Technological innovation and transparency in DRGs
Each week during the summer, summaries of chapters from the book Diagnosis Related Groups in Europe, available HERE, will be presented.
Technological innovations in healthcare are highly valued, whether by patients, doctors, clinic staff or even politicians. In addition, medical technologies are significantly increasing the ability to prevent, diagnose and treat a range of diseases, which is reflected positively in declining mortality rates and increasing quality of life in many countries.
But at the same time, medical technologies and their implementation are the main reason for the rising prices of healthcare. Therefore, when implementing technological innovations, it is necessary to think also about the affordability of the innovation.
Technological innovations can be incremental - consisting of small improvements to existing services, or they can also include radical changes, such as replacing surgery with medical treatment. They can also occur as a transfer or adaptation of existing technology from one setting to another, for example moving certain procedures from inpatient settings to day care.
Healthcare quality can be defined as any aspect of healthcare services that benefit patients during the treatment process or improve health outcomes after treatment. Whether DRG-based hospital payment system incentives produce socially desirable effects depends on the particular combination of cost and quality.
The effects (especially long-term) of technological innovation on the quality and cost of healthcare are often difficult to identify at the time when innovations are first introduced into hospital practice. Several technologies have therefore later proved to be ineffective or even harmful once their use has been put into practice and widely adopted.
The dominant incentives of the DRG-based hospital base payment system encourage hospitals to reduce admission costs and increase admissions. Hospitals are likely to use economic evaluations before introducing certain technological innovations. These evaluations are mainly required when reducing healthcare costs is associated with a reduction in the quality of care provided. The decision should be determined on the basis of which of these two effects dominates.
Problems with DRG-based inpatientpayments arise when technological innovations improve quality but are associated with increased costs per admission. When technological innovations are introduced, hospitals are paid according to historical cost models that do not reflect the higher costs associated with implementing technological innovations. Several countries provide additional funding for capital costs, thereby exempting a significant portion of inpatient costs (particularly relevant in the context of innovations that increase capital costs) from DRG-based hospital payment incentives. The availability of funding from sources other than the DRG-based hospital payment system may change the incentives of DRG-based hospital payment systems (e.g., additional funding for education or research).
Long-term mechanisms ensure that technological innovations will eventually be formally incorporated into the DRG-based hospital payment system, either through DRG system updates or payment rate updates. Hospital payment systems are updated at regular intervals in most countries. Almost all countries have developed some short-term payment instruments that encourage the use of quality-enhancing technological innovations that also increase costs, during a period of time when the DRG-based hospital payment system is not yet accountable for the technological innovation. Countries with frequent DRG and payment rate updates, and also whose time lag between data collection and use is short, are clearly better placed to incorporate technological innovation into their systems.
Transparency of hospital services and costs has improved significantly in all countries. Today, the vast majority of hospitals in all countries are required to prepare detailed activity reports that specify the number and type of DRGs provided. Prior to the introduction of DRGs, hospital activity was reported either on highly aggregated measures or on very detailed measures. None of these measures could meaningfully reflect hospital activity. DRGs aggregate the large number of patients treated at hospitals into a small number of patient groups with similar clinical characteristics and similar resource consumption.
Regulators, payers and hospital managers are beginning to use DRGs to benchmark hospital performance in most countries. Hospitals receive higher DRG-based payments if they "code" (enter) all relevant diagnoses and procedures. Almost all countries are finding that information on diagnoses and procedures in hospitals has improved significantly since the introduction of DRGs.
Improving hospital efficiency is generally a key motivation for implementing DRG-based hospital payment systems. There are relatively few studies that have explicitly identified and quantified the impact of these systems on efficiency using established data-driven methods.
These studies reported that the introduction of DRG-based inpatient payments was associated with improvements in technical efficiency in Portugal, Sweden and Norway, but that no positive impact was observed in the USA and Austria.
Most other research has focused on efficiency indicators such as activity and length of stay, which are easier to measure but by definition provide only a partial picture of effectiveness. There is general agreement in the literature that the introduction of DRG-based hospital payment systems has led to increased activity and reduced length of stay, and therefore it is often assumed that hospital efficiency has improved.
In many countries, there remains a strong concern on the part of health professionals that DRG-based hospital payment systems may compromise the quality of care, as hospitals are motivated to reduce costs. Proponents of the use of DRGs argue that quality of care can actually be improved because DRGs contribute to increased transparency about the quality of care, and because hospitals are motivated to invest in quality improvements that lead to cost reductions. Some studies have found that processes of care (e.g., as measured by physician and nurse cognitive performance) have improved, but at the same time, a larger proportion of patients were found to be discharged in unstable conditions after the introduction of DRG-based payment. In Europe, the available research assessing the impact on quality of care and patient outcomes is too limited to draw any firm conclusions, particularly as evidence is available from only a limited number of countries.
Countries planning to introduce DRG systems have two options. Either they can develop a new DRG system from scratch, or they can import one of the existing DRG systems from abroad. Most countries that have introduced DRG systems initially did so for classifying acute inpatients.
The rationale for excluding outpatients, overnight care, rehabilitation, and psychiatric care from the DRG was that diagnoses were found to be poor predictors of resource consumption.
In recent years, many countries have expanded their DRG systems to take account of day cases, and sometimes even to include outpatient care. As the objectives of European countries and the problems they face are very similar, it is worth at least considering the benefits of increased cooperation, coordination and harmonisation of DRG systems in Europe. The benefits of a European DRG system should include avoiding duplication of work, improving knowledge sharing in improving DRG systems , increasing transparency of hospital services across countries, and facilitating cross-border patient movements and payments.