Differences in resource use and cost among facilities treating alcohol, drug abuse, and mental disorders: implications for design of a prospective payment system

Specialized psychiatric facilities, including qualified distinct-part units in general hospitals, are exempt from Medicare's diagnosis- related group prospective payment system (PPS). One major reason for continuing the exemption is the redistribution of revenue that would probably occur if a single national price were established for care at the diverse facilities that treat patients with psychiatric and substance abuse disorders. This study investigated the extent of such potential redistribution in a private health insurance data base and found that a PPS would systematically underpay specialized facilities and systematically overpay general hospitals without specialized units. Alternatives for addressing this problem are discussed. (May 1987)