NATIONAL DRG VALIDATION STUDY 
DMISSIONS TO HOSPITALS

UNNECESSARY 
OFFICE OF INSPECTOR GENERAL 
OFFICE OF ANALYSIS AND INSPECTIONS 
AUGUST 1988  Office of Inspector General

The mission of the Office of Inspector General 
(OIG) is to

promote the efficiency, effectiveness and integrity of

programs in the United states Department Of Health and Human

Services 
(HHS). It does this by developing methods to
detect and prevent fraud , waste and abuse. 
Created by
statute in 1976, the Inspecto  General keeps both the

Secretary and the Congress fully and currently informed

about programs or management problems and recommends

corrective action. 
The OIG performs its mission by

conducting audits 
, investigations and inspections with
approximately 1, 
200 staff strategically located around the
country. 
Office of Analvsis and Inspections

This report is produced by the Office of Analysis and

Inspections 
(OAI), one of the three major offices within the 
OIG.. The other two are the Office of Audit and the Office

of Investigations. The ' OAI conducts inspections which are
typically, short-term studies designed to determine program

effectiveness 
, efficiency and vulnerability to fraud or
abuse. 
This Report

Enti tIed "National DRG Validation Study,  Unnecessary
Admissions to Hospitals 
" this study was
 conducted to analyze

and profile the characteristics of cases
of unnecessary

admissions. 
The report was prepared under the direction of Kaye

Kidwell 
, the Regional Inspector General of Region 
IX, Office
of Analysis and Inspections. Participating in this proj ect
were the following people 

Kathy L. Admire, Project Director

Leonard Czaj ka 
, Senior Analyst
Ruth E. Carlson, Program Assistant

David Hsia, Medical Officer, Headquarters

Wm. Mark Krushat, Mathematical Statistician

Headquarters  NATIONAL DRG VALIDATION STUDY

UNCESSARY ADMISSIONS TO HOSPITAL 
RICHA P. 
KUSSEROW 
INSPECTOR GENERA  AUGUST 1988 
OAI-09-88-00880  TABLE OF CONTENTS

Page 
EXECUTIVE SUMY 
INTRODUCTION 
FINDINGS 
INCIDENCE AND COST OF UNNECESSARY ADMISSIONS

UNDER PPS ARE HIGH

RATES OF UNNECESSARY ADMISSIONS VARY

MOST UNNECESSARY ADMISSIONS NEEDED

OUTPATIENT CARE

UNNECESSARY ADMISSIONS ARE HEALTHIER,

LESS COMPLEX CASES

TWELVE PERCENT OF THE PATIENTS UNNECESSARILY

ADMITTED TO HOSPITALS RECEIVED POOR

QUALITY CARE

IMPROPER DOCUMENTATION OF MEDICAL RECORDS

IS A MAJOR PROBLEM

TARGETING DIAGNOSIS RELATED GROUPS (DRGS) 
IDENTIFIED UNNECESSARY ADMISSIONS

RECOMMNDATIONS 
APPENDICES 
APPENDIX A:  COMPARISON OF HOSPITALS BY NUMBER OF 
UNNECESSARY ADMISSIONS: BED SIZE EFFECT 
APPENDIX B:  COMPARISON OF HOSPITALS BY NUMBER OF 
UNNECESSARY ADMISSIONS: URBAN/RURAL LOCATION 
APPENDIX C:  COMPARISON OF HOSPITALS BY NUMBER OF 
UNNECESSARY ADMISSIONS: PROFIT/NONPROFIT 
STATUS 
APPENDIX D:  COMPARISON OF HOSPITALS BY NUMBER OF 
UNNECESSARY ADMISSIONS: TEACHING/NONTEACHING 
STATUS 
APPENDIX E:  SAMPLING AND METHODOLOGY 
APPENDIX F:  RANGE OF UNNECESSARY ADMISSIONS IN HOSPITALS 
APPENDIX G:  CHARACTERISTICS OF HOSPITALS WITH 
6+ UNNECESSARY ADMISSIONS 
APPENDIX H:  UNNECESSARY ADMISSIONS BY MAJOR DIAGNOSTIC 
CATEGORY  SUMY

EXECUTIVE 
PURSE 
This inspection examined unnecessary admissions to 
hospitals under the prospective payment system (PPS) from a

number of perspectives, including: (1) the extent to which

they occurred in a random sample of hospitals  (2) charac

teristics of hospitals with unnecessary admissions and

(3) characteristics of cases which were unnecessary
admissions. The report is one of a series in the National

Diagnosis Related Group 
(DRG) Validation study undertaken by 
the Office of Inspector General (OIG) 
BACKGROUND  Effective October 1983 , Congress mandated a 
change in Medicare payments to hospitals from a cost-based

retrospective reimbursement system to a prospective payment

system. 
Under PPS , hospitals currently receive a fixed 
payment based upon 1 of 475 DRGs for each Medicare patient

discharge, regardless of the services provided or length of

hospital. 
time a patient spends in the  Hospitals retain a 
profit when patient care costs less than the DRG payment, but 
must absorb losses when costs are higher than the DRG. The 
PPS was intended to curb the rapidly escalating increases in

Medicare costs for acute inpatient care by giving hospitals

an incentive to reduce lengths of stay and eliminate unneces

care. 
sary services while maintaining high quality  Both the 
utilization and quality control peer review organizations

(PROs) and the SuperPRO (the contractor which assists the

Health Care Financing Administration (HCFA) in monitoring

PROs) review patient hospital stays for unnecessary admis

sions. 
Criteria used by the PROs to screen for unnecessary 
admissions vary widely.

