Opinion ID: 3009724
Heading Depth: 2
Heading Rank: 3

Heading: New Jersey's Medicaid Program

Text: In 1993, New Jersey formulated a standardized, predetermined, statewide payment amount for over 700 separate Diagnosis Related Grouping's (DRGs). DRGs represent groups of patients that are clinically similar to one another and 5 relatively homogeneous with respect to resource utilization. For each hospital serving the state, rates were set for each DRG and a statewide mean for each DRG was established. To determine the mean, the State used 1988 hospital costs and 1991 billing data. Inflation factors were used to update 1988 hospital costs to 1993 levels. In addition, the mean-based DRGs were increased by a 2.5% operating margin factor to create a margin surplus. DRG payments included a capital cost allowance and a 9.15% adjustment designed to ease the transition from the pre-1993 system, which provided higher payments. The payment that a hospital received for a medicaid discharge depended on the DRG into which it fell.
In early 1994, New Jersey decided to overhaul its 1993 Medicaid payment system. Basically, the new Medicaid ratesetting methodology made four changes to the previous repayment system. Payments of the 9.15% transition adjustment, 2.5% operating margin, and capital cost allowance were eliminated. The fourth change consisted of a median-plus 5% DRG standard in place of the 1993 mean-based DRG standard. Once again, 1988 hospital costs, adjusted for inflation, were the benchmarks for each DRG.