German hospitals in the post G-DRG introduction era fileDisturbing a ”corporatist market” German...

Disturbing a ”corporatist market”

German hospitals in the post

G-DRG introduction eraG-DRG introduction era

Dipl.-Ing. Alexander Geissler

Research Fellow

Department of Health Care Management

Berlin University of Technology

WHO Collaborating Centre for Health Systems,Research and Management

European Observatory on Health Systems and Policies

28 September 2010 1Aalto University Executive Education | Helsinki, Finland

Agenda

1) German healthcare (hospital) system overview

2) Ten years of DRGs in Germany

3) Strategic behaviour of hospitals in times of DRGs

4) Future trends and challenges

28 September 2010 Aalto University Executive Education | Helsinki, Finland 2

German healthcare system overview

Key characteristics:

a) Sharing of decision-making powers between the sixteen Länder

(states), the federal government and statutory civil society

organizations

i.e. important competencies are legally delegated to membership-based,

self-regulated organisations of payers and providers self-regulated organisations of payers and providers

b) Statutory health insurance (SHI)

SHI Cornerstone of health service provision is the Fifth book of the German

Social Law (SGB V)

i.e. it organizes and defines the self-regulated corporate structures and give

them the duty and power to develop benefits, prices and standards



Key characteristics:

c) Sectoral boarders

SGB V separates the provision of outpatient and inpatient services.

Planning, resource allocation and financing are undertaken completely

separately in each sector.separately in each sector.

�Complicates the provision of health care delivery (e.g. communication)

�Increases the amount of specialists

�Increases the health care expenditure



Financial flow of the SHI

- German GDP for health care in 2007: 10.4 % (~ € 253 bn)

- Main blocks: 57.5 % SHI, 9.3 % private insurance, 13.5 % out of pocket

Contribution rates (wage-related) Taxes


Health Fund (Pooling)

Morbi-RSA (Risk adjustment)

Health care provider

Third-party payer

(Sickness Funds)

Additional contributions

or

Bonuses


Hospital facts for 2007

Hospitals

overallBeds

Beds per 100

000

inhabitants

Occupancy Cases

Cases per 100

000

inhabitants

ALOS*

Number

(Share in %)

Number

(Share in %)Number in % Number Number Days

2 087 506 954 616 77.2 17 178 573 20 883 8.3

(100) (100)

< 49 407 7 572 9 64.9 210 028 255 8.5

50 - 99 264 19 354 24 73.3 529 579 644 9.8

100 - 149 302 36 995 45 74.2 1 108 285 1 347 9.0

Size and type of

ownership

Hopital size in beds


150 - 199 208 35 903 44 74.8 1 179 137 1 433 8.3

200 - 299 326 79 578 97 76.1 2 612 288 3 176 8.5

300 - 399 203 69 613 85 77.4 2 361 352 2 871 8.3

400 - 499 131 58 258 71 77.6 1 953 598 2 375 8.4

500 - 599 96 52 545 64 77.1 1 870 325 2 274 7.9

600 - 799 64 43 654 53 78.8 1 564 800 1 902 8.0

> 800 86 103 482 126 80.7 3 789 184 4 606 8.0

677 250 345 304 78.9 8 697 755 10 573 8.3

(32.4) (49.4)

under private law 380 133 957 163 77.5 4 804 914 5 841 7.9

under publ i c law 297 116 388 141 80.5 3 892 841 4 732 8.8

- lega l ly dependent 161 54 319 66 79.5 1 755 576 2 134 9.0

- lega l ly independent 136 62 069 75 81.4 2 137 266 2 598 8.6

790 177 632 216 75.3 5 970 324 7 258 8.2

(37.9) (35.0)

620 78 977 96 76.2 2 510 494 3 052 8.7

(29.7) (15.6)

Public hospitals

Non-profit hospitals

Private hospitals


Range of activities and services in hospital sector

Pre-hospital care

(GPs, Specialists)

Hospital Treatment Post-hospital care

(GPs, Specialists,

Rehabilitation)


Rehabilitation)

Referral by GP

or specialist

Inpatient care

Day-surgery

Highly specialized care on in-and outpatient basis (e.g. Cystic fibrosis)

Discharge to GP,

specialist or

rehabilitation


Hospital capacity planning and financing

- Capacities are planned by the state governments on the basis of so-called

“hospital requirement plans”

- Financing follows the principle of duality since Hospital Financing Act

(KHG) in 1972

Taxes Infrastructure investments


Patients

States

Tax payers

Sickness funds

Hospitals

Taxes Infrastructure investments

Contributions Operating costs

Hospital services


Operating costs

- Sickness funds negotiating activity based DRG budgets every year with every

“planned” Hospital

Casemix

X

Base rate

Supplementary

feesHospital budget+ =Surcharges+

- Budget over-run adjustment (hospital pays back):

