Break Even

Break-Even and DRG Analysis

The director of Getwell Clinics’ Beach Street office is requesting that a determination of breakeven points for each DRG be submitted. He is also requesting information regarding which DRG would be the most profitable in growing the practice. In order to provide the director with this information there are key points which must be understood regarding the relevance of DRG analysis and how it can be effective as a tool that drives costs and one which can have a profound effect in healthcare management decisions. However, before such an analysis can be utilized one must first understand how to appropriately calculate the breakeven points for the various DRGs. The information received from this will allow for an educated recommendation to be given to the director regarding his question related to which DRG would be most profitable as well as questions relating to which ones should more so be promoted in various aspects. Then this information will also prove beneficial in being able to explain the rationale that may be used to support the use of DRG’s as an approach to allocating costs.

DRGs

DRGs which is the abbreviation for Diagnosis Related Groups is a patient classification scheme which provides a means of relating the type of patients a hospital treats to the costs incurred by the hospital. All patients are unique in their own specific ways. However, regardless of individual uniqueness there are commonalities as patients which most do share which determines their overall resource need at a facility level. These commonalities are most often demographics, diagnostic and therapeutic attributes. DRGs provide a manageable yet clinically coherent set of patient classes that relate a hospital’s case mix to the resource demands and associated cost absorbed by the hospital (Utah Department of Health, 2008).

DRGs and Cost

DRGs enable facilities to understand which types of patient groups are responsible for which costs. This...