Because of a concern that PPS might give hospitals incentives

to admit patients unnecessarily, this issue was included in

Study. 
the National DRG Validation  Given the risks associ
ated with hospitalization, an unnecessary admission can

I s health 
endanger a patient  (e. g. , increased risk of noso
comial infections). In addition, reducing unnecessary

admissions to hospitals is one of the most effective ways of

saving Medicare costs. 
Unnecessary admissions were identified by analyzing a random

sample of 7 050 Medicare patients discharged from 239 hospi

1985. 
tals between October 1984 and March  These unnecessary 
admissions were analyzed in terms of several hospital

variables 
, including bed size, urban/rural location, profit/ 
status. 
nonprofit status and teaching  Comparisons of 
hospi tals by necessary and unnecessary admissions , as well as

by frequencies of unnecessary admissions, were also made.
 Five DRGs are frequently associated with unnecessary

admissions: 
DRG 68  (upper respiratory tract infections 
patients over age 69) 
DRG 183  (digestive disorders, patients aged 18-69)
DRG 239  (bone cancer) 
DRG 243  (medical back problems)
(diabetes 
DRG 294  , patients over age 35) 
Although DRG 39 (cataract surgery) occurred frequently

as an unnecessary admission, this procedure has shifted

primarily to outpatient settings since our review. 
RECOMMNDATIONS: 
The HCFA should ensure that Medicare does not pay for

unnecessary hospital admissions by: 
determining why the PROs identify a substantially

lower rate of unnecessary admissions than either

the SuperPRO or the OIG

analyzing admission review practices of PROs with

low disagreement rates to identify exemplary models

and best practices which could be used to assist

other PROs

developing acceptable disagreement rates between

PROs and the SuperPRO for unnecessary admissions and

creating incentives for the PROs to reduce their

disagreement rates 
incorporating reconciliation of high disagreement

rates into PRO performance evaluations for

consideration in renewal of PRO contracts

mandating that PROs use standardized screens or

criteria for admission reviews and

requiring that PROs improve their identification

of unnecessary admissions in order to improve

targeting of problem hospitals and physicians for

intensified review. 
Approaches might include 
focusing on patients with short hospital stays, DRGs

which are frequently unnecessary and types of

admissions. 
hospitals with high rates of unnecessary 
The HCFA should ensure that hospitals meet Medicare I s 
conditions of participation regarding accuracy and

records. 
completeness of patient medical 
iii  INTRODUCTION

Effective October 1983 , Congress mandated a change in Medicare

payments to hospitals from a cost-based retrospective reim

bursement system to a prospective payment system (PPS). Under

PPS , hospitals currently receive a fixed payment based upon 
1 of 475 diagnosis related groups (DRGs) for each Medicare

patient discharge, regardless of the services provided or

hospital. 
length of time a patient spends in the  Hospitals
retain a profit when patient care costs less than the DRG

payment but must absorb losses when costs are higher than the

DRG. 
PPS was intended to curb the rapidly escalating 
increases in Medicare costs for acute inpatient care by giving

hospitals an incentive to reduce lengths of stay and eliminate

unnecessary services while maintaining high quality care. 
The Office of Inspector General (OIG) has undertaken a number

of initiatives to evaluate the effects of PPS on hospital

behavior and medical practices. To date, the OIG has

completed validation studies of DRG 14 (strokes), DRG 82

(respiratory neoplasms) and DRG 88 (chronic obstructive pulmo

nary disease), as well as inspections on beneficiary notices

under PPS and activity by the utilization and quality control

peer review organizations (PROs) in identifying and handling

inappropriate discharges and transfers. The OIG also has

conducted pre-award audits of the PRO and SuperPRO contracts. 
Current efforts underway include an audit on patient hospital

stays of less than 24 hours (excluding deaths), an ongoing

audit of Medicare profits in hospitals under PPS and a study

of DRG 129 (cardiac arrest). An inspection of PRO performance

has produced three draft reports on quality review activities

sanctions activities and PRO effectiveness.

Another major initiative is the National DRG Validation study,
which analyzes patterns of hospital behavior under PPS. The 
study is based on an analysis of extensive data compiled by

the Health Data Institute (HDI) of Lexington, Massachusetts

OIG. 
under contract to the  This report on unnecessary patient 
admissions to hospitals is one in a series generated from the

National DRG Validation Study. Two reports in this series,
focusing on premature discharges from hospitals and the

accuracy of DRG coding, have been released. The OIG also has

released a draft report on poor quality care under PPS. 
Additional reports will address short hospital stays and PRO

activities. 
performance in monitoring PPS 
Backqround 
Because of a concern that PPS might give hospitals incentives

to admit patients unnecessarily, this issue was included in
 I s 
pThoe iHnDtIs :r eviewers evaluated the patient  condition at three
(1) upon admission  (2) during the stay and 
(3) at
time of discharge. 
Registered nurses screened medical records 
for necessity of admission, using the Appropriateness

Evaluation Protocol (AEP). If problems were found, the medi

cal record was referred to a board-certified physician with

extensive experience in peer review for a final determination. 
A narrative summary was prepared describing the nature of each

unnecessary admission. Physicians ignored marginal problems

or cases involving honest differences in medical judgment

about appropriate case management. 
If documentation in the 
medical record was so poor that reviewers could not determine

whether an admission was unnecessary, the patient was

considered to be a necessary admission. An OIG physician
evaluated all narrative summaries, confirming the conclusions

of medical reviewers on all unnecessary admissions.

