A case-mix classification system for nursing home residents is developed, based on
a sample of 7,658 residents in seven states. Data included a broad assessment of resident
characteristics, corresponding to items of the Minimum Data Set, and detailed measurement
of nursing staff care time over a 24-hour period and therapy staff time over a 1-week
period. The Resource Utilization Groups, Version III (RUG-III) system, with 44 distinct
groups, achieves 55.5% variance explanation of total (nursing and therapy) per diem
cost and meets goals of clinical validity and payment incentives. The mean resource
use (case-mix index) of groups spans a nine-fold range. The RUG-III system improves
on an earlier version not only by increasing the variance explanation (from 43%),
but, more importantly, by identifying residents with "high tech" procedures (e.g.,
ventilators, respirators, and parenteral feeding) and those with cognitive impairments;
by using better multiple activities of daily living; and by providing explicit qualifications
for the Medicare nursing home benefit. RUG-III is being implemented for nursing home
payment in 11 states (six as part of a federal multistate demonstration) and can be
used in management, staffing level determination, and quality assurance.