Diagnosis Related Groups (DRG) vs. Budget-based ones: A Healthcare Perspective

Thomas Bartel, MD, PhD, Interventional Cardiologist, flexdoc GmbH

Financing of health care systems based on diagnoses-related groups (DRG) is commercially driven, whereas budget-based approaches pursue a planned economy attempt. Typical DRG-based systems can be found in the United States and Germany. The National Health Service (NHS) of the United Kingdom (UK) represents a classic budget-based system, variants of which are also in use in other European countries, e. g. Austria. Both ways have not just economic squeal but also a lot of implications for patient care. Although DRG and budget-based systems are subject to national or even regional regulations, there are specific advantages and disadvantages for patients inherent to both approaches.

1. What do you perceive as the primary advantages and disadvantages of a diagnoses-related group (DRG) system compared to a budget-based healthcare system from a medical perspective?

The crucial advantage of DRG-based systems is very simple: Just the medical output counts and is paid regardless of how much efforts had to be made to achieve it. In a budget-based healthcare system, the healthcare providers are paid for their presence regardless of their output. This implies that DRG-based systems are economically but not necessarily medically more effective compared to budget-based ones. The reason why economic efficacy not always parallels best practice in medicine is the financial incentive, e. g. to perform more procedures of higher value. This incentive is transmitted from the institution down to doctors by bonus payments. Thus, DRG-based healthcare systems are prone to oversupply what must be considered a clear disadvantage. Orthopedic joint replacement is a very good example of this: Threshold for such an indication is significantly lower in DRG-based systems. Of course, adequate regulation, e. g. by implementing “best practice guidelines” and monitoring can attenuate this adverse effect. Shortage of care in remote areas can also be a result in DRG-based systems, since healthcare may be unprofitable in areas with low density of population. That is why Germany tries to put budgets on top of its DRG-based systems in order to maintain critical care in those areas.   

2. How do you think the DRG system impacts the quality of patient care and outcomes compared to budget-based systems?

Economic characteristics of both, commercial and planned economy approaches, translate into quality of patient care at various levels. It’s important to emphasize that there is much less competition in budged-based systems rather than DRG-based ones. As a result, cutting-edge medicine can scarcely evolve in budget-based systems. However, regulators and professional societies can launch specific programs in order to achieve such top performances what usually implies an extra budget. In general, DRG-based systems are more innovation-oriented compared to budget-based ones, since new procedures prompt market expansion. In a budget-based system, any new procedure just triggers and is perceived as new and higher costs. Consequently, incentive to implement a new procedure in such a system is low. As we all know, planned economy can hardly meet the needs. This translates into a problematic feature of budget-based healthcare systems as are waiting lists. This an imposition to the patients and is not the only feature of shortage management. Non-privileged patients often wait, e. g. for computed tomography (CT) exams, coronary angiography and specific surgery for months and sometimes even longer than a year. The higher procedural costs are, the longer is usually the waiting list what has a lot of medical implications as are delayed diagnosis and therapy and potentially worse outcome. DRG-based systems are much less delicate in that regard.

3. In your opinion, what are the key challenges in implementing and maintaining a diagnoses-related group system in a healthcare setting, particularly in terms of patient care and access to services?

Those who implement a DRG-based healthcare system must be aware that challenges of DRG driven systems include but are not limited to tendency of oversupply as mentioned above. Professional focus of physicians may shift from patient care to financial interests. When implementing such a system, one of the most important regulatory goals is to keep doctor’s focus on patient care.

DRG-based healthcare systems require complete documentation and proper coding, since payment is just provided for documented services. Particularly, coding binds considerable resources. In that regard, electronic hospital information systems are much more suitable rather than classic paper-based documentation. That also facilitates monitoring. Usually, there is a monitoring body which verifies invoiced services to be accurately done and documented. This way, check and maintenance of healthcare quality can be guaranteed. Patient access does not depend on the system itself but is provided by insurances. In some countries, not all insurances cover all DRG what may limit access to full benefits of those systems.

4. Can you elaborate on any potential ethical concerns or issues that may arise in the context of a DRG-based healthcare system, especially in relation to patient treatment and resource allocation?

Ethical concerns may arise if economic interests are put before patient welfare. Responsibility to disallow is in the hands of hospital leadership, regulators and physicians. Not just patient’s safety should never fall victim to savings. Quality of care in general should never be neglected for economic benefit. Again, regulators, professional bodies and specialist societies are asked to prevent patients from violation of their interests for profit. They are obligated to closely monitor what happens in the field. That also includes full transparency of the quality of care in hospitals and patient education. Patients have rights they need to be informed about. One of these rights is to know about treatment outcomes of hospitals and departments before making a decision where to go for diagnoses and treatment. Just emancipated patients can exercise their rights in an adequate way to avoid profit-maximizing on their costs.  

5. How does the budget-based healthcare system affect the decision-making process for medical practitioners, and what impact does this have on patient care and treatment options?

