Casemix funding for a Specialist Paediatrics Hospital:A hedonic regression approach

Abstract

This paper inquires into the effects that Diagnosis Related Groups (DRGs) have had on the ability to explain patient-levelcosts in a specialist paediatrics hospital. Two hedonic models are estimated using 1996/97 New Children'sHospital (NCH) patient level cost data, one with and one without a casemix index (CMI). The results show thatthe inclusion of a casemix index as an explanatory variable leads to a better accounting of cost. The full hedonicmodel is then used to simulate a funding model for the 1997/98 NCH cost data. These costs are highly correlatedwith the actual costs reported for that year. In addition, univariate regression indicates that there has been inflationin costs in the order of 4.8% between the two years. In conclusion, hedonic analysis can provide valuable evidencefor the design of funding models that account for casemix.