Product line analyses using PMCs versus DRGs

Health care organizations have been increasingly urged to adopt businesses’ strategic and financial planning techniques and to become more product-line management oriented. This goal has not been reached, however, primarily because hospitals have been trying (quite unsuccessfully) to use the patient classification framework provided by the prospective payment system-the Diagnosis Related Groups (DRGs) to accumulate and organize their clinical and financial data. This paper compares the financial implications of organizing one hospital’s data into clinical programs using DRGs versus Patient Management Categories (PMCs), a more clinically specific patient classification. Both the size and financial viability of certain clinical programs are estimated incorrectly using DRGs, yielding the potential for inappropriate policy and program management decisions. By contrast, PMCs yield financial outcome analyses that are more consistent with the clinical program structure and the patient care provided by health care organizations.