China's transition to DRG-based hospital reimbursement

China has been transitioning from a fee-for-service (FFS) payment system to a Diagnosis-Related Group (DRG) payment system for hospitals in various cities. Under the FFS model, hospitals were reimbursed for each individual healthcare service provided, which created incentives to increase the number of services during a patient's hospitalization.

In June 2019, the National Healthcare Security Administration of China announced the launch of a DRG payment pilot program, known as the CHS-DRG (China Healthcare Security Diagnosis-related Groups), in 30 cities. These pilot cities, including Beijing, Tianjin, and Shanghai, were scheduled to implement the new payment method in 2021 after a simulated run in 2020. Similar to hospitals in the US, the DRG system categorizes patients into groups based on their diagnosis, age, gender, severity, and complications. Under this system, hospitals receive a fixed compensation amount per admission, regardless of the actual treatment costs.

Studies examining the impact of DRG payment reforms in China have shown mixed results. Research conducted in Panzhihua city, Sichuan Province, demonstrated that the DRG payment reform reduced both the duration of hospital stays and the operational costs of healthcare facilities. However, the study also identified potential challenges, such as the risk of compromised service quality and increased patient readmission rates. In Beijing, a study on neurological disorders found that the implementation of DRG-based prepayment resulted in a 12.6% decrease in total costs per case and a reduction of 0.96 days in length of stay. The reform was also associated with reductions in overall in-hospital mortality and readmission rates.

Internationally, the impact of DRG payment systems on healthcare spending and quality has varied across countries. A meta-analysis of international studies found that DRG-based payment systems demonstrated a statistically significant superiority over cost-based payment in terms of reducing length of stay. However, the effects on healthcare quality were less conclusive. Some evidence suggests that DRG-based payment may improve efficiency and contain costs without significant negative impacts on quality under close monitoring. Other studies have indicated potential challenges in equity and quality, especially for patients exempted from this payment scheme. A study in Hong Kong of the introduction and discontinuation of DRG-based payment found that "discontinuation of DRGs was associated with longer hospital stays and fewer hospital admissions but with no change in quality indicators."

More research is needed to better understand how DRG-based payment in China impacts health care costs and quality across different Chinese cities and regions.

Originally posted at Healthcare Economist. 

The views expressed herein are those of the author and not necessarily the views of FTI Consulting, Inc., its management, its subsidiaries, its affiliates, or its other professionals.