Recent legislation by Medicare restricts its reimbursement per patient according to the patient\u27s particular type of disease. The reimbursement is based on a set of Diagnosis Related Groups (DRG\u27s), which categorizes patients into disease classifications. As a result, hospitals must make efficiency gains and managers must look for new ways to provide quality care while containing costs. A simulation technique was developed by which the financial results of particular administrative policies can be predicted. Patient billing data were collected over a three-month period and analyzed for the purpose of simulating length of stay and resource consumption per cost center. Regression analysis were used to approximate departmental costs as a function of length of stay and to estimate total cost as a function of certain departmental costs. Distribution-fitting techniques were used to determine the method of random generation for independent variables. The simulation model was run with two embellishments to illustrate how policies are interjected and results are interpreted
