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OBJECTIVE. This study describes the derivation and validation of the Patient Management Category (PMC) Severity Scale, which provides a method of assessing the overall severity of a hospitalized patient's illnesses, based on the patient's unique clinical conditions, their interaction, and the resultant, combined risk of morbidity and mortality. DATA SOURCES. Derivation of the PMC Severity Scale was based on clinical judgment together with empirical analysis of more than a half million patients discharged from acute care hospitals in Maryland during 1989. The scale was validated by using two distinct calendar years (1988 and 1990) of patients data from the same Maryland hospitals and a six-month patient database from California (1990). STUDY DESIGN. The PMC Severity Scale is an ordinal scale with seven levels: Level 7 represents the greatest likelihood of death and major disease burden. The scale quantifies the severity of each of the patient's disease(s) and accounts for the effect of all coexisting conditions and complications. DATA EXTRACTION METHODS. Publicly available, statewide all-payer claims databases were acquired from Maryland and California. PRINCIPAL FINDINGS. The independent relationships between the PMC Severity Scale with mortality and with length of stay are statistically different across severity levels within each population tested, but the relationships are statistically similar over time. Further, the PMC Severity Scale was determined to be a stable predictor of mortality and LOS across two diverse geographic regions. CONCLUSIONS. Since the severity of a patient's illness is one of the factors that influences the outcomes of care, the PMC Severity Scale can be used successfully as a risk adjustment tool in a variety of quality applications.