An admission was considered unnecessary if no reason for

admission existed at the time a patient entered a hospital.
OIG staff analyzed hospitals by bed size, urban/rural loca

tion  status. 
, profit/nonprofit status and teaching  Hospitals
also were analyzed by the number of unnecessary admissions

samples: (a) none, 
occurring in their patient  (b) 1-2
(c) 3-5 and (d) 6 or more. 
Comparisons of necessary and
unnecessary admissions were made. 
Calculations were based on 
weighted average scores and percentages (a summary of the data

D). 
appears in appendices A through  Fiscal projections were
based on (a) the rate of unnecessary admissions by hospital

size 
(b) total PPS discharges in Fiscal Year (FY) 1985 and 
(c) estimated costs of providing care to these patients in
settings. 
alternative medical  Appendix E provides further 
information on the study methodology.
 DISTRIBUTION OF HOSPITALS BY NUBER 
UNECESSARY ADMISSIONS (UAs) (N=239) 
itals 
UAs  Hos  Percent 
10. 
39. 
35. 
14. 
Total 
239  100. 
Types of Hospitals

The OIG study analyzed hospital behavior under PPS in terms of

four major variables: (1) size of hospital, (2) urban/rural
location  (3) profit/ nonprofit status and (4) teaching
status. 
Bed Size  Overall, small hospitals had the greatest problems

with unnecessary admissions (12. 
5 percent of patient admis
sions 
, compared with 10. 1 percent in medium hospitals and 
0 percent in large hospitals). This trend is most pro

nounced when comparing hospitals with the highest frequencies

of unnecessary admissions (6 or more, which is at least

20 percent of sampled admissions). As the following table

indicates 
, 25. 3 percent of the small hospitals had 6 or more 
unnecessary admissions, compared with only 5. 0 percent of the

large hospitals. Because larger hospitals treat a much higher

volume of patients , their lower rates still represent a

substantial number of unnecessary admissions. 
COARISO by BE 
SIZE:
FF8UIES  UNCESSY ADISSION (\I)
D f 
N-239 
Percent. of Hasp1tlls 
SI 11

1N79J 
MeId1t\1J
lIp
INI 
o UA  1-2 UA  1+ UA  Teachinq and Nonteachinq Hospitals. Overall , nonteaching

hospitals had a higher rate of unnecessary admissions

(12. 5 percent as compared with 8. 8 percent in teaching hospi
tals). As the following table indicates, 18. 0 percent of the

nonteaching hospitals had 6 or more unnecessary admissions

compared with 3. 
3 percent of the teaching hospitals. 
STATU: 
COMARISON by TEACHING/NOTEACHING 
lHCESSARY ADMISSION 
FREQUIES  D f  (UAs) 
N-239 
Percent of Hosp1tlls

47.  rllch1ng
INU 
Monte,ch1n. 
..0  1N17BJ 
o UA  1-2 UA  H UA  1+ UA 
Other Problems in Hospitals With High Rates of Unnecessary

Admissions  The 34 hospitals with 6 or more unnecessary 
admissions also had twice as many premature discharges and

patients with quality of care problems. Although these hospi
tals treated only 14. 4 percent of the patients in the full

sample (7  050 cases), they had 37. 0 percent of the unnecessary
admissions 
, 29. 7 percent of the premature discharges and
cases. 
28. 2 percent of the poor quality of care  They also had
major problems with improper documentation of medical records

(further discussion of this issue appears on pages 9 and 10).
In addition, patients unnecessarily admitted to these

hospi tals had longer average lengths of stay  Additional 
information on these hospitals can be found in appendix 

MOST UNECESSARY ADMISSIONS NEEDED OUTPATIENT CAR 
There were 749 reasons identified for the 740 unnecessary

admissions (9 patients had 2 reasons). 
Most of the unneces
sary admissions needed medical attention, but not in an acute

care setting. As the following table indicates, reasons for

unnecessary admissions fell into five categories. The most 
significant factor by far, occurring in 77. 8 percent of the

cases 
, was that treatment should have been provided in an
outpatient setting.  UNCESSARY ADMISSIONS AR HEALTHIER, LESS COMPLEX CAES 
There are a number of indications that patients unnecessarily

admi tted to hospitals are healthier and have less complex 
problems than those who are appropriately admitted. 
Discharqe disposition. Eighty-nine percent of the unnecessary

admissions went directly home from the hospital 
(compared with

70. 5 percent of the necessary admissions). 
Keeping in mind
that unnecessary admissions represented 10. 5 percent of the

full patient sample, unnecessary admissions accounted for

1 percent of the patients subsequently transferred to SNFs

and 7. 7 percent of the patients discharged with home health
orders. 
They also accounted for 2. 9 percent of the patients 
who died in the hospital.

Nosocomial infections  Unnecessary admissions had a lower

rate of nosocomial infections (4. 3 percent) than necessary

admissions (5. 
8 percent). 
Averaqe lenqth of stay (ALOS)  The ALOS for unnecessary
admissions was 4. 
4 days, compared with 7. 6 days for necessary
admissions. Al though 64. 
6 percent of the unnecessary admis
sions stayed in the hospital less than 6 days, this was true

