Wilm Quentin, M.D., MSc HPPF Department of Health Care Management, Technical University Berlin

1. LSE/NHS Confederation Seminar Series 2010 Hospital Financing in Germany: The G-DRG System Wilm Quentin, M.D., MSc HPPF Department of Health Care Management, Technical University Berlin (WHO Collaborating Centre for Health Systems Research and Management) & European Observatory on Health Systems and Policies Hospital Financing in Germany: The G-DRG System

2. Hospital Financing in Germany: The G-DRG System 1. Diagnosis Related Groups (DRGs): Introduction • Options for hospital reimbursement • DRGs: Patient classification + hospital payment 2. DRGs in Germany • Three phases of introducing DRGs • Current developments and options for the future 3. EuroDRG Hospital Financing in Germany: The G-DRG System

3. Hospital Financing in Germany: The G-DRG System 1. Diagnosis Related Groups (DRGs): Introduction • Options for hospital reimbursement • DRGs: Patient classification + hospital payment 2. DRGs in Germany • Three phases of introducing DRGs • Current developments and options for the future 3. EuroDRG Hospital Financing in Germany: The G-DRG System

4. Options for hospital reimbursement (I) Undertreatment Inappropriate treatment Hospital Financing in Germany: The G-DRG System

5. Options for hospital reimbursement (II) Undertreatment Inappropriate treatment Overtreatment Hospital Financing in Germany: The G-DRG System

6. Options for hospital reimbursement (III) Undertreatment Inappropriate treatment Overtreatment Hospital Financing in Germany: The G-DRG System

7. DRGs: 1st step = patient classification / grouping medical and management decision variables patient variables gender, age, main diagnosis, other diagnoses, severity mix and intensity of procedures, technologies and human resource use Group of patients with homogenous resource consumption = DRG Hospital Financing in Germany: The G-DRG System

8. Price setting under DRGs (I) medical and management decision variables patient variables gender, age, main diagnosis, other diagnoses, severity mix and intensity of procedures, technologies and human resource use DRG reimbursement X = base rate cost weight Hospital Financing in Germany: The G-DRG System

9. Price setting under DRGs (II) determinants of hospital costs structural variables on hospital/ regional/ national level medical and management decision variables patient variables gender, age, main diagnosis, other diagnoses, severity mix and intensity of procedures, technologies and human resource use e.g. size, teaching status; urbanity; wage level DRG reimbursement X = base rate cost weight + adjustment factors Hospital Financing in Germany: The G-DRG System

10. Design options for DRG systems Conflictingaimsof DRG systems Practicability (small number of groups) Homogenous groups (groups of cases with similar costs) France: ~2,300 Germany: 1,200 Estonia: ~500 Examples: Hospital Financing in Germany: The G-DRG System

11. Hospital Financing in Germany: The G-DRG System 1. Diagnosis Related Groups (DRGs): Introduction • Options for hospital reimbursement • DRGs: Patient classification + hospital payment 2. DRGs in Germany • Three phases of introducing DRGs • Current developments and options for the future 3. EuroDRG Hospital Financing in Germany: The G-DRG System

12. Background: German hospital sector • Key figures (2008): • 2100 Hospitals (1780 reimbursed through DRGs) • 17 mio. cases inpatient treatment • 57 bill. € financing sum • Dualisticwayofhospitalfinancing • Sicknessfundspayrunningcosts (budgets DRGs) • States paycapitalcosts Hospital Financing in Germany: The G-DRG System

13. DRGs in Germany 2005 - 2009 2010 - 2014 2003 - 2004 2000-2002 2) Budget-neutral phase 3) Phase of convergence to state-wide base rates 4) Current developments and options for the future 1) Phase of preparation Historical Budget (2003) Transformation DRG-Budget (2004) • Nationwide base rate • Dual Financing or Monistic • Introduction of DRG-like reimbursement for psychiatric hospitals • Selective or uniform negotiations • Quality Assurance (adjustments) Hospital specific base rate 15 % 20% 20% 20% 25% Statewide base rate 25% 20% 20% 20% 15 % Hospital specific base rate Hospital Financing in Germany: The G-DRG System

14. 1) Phase of preparation: Responsibilities Administration Health Policy Self-Administration(DKG, GKV, PKV) Goals andMonitoring Formingthe Legal Framework Health Ministry (federal, state) Other Institutions(HTA, quality) G-DRG System InEK(German DRG Institute) Variety of Institutions(Professional medical associations, industry groups) ContributionofExpertise TechnicalManagement DIMDI(German Institute of Medical Information and Documentation) Development Consultation Hospital Financing in Germany: The G-DRG System

15. 1) Phase of preparation: How to construct a system? Patient classification system Price setting Data collection Reimbursement rate • Diagnoses • Procedures • Severity • Clinical data • Cost data • Sample size • Average prices • Cost weights • Outliers • High cost cases Hospital Financing in Germany: The G-DRG System

16. 1) Phase of preparation: Patient Classification Patient classification system • Diagnoses • Procedures • Severity Hospital Financing in Germany: The G-DRG System

17. 1) Phase of preparation: Data collection Data collection • InEK • Development of case fee catalogue annually • checking data content • Clinical data • Cost data • Sample size • DIMDI • Development and update of classification base (ICD -10 GM and OPS codes) Checked and anonymised data • Data Centre • Collecting datasets • Checking case and cost data technically • Anonymising data 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 funds • Checking data via their medical review board • Paying hospital Case data for reimbursement (§ 301 SGB V) • Federal Statistical Office • Publication of data Until July 1 Hospital Financing in Germany: The G-DRG System

