DO DIAGNOSIS‐RELATED GROUPS EXPLAIN VARIATIONS IN HOSPITAL COSTS AND LENGTH OF STAY? – ANALYSES FROM THE EURODRG PROJECT FOR 10 EPISODES OF CARE ACROSS 10 EuroPEAN COUNTRIES

Abstract

Payment mechanisms represent one of the fundamental building blocks of any health system, introducing powerful incentives for actors in the system and fierce technical design complexities. The move in most countries towards diagnosis-related group (DRG)-based hospital payment systems was driven by the objective of incentivizing hospitals to improve their performance. Prior to the introduction of DRG-based hospital payment systems, countries used two basic mechanisms to pay for hospital care: fee-for-service payments and global budgets. These systems provide a specific set of incentives, which are different from the incentives of DRG-based systems. Therefore, in order to understand the international success of DRG-based systems, it is necessary to be aware of the incentives of these alternative systems and of the objectives that hospital payment systems are supposed to achieve. Hospital payment systems should motivate providers to treat patients in need of care and to deliver an adequate number of necessary services (level of activity), while taking into account the appropriateness of the services and patient outcomes (i.e., quality). Finally, a hospital payment system should balance activity and expenditure control incentives, thus contributing to increasing efficiency, while minimizing administrative effort and maximizing transparency. This demonstrates two things: (i) the design of ‘good’ payment systems needs to take into account various dimensions; namely, those of patients and of providers, of the provided services, of payers, and possibly of society at large; and (ii) because of this complexity, it simply cannot be expected that any payment system is ‘optimal’ in all respects (Geissler et al., 2011). Most importantly, however, the DRGs used to group patients need to be defined in a way that patients are medically homogeneous, and the payment rate should accurately reflect the resources and costs of treating patients within that group. Despite the fact that DRGs have been adopted in an increasingly large number of countries around the world, knowledge about the effects of DRG systems and DRG-based hospital payment systems, as well as about optimal design features of these systems, remains surprisingly limited. Although initially DRG systems were often introduced for the purpose of measuring hospital activity, they have later become the principal means of hospital payment in most countries. Some countries used DRGs over an extended time exclusively