Case-based Payment Systems for Hospital Funding in Asia : An Investigation of Current Status and Future Directions

Overview

Hospital funding in many countries are commonly based on pre-existing fee-for-service (FFS) methods or, in the case of government hospitals, line-item budgeting. While FFS are open-ended and provide incentive for over-servicing, line-item budgeting is often arbitrary, based on past practice, and unrelated to the actual cost of services. This makes hospitals, a key part of a health system, highly expensive. Controlling hospital costs, therefore, is an important aspect of health policy in both developed and developing countries.

Many middle-income countries in the Asia and Pacific region are increasingly using case-based funding to improve hospital efficiency. Essentially case-based funding describes hospital work load (the cases treated, using a so-called ‘bundled’ method known as Diagnosis Related Groups or DRGs), and adopts a standard pricing framework that provides equality in payments across health-care providers for services of the same kind. DRGs provide a technical means for the management and financing of public and/or private hospital services, and are often linked with social health insurance and government funding mechanisms.

This volume presents a background study of DRG-based payment systems, the general experience in the region till date, and an assessment of effectiveness. It follows an earlier publication titled Diagnosis-Related Groups in Europe: moving towards transparency, efficiency and quality in hospitals by the European Observatory on Health Systems and Policies, and also builds on a study carried out through WHO, which considered the implementation experiences and challenges of DRG-based payment systems in low-and middle-income countries.

The study concludes that case-based payment has a number of advantages and potential disadvantages. However, to be effective implementation of case-based payments must be supplemented by regulatory mechanisms, such as activity ceilings, adjustments to average prices, data audits, monitoring of care processes, and measurement of patient satisfaction and health outcomes.

It underscores the need for countries to be clear about their purpose and objective for introducing DRGs, as well as their place in health-care financing reform and for policy-makers to reflect on the importance of country-specific starting points, objectives and context in which the hospital payment reforms are being implemented.