5 percent of the necessary admissions. 
of only 37.  ALOS for 
unnecessary admissions was remarkably consistent, regardless

of type of hospital, a pattern which did not hold true for

necessary admissions. 
Case Mix Index (CMI)  The CMI describes in a single measure 
the complexity of cases in a hospital by reflecting the

hospital. 
weighted average of DRGs in that  Hospitals treating
a sicker patient population generally have a higher CMI. A

comparison of necessary and unnecessary admissions wi thin 
hospitals found that unnecessary admissions had a lower CMI

indicating the cases were less complex. 
As the following 
table indicates, the CMI is far more consistent for unneces

sary admissions than necessary admissions , regardless of type

of hospital. The difference between necessary and unnecessary

admissions was most pronounced in large and teaching

hospitals.  PROPORTION OF CASES WITH

IMPROPER DOCUNTATION 
Fre  enc  of UAs in Hos  itals  N=239 
Unneces.  Neces. 
UAs in Hospitals  Hosp.  Admi ts  Admi ts  Average 
32.  32.
1-2  76.  29.  32.
3-5  82.  38.  44. 
86.  53. 
41. 6 
Average  80.  34.  39. 
TARGETING DIAGNOSIS RELATED GROUPS (DRGS) IDENTIFIED
UNCESSARY ADMISSIONS 
At the time of our review, there were 468 possible DRGs; 352

(75. 2 percent) occurred at least once in the study sample;
unnecessary admissions occurred in half of these DRGs. The 
OIG staff analyzed DRGs which had (a) the highest numbers of

unnecessary admissions (at least 10 cases) and (b) high rates
(unnecessary admissions occurred at least 20 percent of the

time). 
Analysis was based on DRGs assigned by the fiscal
intermediary. 
DRGs with the Hiqhest Numbers of Unnecessary Admissions
 The 
following table lists the 16 DRGs which had the highest

absolute numbers of unnecessary admissions. The DRGs listed

on this table show wide variation in the percentage of cases

ions. 
which were unnecessary admiss 
For example, DRG 127 
(heart failure and shock) was the sixth most common DRG to

occur as an unnecessary admission, but it occurred far more

ufrenquenntley cas ea snesceassarryy a dmaisdsiomn  ission only 4.  (i.  e. , it was an
6 percent of the time). DRG 183 
(digestive disorders, patients aged 18-69) was sixteenth o

the list, but was an unnecessary admission 30. 3 percent of the

time. 
All DRGs fall into 1 of 24 major diagnostic categories (MDCs).
The MDCs are classifications of medical problems by organ

system. 
There was at least 1 unnecessary admission in 23 of 
the MDCs, but three-fourths of the DRGs in the chart fell into

5 categories:  (b) respiratory system, 
(a) eye  (c) digestive
system  (d) circulatory system and (e) musculo-skeletal system
and connective tissue. A breakout of all unnecessary

H. 
admissions by MDC appears in appendix  Except for DRG 39  DRGs with the Hiqhest Rates of Unnecessary Admissions
 The 
following table describes 17 DRGs which were unnecessary

time. 
admissions at least 20 percent of the  (The table
excludes DRGs which occurred as unnecessary admissions less

than five times in the full sample.  Although many of these

DRGs had lower numbers of unnecessary admissions than the DRGs

listed in the preceding table, they had the highest likelihood

of being an unnecessary admission. For example, admission

for DRG 240 (listed second in the table) was unnecessary

50 percent of the time, even though there were only

8 unnecessary admissions. 
DRGs YITH THE HIGHEST RATES OF LWNECESSY ADISSIONS 
TOTAL 
ORG  DESCIPTI(J 
CATARACT SURGERY  80. 
240  CONNECTIVE TISSUE DISORDERS  PATIENTS OVER  50. 
AGE 69 
348  ENLARGED PROSTATE , PATIENTS OVER AGE 69  50. 
425  ACUTE ADJUSTMENT REACTION  46. 
244  BONE INFECTION , PATIENTS OVER AGE 69  42. 
DIZZINESS  37. 
280  SKI N INJURY  PATIENTS OVER AGE 69  35. 
239  BONE CANCER  33. 
429  MENTAL RETARDATION  31. 
183  DIGESTIVE DISORDERS , PATIENTS AGE 18-69  30. 
243  MED I CAL BACK PROBLEMS  113  30_ 
157  ANAL PROCEDURES , PATIENTS OVER AGE 69  28. 
325  URINARY TRACT DISORDERS , PATIENTS OVER AGE 69  27. 
DEGENERATIVE NERVOUS SYSTEM DISORDERS  25. 
UPPER RESPIRATORY TRACT INFECTIONS , PATIENTS  23. 
OVER AGE 69 
294  DIABETES, PATIENTS OVER AGE 35  121  22. 
RESPIRATORY NEOPLASMS  20.  RECOMMNDATIONS

RECOMMNDATION #l--IMPROVED PRO IDENTIFICATION OF UNCESSARY 
HOSPITAL ADMISSIONS

FINDING: 
The OIG found that 10. 
5 percent of the admissions
sampled in the National DRG Validation Study were 

unnecessary.
Both the OIG and SuperPRO have identified substantially higher

rates of unnecessary admissions than the 
PROs. 
conduct admissions reviews using a variety of scrTehee nPiRnOgs 
tools.
The HCFA requires that PROs conduct an intensified review in

hospi tals when either 5 percent of their Medicare admissions

or six Medicare cases--
unnecessary.  whichever is greater--are found to be

Applying this standard to the OIG hospital
sample 
, 71 percent of the hospitals would be 
intensified PRO review. 
 subj ect
unnecessary admissions incHlousdpie :t al and case characteristics of

Hospi tals with the highest rates of unnecessary

admissions 
(20 percent or more of their admissions)
also 
had twice as many premature discharges and patients 
with
quality of care problems.

Small 
, rural, nonteaching and/or for-
profit hospitals had
higher rates of unnecessary admissions.

