment for each DRG is intended to reflect the resources used to treat patients within the DRG. Eventually, the system will allow for one payment level for each DRG in rural hospitals and a higher payment level for the same DRG in urban hospitals. This represents an equitable approach, provided there is not a predominance of high severity cases in rural hospitals and that higher costs in urban hospitals are reflective of higher priced exogenous factors beyond the control of the hospital. Equitability also requires that DRGs capture the resource intensity of treatment for a given classification of patients, equally for urban and rural patients. This work compares the pediatric population of urban hospitals without a pediatric residency program with that of rural hospitals in terms of major diagnostic category, DRG, disease severity, length of stay, and charges. It also compares the capacity of DRGs to explain the variation in resource consumption in urban and rural hospitals. A sample of 116,721 discharges from 130 urban hospitals and a sample of 54,073 discharges from 97 rural hospitals are used in this work. The results indicate that there is no difference in the patient populations of these two hospital groups. The results also indicate that DRGs explain only 50 percent of the variance in the resource variables, but this obtains equally for both populations.