Since availability of high-end medicine is partly limited in budget-based healthcare systems, threshold for specific therapies may be higher. Indications are frequently very much scrutinized what is not necessarily a disadvantage for patients. Once shortages occur, medical practitioners often look for alternatives, e. g. a limited number of British patients were put in contact with Indian healthcare providers for surgery, since the NHS was unable to cover and waiting time for surgical procedures reached up to eighteen months. In other European countries, older standard procedures were continuously done instead of newer state of the art therapeutic approaches, e. g. conventional open-chest heart valve surgery was performed even in high-risk patients instead of transcatheter valve replacement, as long as there was just a limited budget for the advanced therapy. Even more significant ethical problems may arise if specific procedures and therapies are rationed, as it has been repeatedly reported from some European countries with a budget-based healthcare system.

6. Based on your experience, what strategies or best practices can be employed to optimize patient care within a DRG-based healthcare system without compromising financial sustainability?

In DRG-based systems, there is a potential risk of adverse economic implications right up to insolvency. That’s why best practice could be potentially violated for profit if there were no regulations and quality checks. Expert associations and regulators are obligated to implement transparent systems of licensing, quality inspection and certification of institutions and departments. As a result, standardization of therapies is a powerful tool to improve compliance of healthcare providers. Nevertheless, examples of profit-driven overtherapy have been reported in the past, e. g. barely indicated percutaneous coronary intervention (PCI), although a lot has been done to bring healthcare providers up to be fully compliant with existing standards for accurate PCI. In terms of accuracy, the need for complete documentation inherent to DRG-based systems helps as well to pursue any violation of best practice.

7. Could you provide examples of successful implementations of DRG-based systems in other countries and how these systems have evolved over time to address challenges related to patient care and overall health outcomes?

A very good example of success is the DRG-based system in Switzerland. SwissDRG represents the fare system for all hospital services and was implemented more than ten years ago. The SwissDRG Stock Corporation is responsible for maintenance and further development of diagnoses groups and for their attribution to cases. Therefore, dedicated grouper software is continuously adjusted in order to standardize services, to track medical progress and regulatory changes, e. g. new guidelines and experts’ recommendations.   

8. In your view, what role does technology play in supporting and enhancing healthcare systems driven by diagnosis-related groups? How does this differ from its role in budget-based healthcare systems?

Digitalization is crucial in order to take full advantage of DRG-based healthcare system and to cope with disadvantages and risks inherent to this kind of system, too. Artificial intelligence (AI) represents another evolving tool which for example can be used to obtain a computer generated second opinion, e. g. for cancer check-up. As outlined above, implementation of new technology is easier in DRG-based systems compared to budget-based ones.

9. From a medical standpoint, what policy recommendations would you suggest for countries considering transitioning from a budget-based healthcare system to a DRG-based one, or vice versa, to ensure both the financial viability and quality of patient care?

Generally, regulators and healthcare providers are obligated to make up arrangements for complete documentation what may be a challenge. Regulatory policies can be complemented by institutional ones and even by department standards to be guided by diagnoses and treatment guidelines. Expert societies and regulators should surveil strict compliance of all care providers with guidelines and best practice recommendations. Therefore, reporting systems can provide with transparency and may help those who are responsible to pointedly intervene in order to guarantee highest quality allover system’s sphere of influence. That’s the best way to create trust of a population into their healthcare system what is finally the basis of economic success, too.

10. How do you foresee the future of healthcare systems evolving in terms of their financing models, considering the ongoing advancements in medical technology and changing patient needs? What implications might these changes have on both DRG and budget-based systems?

The trend is towards DRG-based systems. However, regulators and political decision makers are continuously trying to mitigate disadvantageous consequences which may result from specific characteristics of those systems, e. g. to be driven by financial incentives as explained above. That is why, budget-based components may be increasingly added to DRG-based systems in order to make healthcare even more robust, e. g. in terms of services for rare diseases and in remote areas. Patient’s needs will expand but won’t fundamentally change. In that respect, DRG-based systems seem to be all set for rapid advancements including utilization of new techniques, e. g. less invasive therapeutic approaches, new strategies in oncology or AI based diagnoses and therapeutic conceptualization. Pure budget-based systems are prone to keep after all these developments what makes disadvantages of these systems even more obvious compared to the past.

11. In your professional opinion, what do you believe is the most critical factor that policymakers and healthcare administrators should prioritize when designing or modifying healthcare systems, whether based on DRGs or budget allocations, to ensure the best possible outcomes for both patients and the overall healthcare ecosystem?

Policymakers, healthcare administrators and other regulatory bodies must take care that the system serves patients and not vice versa. Healthcare systems should be adapted to regional or national conditions which may differ a lot from country to country and sometimes even between regions inside a country. Incentives must result in an optimal solution for the patients and so are any measures initiated by the regulators. Of course, interests of healthcare providers should get attention and mustn’t be disregarded. Although the system does not serve them. Doctors, nurses, technicians and many others are those who provide the patient with the care they need. Healthcare providers are crucial in terms of success of a system and should always be included in decision-making.  

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Author Bio

Thomas Bartel

Dr. Thomas Bartel is an interventional cardiologist with about 35 years of professional experience. He finished Charité Medical School in Berlin in 1987. He worked at different academic institutions in Germany, the United States, Austria and the United Arab Emirates. In that regard, he was confronted with a broad spectrum of healthcare conditions and systems.

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