Most of the unnecessary admissions needed medical

attention
, but care should have been in outpatient 
settings. 
Unnecessary admissions had shorter average lengths of

stays. 
Five DRGs were associated frequently with unnecessary

admissions. 
RECOMMNDATION: The 
HCFA should ensure that Medicare does not 
pay for unnecessary admissions 
by: 
determining why the PROs identify a substantially lower

rate of unnecessary admissions than either the SuperPRO

or the OIG

analyzing admission review practices of PROs with low

disagreement rates to identify exemplary models and best

practices which could be used to assist other PROs

developing acceptable disagreement rates between PROs and

the SuperPRO for unnecessary admissions and creating

incenti ves for the 
rates.  PROs to reduce their disagreement Over-All verage  0987  73.  38.  74.  39.  19.  0775 
A
Average  2084 1 .  72.  45.  38.  16.  0433 
39  80)   - 17 UAs  1935  70.  75.  54.  18.  1033 
2 = 6
1= Beds (N 3 - 5 UAs  1. 1713  72.  47.  45.  16.  0974 
BESIZE EFFECT  300+  1 - 2 UAs UAs  3410 2230  72. 71.88  10.  16.  41.67 33.  29. 32.  16. 19.  02265 0034 
- .
e  2  5  8 
Averag 1. 092 73.  30.  17.  81.2 39.  18.  064
R OF lJNECESSY ADISSIONS 05 Anl is of all 7  (N=80) 100-29 Beds  6 - 17 3 - 5 1 - 2 UAs UAs UAs UAs  9739 1057 1. 1032 1 . 1346  74. 73. 73. 74.  33. 40. 28. 18.  25. 18. 10.  54. 93. 70. 100.  10.  29. 33. 44. 49.  17. 19. 19. 17.  0636 0424 0325 1128 
tU ge  3  29 
a 4 1
Aver 99 75.  79.  98.  11.  40.  24.  1
O OF HOITALS BY  eds (N=79)  6 - 17 - 5 As UAs  9411 0025  6. 74.  4. 70.  20. 5.  4. 95.  1. 15.  0. 55.  5. 23.  1554 0940 
DARIS 100 B 3 - 2 As U 0307 1.  6. 7 95.  1 90.  1 1. 4 22.  1245 
I 1 U 1.  7 7 10 3 2
UAs  9621  5.  7.  00.  0.  9.  7.  0052 
7 8 1 1 3 2
Hospitals wi th UAs  CMI  Av. pt. Age  lngth. Stay Av.  % Rural  % Profi t  % Nonteaching  % Cases Nosoc. Infec.  % Cases C. Problem  % Cases lnapp. Doc.  % Cases Recoded DRGs  Wt. Change
Recoded DRG  Over-All Average  1. 1289  73.  38.  74.  34.  19.  0749 
Average  1 . 2460  72.  45.  35.  16.  0480 
 
239 =80)
 6 - 17UAs  1. 3081  70.  75.  42.  18.  1333 
N= Beds (N 3 - 5 UAs  2229  72.  47.  40.  15.  1034 
 
- . BESIZE EFFECT nl  300+ 1 - 2 UAs UAs  3410 2451  72. 71.  10.  16.  33. 41.  29. 29.  19. 16.  0227 0020 
ion O verage  1214  73.  7.78  30.  17.  81.25  35.  17.  0514 
s A
- . OF LWNECESSY ADISSIONS tUR AdisAnl 310 Necsa is of 6  100-299 Beds (N=8O)  1 - 2 3 - 5 6 - 17 verage UAs UAs UAs UAs  0180 1. 1346 1. 1183 0383 1456  75. 74. 73. 73. 75.  79. 33. 28. 18. 40.  25. 18. 10.  98. 54. 70. 93. 100.  10.  10. 10.  34. 31. 29. 39. 37.  23. 17. 19. 16. 17.  0424 1260 0494 1116 0152 
aJARISO Of HOITALS BY  100 Beds (N=79)  6 - 17 3 - 5 1 - 2 AUAs UAs UAs  0317 9890 1. 0420  76. 76. 74.  94. 75. 70.  20. 15.  94. 100. 95.  2.78  10. 14.  28. 34. 43.  22. 22. 24.  1229 1240 1813 
UAs  9621  75.  87.  100.  10.  39.  27.  0052 
Hospi ta I s wi th UAs  CMI  Av. Pt. Age  lngth. Stay Av.  % Rural  % Profit  % Nonteaching  % Cases Nosoc. Infec.  % Cases C. Problem  % Cases lnapp. Doc.  % Cases Recoded DRGs  Wt. Change
Recoded DRG  APPEND I X 8

COARIsa OF HOITALS Bf IUR OF UNCESSf ADInSSHIIS 
Anl /IJUisIA Io fLO CaTlIOlN  7 051 =29 
Rural (N=92)  Urban (N=147)

Over-
Hospi tals  1 - 2  3 - 5  6 - 17  1 - 2  3 - 5  6 - 17  All 
with UAs  UAs  UAs  UAs  UAs  Average  UAs  UAs  UAs  UAs  Average  Average 
CMI  0185  0353  1. 031 0  9412  0137  2025  1748  1499  0246  1520  0987 
Av. Pt. Age  75.  76.  75.  74.  75.  73.  72.  72.  73.  72.  73. 
Av. Lngth. Stay 
% Nonteaching 100.  100.  100.  100.  100.  40.  52.  61.  87.  58.  74. 
% ..100 Bed  70.  70.  60.  77.  68.  13.  1.82  37.  10.  33. 
% 100-299 
Beds  20.  26.  30.  22.  26.  60.  29.  41.  37.  38.  33. 
% 300+ Bed  10.  10.  33.  57.  56.  25.  51.  33. 
% Cases 
Nosoc . I nfec.