65 % (standard DRGs), 25 % (drugs, medical, polytrauma and burns DRGs),

Negotiation for hardly predictable DRGs

- Budget under-run adjustment (hospital receives compensation) :

20% (standard DRGs)


Base ratefees + =+


Infrastructure investments

- Long-term infrastructural assets require a case-by case grant application by

each individual hospital

- Flat-rate grants for short-term assets (3–15 years economic life) can be

granted

- In practice, infrastructural hospital investments are mainly determined by

the budgetary situation of the states and by political considerations


Agenda






Ten years of DRGs in Germany

Aims of DRG introduction

- Achieving a more appropriate and fair allocation of resources by utilising

DRGs instead of per diem charges

- Facilitating a precise and transparent measurement of the case mix and the

level of services delivered by hospitalslevel of services delivered by hospitals

- Increasing efficiency and quality of service delivery due to the improved

documentation of internal processes and increased managerial capacity

- Cost containment based on LOS and bed capacity reduction



1)

Ph

ase

of

pre

pa

rati

on Historical Budget

(2003)

2) Budget-neutral

phase

3) Phase of convergence

to state-wide base rates

Nationwide base rate

Fixed or maximum prices

Selective or uniform negotiations

4) Discussion on Policy

15 %20%

20%

20%

25%

2000-2002 2003 - 2004 2005 - 2009 2010 - 2014

Hospital specific base rate

1)

Ph

ase

of

pre

pa

rati

on

Transformation

DRG-Budget

(2004)

Quality Assurance (adjustments)

Budgeting (amount of services)

Dual Financing or Monistic

15 %

20%

20%

20%

25%

25%

Statewide

base rate




1) Phase of preparation

Health Ministry

(federal, state)

Self-Administration (DKG, GKV, PKV)

AdministrationHealth Policy

Goals

and

monitoring

Forming

a legal

frameworkOther Institutions (HTA, quality)


Consultation Development

DIMDI (German Institute of Medical

Information and Documentation)

InEK (German DRG Institute)

Technical

managementContribution

of expertise

Other Institutions (HTA, quality)

Variety of Institutions(Professional medical associations,

industry groups)

G-DRG

System


1) Phase of preparation: Options for system modelling

Patient

classification

system

Data collection

Price setting

Reimbursement

rate

• Diagnoses • Clinical data • Average prices • Outliers


• Diagnoses

• Procedures

• Severity

• Clinical data

• Cost data

• Sample size

• Average prices

• Cost weights

• Outliers

• High cost cases


1) Phase of preparation: Patient classification system

Case data

(demographic and clinical characteristics )

Implausibility of major diagnosis,

medical procedures, demographic

characteristics etc.

Transplantation,

ventilation etc.

Error DRGPre-MDC

Pre-MDC process

MDC assign-ment based on

major diagnosis

Basis DRGs(G-DRG Version 2010 : n=594, including 6 Error DRGs)

… … … MDC 23MDC 3MDC 2MDC 1

+ at least one surgical procedure

+ no (essential) procedure for the respective MDC

Medical

Partition

Major diagnosis

Co-morbidity, medical procedures, age, clinical severity, complication,

cause of hospital discharge

split

DRGs (n= 906)

unsplit

DRGs (n=294)

Surgical

Partition

Other

Partition

Significant differences in resource comsumption

+ no surgical procedure, but one other procedure being essential for the respective MDC

n=300n=294



1) Phase of preparation: Data collection

Checked and

anonymised data

InEKDevelopment of case fee

catalogue annually

checking data content

Data CentreCollecting datasets

DIMDIDevelopment and update

of classification base (ICD -

10 GM and OPS codes)


Case data for

reimbursement

(§ 301 SGB V) Until July 1

Case-related performance and

hospital-specific structural data

from every hospital (§21 KHEntgG)

until March 31

Additionally case-related

cost data from a sample of

hospitals until March 31

Hospitals

Sickness

fundsChecking data

via their medical

review board

Paying hospital

Collecting datasets

Checking case and

cost data technically

Anonymising data

Federal

Statistical

OfficePublication of data


1) Phase of preparation: Price setting mechanism

- Calculation of cost weights: Based on average costs of cases data sample:

Year 2003 2005 2007 2009 2010

Hospitals participating in cost

data collection125 148 263 251 253

- excluded for data quality 9 0 38 33 28

- actual 116 148 225 218 225

- Cost weight of each DRG = Average costs of DRG inliers/Reference value

- Cost weight = 1 = average costs of all patients in Germany

- actual 116 148 225 218 225

- included university hospitals 0 10 10 10 10

- number of cases available for

calculation633,577 2,909,784 4,239,365 4,377,021 4,539,763

- number of cases used for

calculation after data checks494,325 2,283,874 2,863,115 3,075,378 3,257,497



1) Phase of preparation: Reimbursement rate and outliers

Revenues

Short-stay

outliers

Long-stay

outliers

Inliers


LOSDeductions

(per day)

