Review of Diagnosis-Related Group-Based Financing of Hospital Care

Natasa Mihailovic, Sanja Kocic, Mihajlo Jakovljevic

Since the 1990s, diagnosis-related group (DRG)-based payment systems were gradually introduced in many countries. The main design characteristics of a DRG-based payment system are an exhaustive patient case classification system (ie, the system of diagnosis-related groupings) and the payment formula, which is based on the base rate multiplied by a relative cost weight specific for each DRG. Cases within the same DRG code group are expected to undergo similar clinical evolution. Consecutively, they should incur the costs of diagnostics and treatment within a predefined scale. Such predictability was proven in a number of cost-of-illness studies conducted on major prosperity diseases alongside clinical trials on efficiency. This was the case with risky pregnancies, chronic obstructive pulmonary disease, diabetes, depression, alcohol addiction, hepatitis, and cancer. This article presents experience of introduced DRG-based payments in countries of western and eastern Europe, Scandinavia, United States, Canada, and Australia. This article presents the results of few selected reviews and systematic reviews of the following evidence: published reports on health system reforms by World Health Organization, World Bank, Organization for Economic Co-operation and Development, Canadian Institute for Health Information, Canadian Health Services Research Foundation, and Centre for Health Economics University of York. Diverse payment systems have different strengths and weaknesses in relation to the various objectives. The advantages of the DRG payment system are reflected in the increased efficiency and transparency and reduced average length of stay. The disadvantage of DRG is creating financial incentives toward earlier hospital discharges. Occasionally, such polices are not in full accordance with the clinical benefit priorities.