% Cases 
C. Problem 16.  10. 
% Cases

lnapp. Doc.  39.  29.  42.  53.  39.  28.  33.  45.  53.  39.  39. 
% Cases

Receded DRGs  22.  22.  21.  22.  21.  19.  17.  16.  21.  18.  19. 
lit. Change

Receded DRG  0203  1133  1024  1138  1026  0491  0340  1014  1226  0603  078  COARlsa OF HOITRALlSL B Y IUR OF lIlIECESSY ADIUSSUJlS
BA LONCTIOe! c  11=239 
Anl  is of 6 310  Acission onl 
Rura l (N=92)  Urban (N=147)

OVer-
Hospitals  1 - 2  3 - 5  6 - 17  1 - 2  3 - 5  6 - 17  All 
wi th UAs  UAs  UAs  UAs  UAs  Average  UAs  UAs  UAs  UAs  Average  Average 
CMI  0185  0478  0680  9869  1 . 0393  2025  1924  1. 1964  1019  1851  1. 1289 
Av. Pt. Age  75.  76.  75.  74.  75.  73.  72.  72.  74.  72.  73. 
Av. Lngth. Stay 
% Nonteaching 100.  100.  100.  100.  100.  40.  52.  61.  87.  58.  74. 
% ..100 Beds  70.  70.  60.  77.  68.  13.  1.82  37.  10.  33. 
% 100-299 
Beds  20.  26.  30.  22.  26.  60.  29.  41. 82  37.  38.  33. 
% 300+ Bed  10.  10.  33.  57.  56.  25.  51.02  33. 
% Cases 
Nosoc. Infec. 
% Cases 
C.  Problem  15. 
% Cases 
Inapp. Doc.  39.  27.  36.  39.  33.  28.  31.  39.  43.  35.  34. 
% Cases 
Recoded DRGs  22.  22.  20.  21.  21.  19.  18.  16.  21.  17.  19. 
Wt. Change

Recoded DRG  0203  1129  1162  1173  1066  0491  0271  1093  1613  0594  07'2  - .
APPEND I X C 
IIR 
C(ARISO OF HOITALS BY  OF tlllCESSY IIISSIIJ 
PRFAITn l  -PRFIT STATU  05  11=29 
is of all 7 
Non-Profit (N=216)  Profit (N=23) 
Over-
Hospi ta l s  1 - 2  3 - 5  6 - 17  1 - 2  3 - 5  6 - 17  All 
with UAs  UAs  UAs  UAs  UAs  Average  UAs  UAs  UAs  UAs  Average  Average 
CMI  1289  1274  1092  9783  1015  1. 0792  1. 012  9931  1 .072  1. 0987 
Av. Pt. Age  74.  74.  73.  74.  74.  72.  72.  72.  72.  73. 
Av. Lngth. Stay 

% Rural  40.  37.  37.  55.  40.  23.  40.  21.  38. 
% Nonteaching  64.  67.  72.  93.  72.  100. 00  92.  100.  95.  74. 
% .:100 Bed  32.  35.  22.  55.  33.  23.  80.  30.  33. 
% 100-299 
Beds  44.  24.  33.  31.  30.  100.  61.  20.  60.  33. 
% 300+ Bed  24.  40.  44.  13.  36.  15.  33. 
% Cases 
Nosoc. Infec. 
% Cases 
C. Problem 13.  12. 
% Cases 
lnapp. Doc.  32.  32.  44.  52.  39.  34.  42.  60.  44.  39. 
% Cases 
Receded DRGs  20.  19.  18.  20.  19.  19.  17.  28.  20.  19. 
Wt. Change

Receded DRG  0188  061  0931  0925  0712  1531  2252  1510  0767  - .
C(ARI!D Of HOITALS BY 
ILR  OF  IECESSY  ADISSUJlS 
PRFIT IO-PRFIT STATU  1=239 
Anl  is of 6 310 Neces  Adission Onl 
Non-Profi t (N=216)  Profit (N=23)

Over-
Hospitals  1 - 2  3 - 5  6 - 17  1 - 2  3 - 5  6 - 17  All 
with UAs  UAs  UAs  UAs  UAs  Average  UAs  UAs  UAs  UAs  Average  Average 
CMI  1.289  1433  1.1511  0413  1305  1 . 0930  1. 1507  0394  1140  1. 1289 
Av. Pt. Age  74.  74.  73.  74.  74.  73.  73.  72.  73.  73. 
Av. Lngth. Stay 
% Rural  40.  37.  37.  55.  40.  23.  40.  21.  38. 
% Nonteaching  64.  67.  72.  93.  72.  100.  92.  100.  95.  74. 
% ..100 Beds  32.  35.  22.  55.  33.  23.  80.  30.  33. 
% 100-299 
Beds  44.  24.  33.  31.  30.  100.  61.54  20.  60.  33. 
% 300+ Beds  24.  40.  44.  13.  36.  15.  33. 
% Cases 
Nosoc. Infec. 
% Cases 
C. Problem 11.84  11. 
% Cases 
lnapp. Doc.  32.  29.  39.  40.  34.  32.  35.  49.  38.  34. 
% Cases 
Recoded DRGs  20.  19.  17.  20.  19.  19.  17.  28.  20.  19. 
lit. Change