Surcharges

(per day)

Lower LOS

threshold

Upper LOS

threshold


1)

Ph

ase

of

pre

pa

rati


(2003)

2) Budget-neutral

phase







15 %20%

20%

20%

25%

2000-2002 2003 - 2004 2005 - 2009 2010 - 2014


1)

Ph

ase

of

pre

pa

rati

on

Transformation

DRG-Budget

(2004)




15 %

20%

20%

20%

25%

25%

Statewide

base rate




2) Budget-neutral phase

Unit of reimbursement changed:

From:2002 � Reimbursement unit = per diem2002 � Reimbursement unit = per diem

To:2004 � Reimbursement unit = case (DRG)



Budget-neutral phase

Lead to a hospital specific base rate (historical Budget /Casemix)

Example: € 100 Mil. Budget / 33 000 CM = € 3030 Hospital specific base rate


Base rate

Relative cost weight

Patient characteristics

Gender, Age,

Diagnoses, Severity

Treatment options

Procedures,Technologies,

Intensity

Hospital-specificX =

G-DRG

reimbursement


1)

Ph

ase

of

pre

pa

rati


(2003)

2) Budget-neutral

phase







15 %20%

20%

20%

25%

2000-2002 2003 - 2004 2005 - 2009 2010 - 2014


1)

Ph

ase

of

pre

pa

rati

on

Transformation

DRG-Budget

(2004)




15 %

20%

20%

20%

25%

25%

Statewide

base rate




Phase of convergence

2005: 1%

2006: 1,5%

2007: 2%

2008: 2,5%

2009: 3%

€

Losers

-15%(of difference)

Hospital-

specific

base rate

-20%(of difference)

-20%(of difference)

-20%

-25%

Reduction limit

(related to pre-

vious year‘s budget)


2009: 3%

+15%

+20%

+20%

+20%

+25%

Statewide

base rate

Hospital-

specific

base rate

Winners

2004 2005 2006 2007 2008 2009 2010

(of difference) -25%(of difference)


Phase of convergence: Changing cost weights

- Increased precision due to more cost weights

- Treatment costs were better reflected over time

Year 2003 2005 2007 2009 2010

DRGs total 664 878 1082 1192 1200

25 May 2010 Hospital Financing in Germany: The G-DRG System 25

DRGs total 664 878 1082 1192 1200

Inpatient DRGs total 664 878 1077 1187 1195

Range of cost weights: min.-

max.(rounded)0.12 - 29.71 0.12 - 57.63 0.11 - 64.90 0.12 - 78.47 0.13 - 73.76

Day care DRGs total 0 0 5 5 5

Supplementary fees 0 71 105 127 143


1)

Ph

ase

of

pre

pa

rati


(2003)

2) Budget-neutral

phase







15 %20%

20%

20%

25%

2000-2002 2003 - 2004 2005 - 2009 2010 - 2014


1)

Ph

ase

of

pre

pa

rati

on

Transformation

DRG-Budget

(2004)




15 %

20%

20%

20%

25%

25%

Statewide

base rate




Main facts

- Central role of self-governing bodies

- Data driven system with annual updates

- Detailed analysis of hospital costs- Detailed analysis of hospital costs

- Ten-year process of introduction



Strengths and weaknesses of the G-DRG system

Strengths Weaknesses

Transparency and documentationNo quality adjustments for

reimbursement

Compliance of hospitals No reflection of different input prices


Compliance of hospitals No reflection of different input prices

Reimbursement toolUniform accounting system but no full

sample of hospitals

PrecisionIncreasing complexity with number of

DRGs

Agenda



3) Strategic behaviour of Hospitals in times of DRGs



Strategic behaviour of hospitals in times of DRGs

Case payment vs. per diem charge: Changes of incentives

- Patients are no longer “revenue” but “cost” centers

- Every case has a contribution margin

Revenues/

Costs Long-stay

outliers

per diem

charge


LOSDeductions

(per day)

Surcharges

(per day)

Short-stay

outliers

outliers

Inliers

Lower LOS

threshold

Upper LOS

threshold


Options to avoid deficits under activity based payments

Revenues

Costs/

Total costs

increase revenues


Length of stay

Total costs

DRG-type

payment

ALOS

reduce costs

Cost accounting

- From a managerial perspective the core for all options is the knowledge

about hospitals` treatment costs

- Common cost accounting approach in

(voluntary) cost data sample participating

hospitals across Germany


1:

