Estimates of costs by DRG in Sydney teaching hospitals: an application of the Yale cost model.

The results are reported of a first round of costing by DRG in seven major teaching hospital sites in Sydney using the Yale cost model. These results, when compared between the hospitals and with values of relative costs by DRG from the United States, indicate that the cost modelling procedure has produced credible and potentially useful estimates of casemix costs. The rationale and underlying theory of cost modelling is explained, and the need for further work to improve the method of allocating costs to DRGs, and to improve the cost centre definitions currently used by the hospitals, is emphasised.