The Impact of DRG-Based Budgeting on Inpatient Psychiatric Care in Veterans Administration Medical Centers

Abstract

In 1985 the Veterans Administration (VA) implemented a prospective budgeting system for acute inpatient care based on diagnosis-related groups (DRGs). To assess the impact of this system on psychiatric care, this study reviewed data on all VA discharges for psychiatric or substance abuse disorders that occurred during the four years before and the four years after this system was implemented. During the four years following the implementation of DRG-based budgeting the number of annual discharges increased by 28.7% and the number of unique patients discharged increased by 15.5%. Average lengths of stay declined by 36.9% and total annual bed days of care per unique patient declined by 29.7%. These changes occurred in association with an 11.5% reduction in the total number of beds occupied by psychiatric patients, an 8.9% reduction in direct per diem expenditures for psychiatric care nationally, and a 32.7% decline in direct expenditures per episode, after adjustment is made for inflation. In spite of a continuing decline in the value of the available resources, largely due to the effect of inflation, prospective budgeting appears to have had a major impact on the pattern of inpatient psychiatric care in this large health care system.