Labour

costs

of

the o

ther

medic

al sta

ff

2:

Labour

costs

of

the n

urs

ing s

taff

3:

Labour

costs

of

the a

dm

inis

trative a

nd

4b:

Dru

g c

osts

(in

div

idual costs

/ actu

al

5:

costs

of

impla

nts

and g

raft

s

6a:

Mate

rial costs

(w

ithout

dru

gs,

6b:

Mate

rial costs

(in

div

idual costs

/

actu

al consum

ption,

without

dru

gs,

7:

Medic

al in

frastr

uctu

re c

osts

8:

Non-

medic

al in

frastr

uctu

re c

osts

Cost- Element Groups

- Average costs for each DRG freely available

(in German) on InEK website (www.gdrg.de)


1:

Labour

costs

of

the o

ther

medic

al sta

ff

2:

Labour

costs

of

the n

urs

ing s

taff

3:

Labour

costs

of

the a

dm

inis

trative a

nd

technic

al sta

ff

4a:

Dru

g c

osts

4b:

Dru

g c

osts

(in

div

idual costs

/ actu

al

consum

tion)

5:

costs

of

impla

nts

and g

raft

s

6a:

Mate

rial costs

(w

ithout

dru

gs,

impla

nts

and g

raft

s)

6b:

Mate

rial costs

(in

div

idual costs

/

actu

al consum

ption,

without

dru

gs,

impla

nts

/ gra

fts

7:

Medic

al in

frastr

uctu

re c

osts

8:

Non-

medic

al in

frastr

uctu

re c

osts

1: Normal ward 1.1 1.2 1.3 1.4a 1.4b - 1.6a 1.6b 1.7 1.8

2: Intensive care unit 2.1 2.2 2.3 2.4a 2.4b 2.5 2.6a 2.6b 2.7 2.8

3: Dialysis unit 3.1 2.3 3.3 3.4a 3.4b - 3.6a 3.6b 3.7 3.8

4: Operating room 4.1 - 4.3 4.4a 4.4b 4.5 4.6a 4.6b 4.7 4.8

5: Anaesthesia 5.1 - 5.3 5.4a 5.4b - 5.6a 5.6b 5.7 5.8

6: Maternity room 6.1 - 6.3 6.4a 6.4b - 6.6a 6.6b 6.7 6.8

7: Cardiac diagnostics/ therapy 7.1 - 7.3 7.4a 7.4b 7.5 7.6a 7.6b 7.7 7.8

8: Cardiac diagnostics/ therapy 8.1 - 8.3 8.4a 8.4b 8.5 8.6a 8.6b 8.7 8.8

9: Radiology 9.1 - 9.3 9.4a 9.4b 9.5 9.6a 9.6b 9.7 9.8

10: Laboratories 10.1 - 10.3 10.4a 10.4b 10.5 10.6a 10.6b 10.7 10.8

11: Other diagnostic and therapeutic areas 11.1 11.2 11.3 11.4a 11.4b 11.5 11.6a 11.6b 11.7 11.8

Labour Material Infrastructure

Co

st-

Cen

tre G

rou

ps

Ho

sp

it

al

un

its

wit

h

bed

s

Dia

gn

osti

c a

nd

treatm

en

t are

as


InEK cost data browser: Average costs for normal birth without co-

morbidities or complications in German cost calculating hospitals

DRGs as a management tool

- Product definition and cost accounting empower hospital managers to

improve treatment processes

- Higher quality of care can be achieved due to well organized care chains


- DRGs enable hospitals to benchmark themselves within peer groups


Agenda






Future trends and challenges

DRG introduction was just the first step

Discussion on policy:

Nationwide base rate:

- State governments would lose area of authority

- Statewide rates have the advantage of state specific adjustments

Fixed or maximum prices (selective or uniform negotiations):

- In case of maximum prices sickness funds must be able to negotiate selective

prices for highly specialized, elective or integrated treatment models

- This could lead to a price challenge with neglecting the quality

3628 September 2010 Aalto University Executive Education | Helsinki, Finland

Future trends and challenges

DRG introduction was just the first step

Discussion on policy:

Quality assurance (price adjustments):

- Pay for performance elements are broadly agreed as soon as quality is measurable measurable

- Already possible but not done: not paying for non-performance , present on admission marker

Dual or monistic financing of investments:

- Investment lag due to public dept

- Assumption that monistic financing would make investments easier to schedule due to investment surcharges on top of every DRG


Thank you very much for

your time and attention!

This and more presentationsare available on:

www.mig.tu-berlin.de


German hospitals in the post G-DRG introduction era fileDisturbing a ”corporatist market” German...

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