From the origins of DRGs to their implementation in Europe
Each week during the summer, summaries of chapters from the book Diagnosis Related Groups in Europe, available HERE, will be presented.
Already at the beginning of the 20th century, one of the important challenges in health care was the problem of reporting health care (HC) provided in hospitals. There was a need for a method that would describe as accurately as possible the outcome of treatment across different health care facilities (HCFs). In addition, following the introduction of the Medicare health insurance program in the USA in the second half of the 1960s, there was a significant increase in the cost of HHs, which led to a reassessment of the production and efficiency of the health services provided. To address this challenge, a team around Professor Robert Fetter at Yale University started to develop a programme to control the quality and efficiency of resource use at the local university hospital. Several years later, this led to the development of the casemix[1] patient classification system ofDiagnosis-Related Groups(DRGs), which not only differentiated the amount of resources needed to deliver the CC but also made sense from a clinical point of view.
The first to make DRG-based reimbursements for LTC was the aforementioned Medicare program. This was a so-called prospective reimbursement system with fixed lump-sum payments for individual DRG groups, which were defined in advance by the provider for a certain period. The enactment of this reimbursement system, despite minimal attention from the general public, is considered the most influential post-war innovation in health care financing and quickly spread from the US to other developed countries, particularly Europe and Australia. The implementation and development of DRG-type classification systems has been supported by several international organizations, including the European Union, the Council of Europe, the Organization for Economic Cooperation and Development, and the World Health Organization. The first European countries to use DRG classification for health financing purposes were Portugal, Norway and Ireland. Today, the DRG system maintains a leading position among patient classification systems at a global level.
Since the introduction of DRG classification by Medicare in the early 1980s, DRG systems have become the primary reimbursement mechanism and measure of hospital performance in high-income countries, but to a different extent and with slightly different meanings in each country. While Nordic countries such as Sweden and Finland use the DRG system primarily to monitor the structure of the healthcare provided, in other countries DRG is synonymous with reimbursement (e.g. Germany and France). The different use of DRG classification stems mainly from the fact that its implementation was conditioned by the specific needs of the country's health system and did not take place in all countries at the same time. Interestingly, the European countries that were among the first to introduce DRGs did so preferably to make hospital activities more transparent (e.g. Portugal and France), and the countries that introduced DRGs later started to use them as a basis for reimbursement ( e.g. the Netherlands, Poland or Germany), see Table 1. In Fig. 1 we can see that each country implemented a DRG-type system in its own way at its own time. In some countries, DRG classification was initially used exclusively for a long period of time to classify patients in order to understand the classification logic (e.g. England), while in other countries it started to be used almost immediately for reimbursement purposes (e.g. Ireland). Although the primary purpose of introducing DRG classification and DRG-based reimbursement in most countries was to increase transparency of health services, to make more efficient use of available resources and to improve or at least ensure the quality of care, it is still not entirely clear today whether the countries concerned are achieving these objectives.
Since the introduction of DRG classification by Medicare in the early 1980s, DRG systems have become the primary reimbursement mechanism and measure of hospital performance in high-income countries, but to a different extent and with slightly different meanings in each country. While Nordic countries such as Sweden and Finland use the DRG system primarily to monitor the structure of the healthcare provided, in other countries DRG is synonymous with reimbursement (e.g. Germany and France). The different use of DRG classification stems mainly from the fact that its implementation was conditioned by the specific needs of the country's health system and did not take place in all countries at the same time. Interestingly, the European countries that were among the first to introduce DRGs did so preferably to make hospital activities more transparent (e.g. Portugal and France), and the countries that introduced DRGs later started to use them as a basis for reimbursement ( e.g. the Netherlands, Poland or Germany), see Table 1. In Fig. 1 we can see that each country implemented a DRG-type system in its own way at its own time. In some countries, DRG classification was initially used exclusively for a long period of time to classify patients in order to understand the classification logic (e.g. England), while in other countries it started to be used almost immediately for reimbursement purposes (e.g. Ireland). Although the primary purpose of introducing DRG classification and DRG-based reimbursement in most countries was to increase transparency of health services, to make more efficient use of available resources and to improve or at least ensure the quality of care, it is still not entirely clear today whether the countries concerned are achieving these objectives.
