What's good for the federal government can be bad for the health of American hospitals, says the

administrator of LDS Hospital, who predicts the closure of many more medical facilities if the DRG system continues.The Diagnostic Related Groups, commonly called DRG, reimbursement system was initiated by the federal government in 1983 to reimburse hospitals that treat Medicare patients.

The DRG system classifies more than 10,000 diseases into 470 separate reimbursement categories. Each category has its own reimbursement rate. The rate is what the federal government pays the hospital for treating a Medicare patient. No more. No less.

"The good news is that if you're the federal government, you can determine in advance exactly how much money you'll spend per hospital procedure during the upcoming year," said Gary Wm. Farnes, administrator of LDS Hospital. "The bad news for hospitals is that we're seeing these predetermined reimbursement rates shrink each year - as the actual costs of providing care go up."

For example, Farnes said if a Medicare patient's illness falls into DRG category 133 - coronary artery disease - then the hospital will receive $2,348 from the federal government for that patient's treatment.

"That's what we get regardless of what it costs to provide the actual treatment," he said. "The idea behind DRGs is to reward efficient hospitals and to penalize those that aren't efficient."

For a while, the idea worked. Recently, however, there have been major snags in the program, causing the closure of many American hospitals.

"The problems began when the federal government began to cut back its rates to the point where even the most efficient hospitals began experiencing shortages in reimbursements for costs of providing care," Farnes said. "For instance, most hospital employees have received salary and wage increases of 5 to 10 percent each year for the past five years."

But the administrator said DRG rates have increased an average of only 1 percent since 1985.

"That leaves hospitals with less and less money to cover the costs of providing high-quality medical care."

LDS Hospital is not immune.

"We perform total hip replacement surgery quite often here," Farnes said. "The bill usually comes to about $10,000. Medicare pays $7,367 of that amount."

The administrator said such financial discrepancies are becoming widespread. And they are becoming more commonplace as private and state insurance providers adopt the federal DRG guidelines and rates.

The result?

"Hospitals are being forced to return patients to their homes much sooner," Farnes said. "The result is that quality of care may be affected."

Such dilemmas are one reason hospitals like LDS have developed home health care programs and home IV therapy services during the past few years. And hospitals are offering more and more medical and surgical procedures on a short-stay or outpatient basis.

"Hospitals are doing everything they can to make sure their patients continue to receive the very best care in the most efficient way possible," Farnes said. "The problem that arises in doing so is that many of today's newest services and procedures require new types of equipment and facilities, and that costs money, lots of money; money that's not reflected in the DRG reimbursement rates."

The American Hospital Association estimates that nearly 400 hospitals have gone out of business since the DRG program was implemented in 1984.