Admission-Based Risk Adjustment for Internal Medicine Hospital Payment Scheme

Diagnosis-related group (DRG)-based hospital payment systems often fail to capture differences in clinical severity among internal medicine patients, potentially encouraging coding optimization rather than efficient care. We developed and evaluated a hospital payment framework that incorporates objective clinical information available at emergency department presentation. Using data from 30,822 emergency internal medicine admissions, we derived a composite admission severity score and simulated reimbursement under four payment models: uniform per-diem, fully risk-adjusted, hybrid fixed-variable, and global budget. Three hypothetical hospitals with different case-mix profiles were used to compare payment distributions. Fully risk-adjusted payment aligned reimbursement most closely with expected resource use but generated substantial payment variation. The hybrid fixed-variable model improved alignment with patient complexity while maintaining greater revenue stability. Incorporating admission-based clinical severity into hospital payment may improve reimbursement equity and reduce incentives for risk selection, upcoding, and coding manipulation.