Recoded DRG  0188  0611  1015  1120  0722  0763  1697  2432  1654  0812  - .
APPEND IX 0

aJARISO OF HOITALS BY tUR 
OF  NECESSY ADISSIONS 
TEACHING IO-TEACHING STATU  239 
AnL  is of ALL 7 050 Caes 
Non-Teaching (N=178)  Teaching (N=61)

Over-
HospitaLs  1 - 2  3 - 5  6 - 17  1 - 2  3 - 5  6 - 17  AL L 
wi th UAs  UAs  UAs  UAs  UAs  Average  UAs  UAs  UAs  UAs  Average  Average 
CMI  0485  1. 0931  0737  9747  1 . 0608  2719  1973  2124  0720  1 . 2094  0987 
Av. Pt. Age  75.  75.  74.  74.  74.  72.  71.  72.  68.  71.  73. 
Av. Lngth. Stay 
% RuraL  62.  51.  46.  56.  51.  38. 
% Profi t  18.  15.  12. 
% ..100 Bed  50.  48.  28.  59.  43.  50.  33. 
% 100-299 
Beds  37.  28.  46.  31.25  36.  55.  27.  24.  33. 
% 300+ Bed  12.  22.  25.  20.  44.  72.  85.  50.  72.  33. 
% Cases

Nosoc. Infec. 
% Cases 
C. Problem 13. 
% Cases 
Inapp. Doc.  38.  32.  44.  54.  41. 33  21.  32.  41.  41.  34.  39. 
% Cases

Receded DRGs  23.  19.  18.  22.  20.  16.  18.  16.  15.  17.  19. 
lit. Change

Receded DRG  0118  1021  0839  1185  0900  0942  0195  1640  1032  0367  0824  CQARISI OF HOITALS BY IUR OF lINECESSY ADISSlatS  UAs 
TEACHING NO-TEACHING STATU  N=239 
Anl  is of 6 310 Neces  Adissims 
Non-Teaching (N=178)  Teach i ng (N=61) 
Over-
Hospi ta l s  1 - 2  3 - 5  6 - 17  1. 2  3 - 5  6 - 17  All 
with UAs  UAs  UAs  UAs  UAs  Average  UAs  UAs  UAs  UAs  Average  Average 
CMI  0485  1. 1072  1120  0371  1. 0911  2719 1. 2167  2699 1. 1031  1 . 2394  1. 1289 
Av. Pt. Age  75.  75.  74.  74.  74.  72.  71.  72.  70.  71.  73. 
Av. Lngth. Stay 
% Rural  62.  51.  46.  56.  51.  38. 
% Profi t  18.  15.  12.  1.64 
% ..100 Beds  50.  48.  28.  59.  43.  50.  33. 
% 100-299 
Beds  37.  28.  46.  31.  36.  55.  27.  24.  33. 
% 300+ Beds  12.  22.  25.  20.  44.  72.  85.  50.  72.  33. 
% Cases 
Nosoc. Infec. 
% Cases 
c. Problem 12. 
% Cases 
Inapp. Doc.  38.  30.  39.  42.  36.  21.15  29.  36.  31.  30.  34. 
% Cases 
Recoded DRGs  23.  19.  17.  21.  19.  16.  18.  16.  19.  17.  19. 
lit. Change

Recoded DRG  0118  1020  0923  1396  0972  0942  . 0364  1758  1032  0320 I  0806
1- .  APPENDIX E

SAMPLING AND METHODOLOGY

The National DRG Validation study used a stratified two-stage
sampling design based on hospitals. The sample divided the

I s eligibility
population of hospitals meeting the study 
criteria 
size:  (outlined below) into three groups based on bed
less than 100 beds, 100 to 299 beds, 300 or more beds. 
The first stage used simple random sampling without

replacement to select 80 hospitals within each group for a

hospitals. First 
total sample size of 240  , it included only 
acute care, short-stay facilities. This test also excluded

I s 
special ty institutions such as children  hospitals. Second 
as of October 1, 1983 , a waiver provision exempted New York

New Jersey, Massachusetts and Maryland from PPS. Therefore 
the sample excluded facilities in these States. Third, each

facility had to have contributed data to the construction of

the initial relative weights assigned to DRG categories at

PPS. 
the start of  These initial relative weights derived 
from a 20 percent sample of Medicare discharges from

facilities participating in the program in 1981. To 

included in the sampling frame, a facility had to both

(a) contribute discharges to the construction of the initial
relative weights and (b) participate as a provider at the

beginning of PPS , October 1, 1983.

The effective universe of hospitals available for study

913. 
numbered 4  Of the initial sample of 240 hospitals 
1 facility terminated its Medicare eligibility between the

sampling time frame and the actual collection of medical

records. The first-
stage sample therefore included 239 
( 4. 9 percent) randomly selected, short term, acute care 
facilities eligible under the Medicare program since at

state. 
least 1981 and not located in a waiver 
The second stage of the design employed systematic random

sampling to select 30 Medicare discharges from each of the

239 hospitals. The HCFA' s Bureau of Data Management and

strategy supplied a list of all final bills they received from

the fiscal intermediaries through April 30 , 1985. Each bill

represented one Part A Medicare discharge for the time period

October 1 , 1984 to March 31 , 1985. If a facility had fewer

than 30 discharges during the applicable period, all available

Medicare discharges were selected. 
E- 1
 A hospital was considered to be: 
urban if it was located within a standard metropolitan

area as defined by the Bureau of Census

teaching if it had an accredited residency program

for-
profit if so listed by the American Hospital
Association 
small if the HCFA-certified bed size was less than 100

beds 
medium if the HCFA-certified bed size was between 100

and 299 beds inclusive

large if the HCFA-certified bed size was more than 299

beds. 
These classes of hospitals became a central basis for

analysis of the selected variables. To the basic classifica

tions of urban/rural , teaching/nonteaching, profit/nonprofit

and small/medium/large , we added a furthur division--the 
hospitals. 
frequency of unnecessary admissions in  This 
permitted comparisons , for example, between small hospitals

with no unnecessary admissions and small hospitals with six or

more unnecessary admissions. 
Further analysis was conducted to determine whether hospitals

treated necessary admissions differently than unnecessary

admissions. 
Comparisons were made once again by using the 
weighted averages of pertinent variables for necessary and

unnecessary admissions. 
ections 
Fiscal Pro; 
First 
, projections were made using the actual dollars 
paid for the 7 050 Medicare patients in the sample