18. 1) Phase of preparation: Price setting mechanism Price setting • Calculation of cost weights: based on average costs of cases • Data sample:  Cost weight of each DRG = Average costs of DRG inliers / Reference Value • Average prices • Cost weights Hospital Financing in Germany: The G-DRG System

19. 1) Phase of preparation: Reimbursement Reimbursement rate Revenues • Outliers • High cost cases Inliers Long-stay outliers Short-stay outliers Deductions(per day) Surcharges(per day) LOS Lower LOSthreshold Upper LOSthreshold Hospital Financing in Germany: The G-DRG System

20. DRGs in Germany 2005 - 2009 2010 - 2014 2003 - 2004 2000-2002 2) Budget-neutral phase 3) Phase of convergence to state-wide base rates 4) Current developments and options for the future 1) Phase of preparation Historical Budget (2003) Transformation DRG-Budget (2004) • Nationwide base rate • Dual Financing or Monistic • Introduction of DRG-like reimbursement for psychiatric hospitals • Selective or uniform negotiations • Quality Assurance (adjustments) Hospital specific base rate 15 % 20% 20% 20% 25% Statewide base rate 25% 20% 20% 20% 15 % Hospital specific base rate Hospital Financing in Germany: The G-DRG System

21. 2) Budget neutral phase: Transfer to DRG budgets Hospital Budget 2002 Hospital Budget 2003 / 2004 Reimbursement unit = per diem Reimbursement unit = case (DRG) Hospital Financing in Germany: The G-DRG System

22. 2) Budget neutral phase: Hospital-specific base rate Relative cost weight Patient characteristics Gender, Age, Diagnoses, Severity Base rate G-DRG reimbursement X Hospital-specific = Treatment optionsProcedures, Technologies, Intensity Hospital Financing in Germany: The G-DRG System

23. DRGs in Germany 2005 - 2009 2010 - 2014 2003 - 2004 2000-2002 2) Budget-neutral phase 3) Phase of convergence to state-wide base rates 4) Current developments and options for the future 1) Phase of preparation Historical Budget (2003) Transformation DRG-Budget (2004) • Nationwide base rate • Dual Financing or Monistic • Introduction of DRG-like reimbursement for psychiatric hospitals • Selective or uniform negotiations • Quality Assurance (adjustments) Hospital specific base rate 15 % 20% 20% 20% 25% Statewide base rate 25% 20% 20% 20% 15 % Hospital specific base rate Hospital Financing in Germany: The G-DRG System

24. 3) Phase of convergence: Adaptation of base rate Relative cost weight Patient characteristics Gender, Age, Diagnoses, Severity Base rate G-DRG reimbursement X Hospital-specific Uniform statewide = Treatment optionsProcedures, Technologies, Intensity Hospital Financing in Germany: The G-DRG System

25. 3) Phase of convergence: Five year process € Reduction limit (related to pre-vious year‘s budget) Hospital-specific base rate 2005: 1% 2006: 1,5% 2007: 2% 2008: 2,5% 2009: 3% -15%(of difference) -20%(of difference) Losers -20%(of difference) -20%(of difference) -25%(of difference) Statewidebase rate +25% Winners +20% +20% +20% +15% Hospital-specificbase rate 2010 2004 2005 2006 2007 2008 2009 Hospital Financing in Germany: The G-DRG System

26. 3) Phase of convergence: Changing cost weights Relative cost weight Patient characteristics Gender, Age, Diagnoses, Severity Treatment optionsProcedures, Technologies, Intensity Hospital Financing in Germany: The G-DRG System

27. DRGs in Germany 2005 - 2009 2010 - 2014 2003 - 2004 2000-2002 2) Budget-neutral phase 3) Phase of convergence to state-wide base rates 4) Current developments and options for the future 1) Phase of preparation Historical Budget (2003) Transformation DRG-Budget (2004) • Nationwide base rate • Dual Financing or Monistic • Introduction of DRG-like reimbursement for psychiatric hospitals • Selective or uniform negotiations • Quality Assurance (adjustments) Hospital specific base rate 15 % 20% 20% 20% 25% Statewide base rate 25% 20% 20% 20% 15 % Hospital specific base rate Hospital Financing in Germany: The G-DRG System

28. DRGs in Germany: Main facts • Central roleofself-governingbodies • Data drivensystemwithannualupdates • Detailedanalysisofhospitalcosts • Seven-yearprocessofintroduction Hospital Financing in Germany: The G-DRG System

29. Hospital Financing in Germany: The G-DRG System 1. Diagnosis Related Groups (DRGs): Introduction • Options for hospital reimbursement • DRGs: Patient classification + hospital payment 2. DRGs in Germany • Three phases of introducing DRGs • Current developments and options for the future 3. EuroDRG Hospital Financing in Germany: The G-DRG System

30. EuroDRG project • EuroDRG: projectpartnerinstitutionsfrom 13 countries • Book on DRGs in Europe • Mapping ofgroupingalgorithms • Analysesofdeterminantsofhospitalcosts http://www.eurodrg.eu/ Hospital Financing in Germany: The G-DRG System

31. Thank you very much! Hospital Financing in Germany: The G-DRG System