Oariginally Published EMDM January/February 2003
A NOTE FROM THE EDITOR
Case-Based Funding: A Tale of Two Systems
Germany's adoption of a diagnosis-related group (DRG) system has raised some red flags among stakeholders in the healthcare supply chain. While DRGs may be an efficient tool for maintaining cost-efficient practices in hospitals, they can also delay or obstruct the introduction of innovative medical technology. Case-based funding, an umbrella term that encompasses DRGs, and its implications for the medical technology industry in Europe, was the theme of a conference in Brussels in December. The session was chaired by Frederic Daoud, a trained physician and epidemiologist who heads Medalliance Consulting Inc. in Paris, and organized by Management Forum Ltd. (Guildford, Surrey, UK).
"It's easy to understand why payers like case-based hospital funding," noted Daoud in his opening comments. Traditional hospital funding methods tend to be either a global allocation based on "structural" parameters, such as the local population size and the number of hospital beds, or treatment-based payments. These methods lack benchmarks to evaluate a hospital's efficiency, according to Daoud, and they do not establish a budgetary balance between the amount of funding and the hospital's case mix. Treatment-based payments, in particular, can create a perverse incentive to increase spending, because funding is based on the medical services and products required for a procedure, and the number of days a patient is hospitalized. Germany is a case in point.
Currently, German patients enjoy the lengthiest hospital stays in Europe. That will almost surely change when DRGs become mandatory for German hospitals in 2004. While this shift will not lead to a de facto decline in the quality of healthcare, other aspects of the DRG system are troubling to healthcare providers and industry. Oliver Martini of Cordis Germany touched on some of those points at the conference.
Most hospital budgets are currently frozen at 1995 levels, Martini told delegates. The only hospitals eligible for a budget increase this year—a modest 0.87%, at that—are those that have opted to voluntarily join the DRG system in 2003. There will be no flexibility in the 2003 budget, cautioned Martini, even if a hospital's caseload increases or it requires additional technological resources. Furthermore, new medical technology cannot be introduced into the DRG system until 2005. Martini also noted that the relative weights currently assigned to patient and diagnostic profiles that involve the use of sophisticated equipment are sometimes woefully insufficient.
Is there a better way? The Netherlands thinks so. Beginning this year, it has introduced a case-based funding system called DBC, an acronym for the Dutch words for diagnosis and treatment combination system. Unlike a traditional DRG, explained Frido Kraanen from the ministry of health, welfare, and sports, the home-grown DBC covers the entire spectrum of activities and services related to a patient case, from the initial medical consultation and hospitalization to eventual outpatient services. Not simply a budgetary tool, the DBC system makes quality patient care and access to innovative and cost-effective medical technology a central concern.
Interaction between the stakeholders—patients, providers, and insurers—will drive this system, according to Kraanen. "If there is a cost-effective innovation, it is in the best interests of the insurer to influence hospital management to use it," he stressed. Conversely, "if an innovation produces an improvement in quality [but raises costs], the healthcare entity can plead his case to the insurer."
The success of the DBC system hinges on transparency, he added. Comparative treatment costs at various hospitals will be published on the Internet, and the system is sufficiently flexible to rapidly establish reimbursement rates for innovative technologies. To learn more about the Dutch DBC system, go to www.dbc2003.nl.
At the conference, Daoud qualified the Dutch initiative as the "most interesting development in hospital financing in Europe." Given the alternatives, who would disagree?
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