Objectives: Calculations of healthcare costs rarely disclose the specific approach used to allocate the cost of hospitalizations by diagnosis. However, the type of approach used can have a major impact on the findings in the case of significant comorbidities. The present analyses compared three approaches for attributing Medicare DRG reimbursements (which were used as surrogates for average costs) for hospitalization by diagnosis.

Methods: Medical resource utilization data from the National Hospital Discharge Survey were analyzed using each of three allocation approaches: a) attributing 100% of the cost of hospitalization to the disease when it was the first-listed diagnosis; b) attributing a portion of the cost of hospitalization to the disease, depending on its position in the list of diagnoses and the relevance of any comorbidities; and c) an incremental analysis of cost based upon the hospitalization experiences of an age and gender matched cohort. These three approaches were applied to the cost of hospitalization for chronic obstructive pulmonary disease (COPD).

Results: The first approach projected 206,098 hospitalizations at $3,449 per hospitalization for a projected U.S. annual total of $711 million. The second approach projected 681,547 hospitalizations at $3,205 per hospitalization for a projected U.S. annual total of $2.2 billion. The third approach also projected 681,547 hospitalizations, but at $2,361 per hospitalization, for a projected U.S. annual total of $1.6 billion.

Conclusions: Expanding from the example on COPD, the limitations of each approach are described and their applications to other conditions are presented.