Table 1 Purpose of the DRG classification system in selected European countries
England
1992
classification of patients
zS reimbursements
Estonia
2003
zS reimbursements
zS reimbursements
Finland
1995
description of hospital activity, benchmarking
management, benchmarking, invoicing
France
1991
description of hospital activity
zS reimbursements
Netherlands
2005
zS reimbursements
zS reimbursements
Ireland
1992
distribution of finances
distribution of finances
Germany
2003
zS reimbursements
zS reimbursements
Poland
2008
zS reimbursements
zS reimbursements
Portugal
1984
measurement of the volume of the ZS provided
distribution of finances
Austria
1997
distribution of finances
allocation of finances, planning
Spain
1996
zS reimbursements
zS reimbursement, benchmarking
Sweden
1995
zS reimbursements
benchmarking, performance measurement
Fig. 1 From the introduction of DRGs to reimbursement and DRG-based financial redistribution
The most attractive feature of DRG classification in terms of increasing transparency is its ability to combine a large number of unique patients into a limited number of groups based on their common characteristics. In this way, the performance of hospitals can be described in a standardised way, analysed and compared between individual departments or entire HHs. The DRG classification also makes it possible to accurately assess the costs of treating a particular patient, which are measurable through the diagnoses reported and the medical procedures performed. From the perspective of resource efficiency, DRG-based reimbursement aims to reduce the provision of redundant care and to promote the cost-effective provision of appropriate care. Other ambitions and objectives of the use of DRG classification include reducing waiting times and length of hospital stays and encouraging hospitals to compete with each other.
Most European countries use their own specific DRG systems, which are as tailored as possible to the circumstances. It is important to note that the introduction of the DRG classification and the reimbursement mechanisms based on it took place regardless of the reimbursement system or organisational structure that was in place in a given country prior to the introduction of DRGs. As far as reimbursement systems are concerned, the two main counterparts to DRGs are thefee-for-service system and the flat-rate system(global budget). Under the performance-based system, all the services provided are reimbursed retrospectively, which may incentivise HCs to disproportionately increase the volume of services provided, regardless of their cost-effectiveness. This system favours large HHs treating large numbers of complex patients and was mainly used in the USA before the introduction of DRG systems. In contrast, the flat-rate payment system, or global budget, which prevailed in European countries, is characterised by prospective reimbursement. These are pre-agreed fixed amounts set by mutual agreement between payers and providers for a specific period of time, usually for the coming year. The biggest disadvantage of this reimbursement system is the expenditure ceiling, which encourages HCPs to limit costly treatments. There is thus a risk of inadequate provision of care and possibly a decline in the quality of care provided.
Reimbursement based on DRG classification represents to some extent an attractive compromise between the two systems, as it theoretically encourages providers to increase the number of patients treated while reducing the number of procedures per case. Switching from a performance-based system to DRGs may lead to cost reductions, whereas switching from global budgets does not lead to cost reductions. If the classification into DRGs is set up incorrectly and the groups are not able to capture the variation of individual patients, payments for highly complex treatments are too low and payments for less complex patients are too high. A potential disadvantage of DRG classification is the relatively heavy administrative burden of detailed and standardised coding.
As none of the above systems is perfect and each has its advantages and disadvantages, the methods of reimbursement and reporting of HCs are combined in different ways across European countries. On the one hand, hospitals are partly paid according to the services they provide; on the other hand, reimbursement of HC works on a budgetary basis. What remains interesting, however, is that the idea of DRG systems has been able to take hold and be implemented in very diverse hospital settings, adapting to the specific conditions of health systems around the world.
BUSSE, Reinhard, GEISSLER, Alexander, QUENTIN, Wilm and WILEY, Miriam. Diagnosis Related Groups in Europe: Moving Towards Transparency, Efficiency and Quality in Hospitals. Maidenhead: Open University Press, 2011. 568 p. ISBN 978-0-33-524557-4
KOŽENÝ, Pavel, NĚMEC, Jiří, KÁRNIKOVÁ, Jana and LOMÍČEK, Miroslav. DRG classification system. Prague: Grada Publishing, 2010. 208 p. ISBN 978-80-247-7347-6
[1] Casemix classification systems classify hospital admissions into groups both in terms of clinical relatedness and several other characteristics, such as cost similarity.