Are the diagnosis-related group case weights compressed?

One problem noted recently with the diagnosis-related group payment system is that the distribution of Medicare case weights and case-mix indexes are compressed; that is, the payment rates for high-cost procedures are too low and those for low-cost procedures are too high. Despite the attention compression has received, there are no direct estimates of its magnitude or importance. Presented in this article are an empirical test for compression and a suggestion for a simple correction to decompress the relative prices.