(derived from HCFA PATBILL files). We multiplied the

number of patient discharges in each bed size category by

the average cost per discharge in bed size categories for

figures. 
a total in rounded  Calculations show the total 
dollars paid to sampled hospitals in the three bed size

categories. 
Small hospitals, for example, were paid
$4. 98 million for 2, 276 discharges at an average cost of
$2, 186. 
E- 3
 FY 1985  Small  Medium  Lar 
PPS admissions 

# discharges (in millions) 
1. 52 
Multiplied by average cost/
discharge 
186  222  999 
Yields dollars paid (in
millions) 
323  $10, 020  $14, 596 
Times percentage of sample

dollars for unnecessary

admissions 
x 10. 
Yields dollars for

unnecessary admissions  $345.  $751.5  $890. 
(in millions)

Total dollars (in millions) 
spent on unnecessary admissions:  987. 
Finally, we estimated Medicare dollars which would have

been spent for the care of unnecessary admissions in

other medical settings. Analyz ing a subsample of the

740 unnecessary admissions, we compared actual acute care

costs with an estimate of costs for specific medical

setting. 
treatment in an alternative  Projections were 
made to the universe for patients requiring medical

attention. 
Small  Medium  Lar  Tota 1 
Hospital  costs  for 
unnecessary
admissions  (in
millions)  $345.  $751.5  $890.  987. 
Costs  for patient 
care 
in other 
medical  settings 
millions)  155.  353.  429.  939. 
(in 
Difference between

acute and non-acute 
medical  settings 
(in millions)  $190.  $397.  $460.  $1, 048. 
E- 5
 APPENDIX F

DISTRIBUTION OF HOSPITAL BY NUER 
UNCESSARY ADMISSIONS (UAs) (N=239) 
itals 
UAs  Hos  Percent 
10. 
18. 
20. 
16. 
10. 
1. 7
1. 3 (%) 
I X G 
APPEND 
CHACTERISTICS OF HOITALS IJITH 6+ lJNECESSY ADISSIONS  N=34 
QU I 
FEDERA  OF  PRTlE  RLLI  TEACH IIiGI  PRF  IT 
STATE  REGION  ADITS  CASES  DISCHAGES  SIZE  tDTEACH IIiG  tDPRFIT 
56. 
50. 
40. 
40. 
40. 
36. 
34. 
33. 
30. 
30. 
26. 
26. 
26.7 
26. 
23. 
23. 
23. 
23. 
23. 
21. 
20. 
20. 
20. 
20. 
20. 
20. 
20. 
20.  .NP 
20. 
20. 
20. 
20. 
20. 
20. 
TOTAL  1018  274  131 
(37.  (28.  (29. 
1 PERCENTAGES ARE BASED ON THE FACT THAT THERE WERE 740 UNNECESSARY ADMISSIONS

, 464 CASES WITH QUALITY

OF CARE PROBLEMS AND 74 PREMATURE DISCHARGES IN THE SAMPLE OF 7 050 PATIENTS.
 I X H 
APPEND 
lMNECESSY ADISSIGiS BY MAJCJ DIAGNTIC  CATE  tIC 
(N=740) 
# of  # All  % of 
IIC  DESCIPTlCI  Adi ts 
0 i seases and Disorders  the Musculoskeletal System  106  627  16. 
and Connect i ve Tissue 
0 i seases  and 0 i sorders  the Digestive System  106  12. 
0 i seases  and Di sorders of the Respi ratory System  1052 
0 i seases  and 0 i sorders  the Eye  104  70. 
0 i seases  and 0 i sorders  the Circulatory System  1643 
0 i seases and 0 i sorders  the Nervous System  565 
Endocrine , Nutritional and Metabol  348  11. 
Diseases and 0 i sorders 
0 i seases  and Disorders of the Ear Nose and Throat  155  23. 
0 i seases  and 0 i sorders  the Kidney and Urinary Tract  332  10. 
Factors Influencing Health Status  39. 
and Other Contact wi th Hea l th Servi ces 
Diseases and Disorders of the Skin  181  13. 
Subcutaneous Tissue and Breast 
Menta l 0 i seases and 0 i sorders  112  21.4 
Hepatobi l iary System and Pancreas  194 
Myeloprol i ferat ive Di seases and 0 isorders  120  12. 
and Poorly Differentiated Neoplasms 
0 i seases  and 0 i sorders  the Male Reproductive System  194 
0 i seases  and 0 i sorders  the Female Reproductive System  12. 
Blood  Blood Forming Organs  11.4 
and  IlIni logical Di seases and 0 i sorders 
Infectious and Parasitic Diseases  108 
Substance Abuse and Substance Induced  19. 
Organi c Mental Disorders 
DRG 468 
Injury,  Poisoning and Toxic Effects of Drugs 
Burns  20. 
Pregnancy,  Chi ldbirth and the Puerperium