From the origins of DRGs to their implementation in Europe

Every week during a summer you might find a summary from a book called Diagnosis Related Groups in Europe, available HERE.

FROM THE ORIGINS OF DRGS TO THEIR IMPLEMENTATION IN EUROPE

The complex issue of hospital reporting has been presenting a challenge in healthcare since the beginning of the 20th century. Hospital policymakers and managers were in need of a method which would be able to accurately describe the results of treatment obtained at different institutions. Moreover, as the establishment of the Medicare Program in the United States in 1965 lead to a significant increase in healthcare costs, a reassessment of production and efficiency of hospital services was unavoidable. This task was assigned to Professor Robert Fetter and his colleagues at Yale University, who developed a programme of utilization review and quality assurance for their local university hospital. Several years later, they gave rise to an inpatient classification system called Diagnosis Related Group (DRG) that not only differentiated the amount of hospital resources required to provide care but was also clinically coherent.

The first one to implement DRG-based hospital payments was the Medicare Program in 1983 through the so-called prospective payment system where the payments would be made based on predetermined fixed amounts based on DRG classification. Even though it went virtually unnoticed by the general public, the enactment of this payment system was considered to be the most influential post-war innovation in medical financing and spread quickly across the Atlantic and the Pacific. The implementation and development of DRG-type classification systems was supported by several international organizations, such as the European Union, the Council of Europe, the Organisation for Economic Co-operation and Development and the World Health Organization. The first European countries to introduce DRG-based healthcare financing were Portugal, Norway and Ireland. As of today, DRG systems are the single most important patient classification systems in use internationally.

COMMON OBJECTIVES ACROSS DIFFERENT HOSPITAL SYSTEMS

Ever since Medicare adopted DRGs as the basis for paying hospitals in the United States at the beginning of the 1980s, DRG-based hospital payment systems have become the standard for paying hospitals and measuring their activity in most high-income countries, albeit to different extents and with slightly different meanings. While northern countries such as Sweden or Finland are mostly using DRGs as a measure for assessing inpatient care structure, other countries use DRGs directly for reimbursement (e.g., Germany or France). The differences in the use of DRG classification stem from the fact that the implementation in each country was incentivized by specifications of its unique healthcare system. Interestingly, the purpose of DRG introduction also varied according to when the country in question introduced it. Countries that adopted DRGs early used it primarily with the aim of increasing transparency (e.g., Portugal and France), whereas countries that introduced it later did so with the intention of paying hospitals based on DRGs (e.g., Netherlands, Poland or Germany), see Tab. 1. Fig. 1 shows that each country introduced a DRG-type system in its own time. Some countries used it over an extended period of time exclusively for patient classification to understand the grouping logic before they started paying hospitals on the basis of DRGs (e.g., England), while others started reimbursing hospitals based on DRGs after only a short conversion period (e.g., Ireland). Although the primary aims of DRG system introduction were increasing transparency of services provided in hospitals, incentivizing efficient use of resources and improving the quality of care, it is still relatively unknown whether countries are really moving towards achieving these goals.

Tab. 1 Years of introduction and purposes of DRG systems over time

Fig.1 From DRG introduction to DRG-based budget allocation and payment

The most attractive feature of DRG classification aiding to increase transparency is its ability to condense a large number of unique patients to a limited number of groups that have a set of certain characteristics in common. This makes it possible to describe hospital activity in a standardized manner, analyse it and make comparisons between different hospitals or different hospital compartments. The costs of treating a given patient can also be assessed through DRGs, considering measurable patient and service characteristics such as diagnoses and procedures. From the point of view of incentivizing more efficient resource utilization, DRG-based reimbursement aims to discourage the provision of unnecessary services and to encourage the efficient delivery of appropriate care. Other objectives of DRG system introduction comprise reducing waiting times and length of stay and motivating care facilities to increase their performance.

In Europe, most countries are using country specific DRG systems, which are best adapted to local conditions, distinctions and demands. It is vital to emphasize that each country introduced DRG classification irrespective neither of the previously used payment system, nor of the hospital organization structure in place before. Looking at different payment systems in use prior to the introduction of DRGs, the two most commonly used methods were the fee-for-service payments and global budgets. Within the fee-for-service system healthcare providers are retrospectively reimbursed for all provided services and care. This approach which was mostly used in the United States favours hospitals treating large numbers of more complex patients and can lead to provision of unnecessary services or even oversupply of inappropriate care. On the other hand, most European countries used global budgets to allocate financial resources to hospitals before introducing DRG-based payments. Fixed payments for a certain activity level were agreed between payers and hospitals prospectively, usually for the approaching year. However, this method is characterized by an expenditure cap and could easily result in hospitals not producing sufficient services, limiting financially demanding procedures and eventually decreasing the quality of care.

Theoretical incentives of DRG-based payments present an attractive compromise between these two payment methods by virtually motivating healthcare providers to increase the number of patients treated, while simultaneously reducing the number of services per case. Moving from fee-for-service payment to DRG-based reimbursement can lead to cost-containment, whereas moving from global budget does not. If the grouping algorithms of DRG classification are not sufficient in terms of controlling for differences between distinct patient groups or provided services, payments for highly complex patients are too low and payments for less complex patients are too high. Another potential disadvantage of DRG-type systems is their administrative complexity in the form of detailed and standardized coding.

Considering both advantages and disadvantages of all payment systems mentioned, the methods of healthcare reimbursement and reporting in countries across Europe are diversly combined. Hospitals are partly paid on the basis of provided services and partly operated within global budgets. Interestingly enough, the concept of DRG systems was able to be implemented in many different hospital settings and accommodated well to the unique specifications of healthcare systems all around the world.

LITERATURE

BUSSE, Reinhard, GEISSLER, Alexander, QUENTIN, Wilm a 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 a LOMÍČEK, Miroslav. Klasifikační systém DRG. Praha: Grada Publishing, 2010. 208 p. ISBN 978-80-247-7347-6