RTI uses cookies to offer you the best experience online. By clicking “accept” on this website, you opt in and you agree to the use of cookies. If you would like to know more about how RTI uses cookies and how to manage them please view our Privacy Policy here. You can “opt out” or change your mind by visiting: http://optout.aboutads.info/. Click “accept” to agree.
Refining cost to charge ratios for calculating APC and DRG relative payment weights. Interim report
Dalton, K., Freeman, S., & Bragg, A. (2008). Refining cost to charge ratios for calculating APC and DRG relative payment weights. Interim report. RTI International.
In August 2006, RTI International was awarded a contract from the Centers for Medicare & Medicaid Services (CMS) to investigate charge compression and other possible sources of aggregation bias in setting the cost-based relative resource weights under the inpatient prospective payment system (IPPS) using charges from claims data and cost-to-charge ratios (CCRs) from cost report data. Aggregation bias can occur if services with systematically different markup rates are grouped together to compute a single CCR. When that average ratio is used to convert charges to cost, the cost estimates for component services with higher markup rates will be overstated, while the estimates for component services with lower markup rates will be understated. In the 2006 contract, RTI used inpatient claims and cost report data to identify sources of aggregation bias and develop ways to improve the accuracy and precision of the CCR component of the IPPS cost-based weight methodology. “Charge compression” is a particular form of aggregation bias where weights for high-cost cases are systematically understated and weights for low-cost cases are systematically overstated. The best known example of this comes from a hospital industry practice of applying lower markups to expensive medical devices and implantable items, but higher markups for routine medical supplies. RTI found strong evidence of charge compression as well as other forms of aggregation bias in the relative weights for diagnosis-related groups (DRGs) under the inpatient prospective payment system (IPPS), and considered both accounting and statistical methods to reduce this bias.