Mixed reimbursement of hospitals: Securing high activity and global expenditures control?
AbstractWhen introducing Diagnosis-Related Group (DRG) tariffs as the basis for paying hospitals in Europe, one of the major problems was to find a balancing point between the aim of increasing hospital activity and the need to control global expenditures on hospital care. Consequently, in several European countries, DRG-based reimbursement has been mixed with the already existing forms of hospital reimbursement, such as block budgets, instead of replacing the latter entirely. The mixed reimbursement is viewed as a cautious way of introducing DRG-based funding, which offers the potential for achieving activity expansion without jeopardizing global expenditures control. Denmark is one of the countries where DRG tariffs have been added to the system of block budgets coupled with activity targets. The transition to the mixed reimbursement occurred by replacing a part of each hospital’s ‘old’ block budget by a ‘new’ DRG-based component. The DRG-based component depends on a hospital’s case mix and applicable DRG tariffs, which are, however, reduced by, e.g. 30-50% as compared with a monetary value of a full tariff. The usual interpretation is that such a mix of reimbursement methods provides a specific set of incentives that is different from other hospital payment methods. Yet, the exact modus operandi of the mixed reimbursement remains obscure. It is not entirely clear whether and how the unit rate of reimbursement was changed after the transition? Was the entire volume of a hospital’s activity affected or only certain treatments and/or higher levels of activity? Another question is what happened with the activity targets that traditionally accompanied the ‘old’ block budgets? The aim of this article is to provide a comprehensive description of the change in hospital incentive scheme that followed the transition to the mixed reimbursement in Denmark. In doing so, the paper provides a qualitative assessment of the mixed reimbursement with regard to the asserted exceptionality of its incentive structure, with a particular focus on its ability to balance incentives for activity expansion and global expenditures control. We show that the mixed reimbursement is simply a veiled version of the usual block budget system, which due to certain added complications might even distort activity/efficiency improvements in a new way. The cautions way of implementing DRG –based reimbursement resulted in a system that has hardly moved away from the historical patterns of activity and costs. The sum of the ‘new’ DRG-based component and the remaining part of the ‘old’ block budget simply added up to the total of the ‘old’ block budget (+/- standard annual corrections for inflation, etc.), which allowed hospitals to produce unchanged sort and volume of activity at unchanged unit cost. Only few percent of the annual activity volume is indeed subject to altered reimbursement incentives. In sum, the mixed reimbursement as implemented in Denmark does not present any innovation. Hence, any empirical research based on the assumption that the incentive scheme for the entire volume of hospital activity was changed by the transition to the mixed reimbursement might produce false conclusions.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by COHERE - Centre of Health Economics Research, University of Southern Denmark in its series COHERE Working Paper with number 2014:3.
Length: 34 pages
Date of creation: 01 Mar 2014
Date of revision:
Contact details of provider:
Postal: COHERE - Center for Sundhedsøkonomisk Forskning, Institut for Virksomhedsledelse og Økonomi, Syddansk Universitet, Campusvej 55, DK-5230 Odense M, Denmark
Phone: (+45) 6550 3081
Fax: (+45) 6550 3880
Web page: http://www.sdu.dk/Om_SDU/Institutter_centre/cCohere
More information through EDIRC
Diagnosis-Related Groups; Block budgets; Hospital reimbursement; Denmark;
Find related papers by JEL classification:
- I12 - Health, Education, and Welfare - - Health - - - Health Production
- I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private
- I14 - Health, Education, and Welfare - - Health - - - Health and Inequality
This paper has been announced in the following NEP Reports:
- NEP-ALL-2014-04-11 (All new papers)
- NEP-GER-2014-04-11 (German Papers)
- NEP-HEA-2014-04-11 (Health Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Magnussen, Jon & Hagen, Terje P. & Kaarbøe, Oddvar M., 2006.
"Centralized or decentralized? A case study of Norwegian hospital reform,"
Working Papers in Economics
02/06, University of Bergen, Department of Economics.
- Magnussen, Jon & Hagen, Terje P. & Kaarboe, Oddvar M., 2007. "Centralized or decentralized? A case study of Norwegian hospital reform," Social Science & Medicine, Elsevier, vol. 64(10), pages 2129-2137, May.
- Levinthal, Daniel, 1988. "A survey of agency models of organizations," Journal of Economic Behavior & Organization, Elsevier, vol. 9(2), pages 153-185, March.
- Ellis, Randall P. & McGuire, Thomas G., 1986. "Provider behavior under prospective reimbursement : Cost sharing and supply," Journal of Health Economics, Elsevier, vol. 5(2), pages 129-151, June.
- Street, Andrew & Maynard, Alan, 2007. "Activity based financing in England: the need for continual refinement of payment by results," Health Economics, Policy and Law, Cambridge University Press, vol. 2(04), pages 419-427, October.
- Vrangbaek, Karsten & Bech, Mickael, 2004. "County level responses to the introduction of DRG rates for "extended choice" hospital patients in Denmark," Health Policy, Elsevier, vol. 67(1), pages 25-37, January.
- Christiansen, Terkel, 2002. "Organization and financing of the Danish health care system," Health Policy, Elsevier, vol. 59(2), pages 107-118, January.
- Andrei Shleifer, 1985. "A Theory of Yardstick Competition," RAND Journal of Economics, The RAND Corporation, vol. 16(3), pages 319-327, Autumn.
- Andrew Street & Kirsi Vitikainen & Afsaneh Bjorvatn & Anne Hvenegaard, 2007. "Introducing activity-based financing: a review of experience in Australia, Denmark, Norway and Sweden," Working Papers 030cherp, Centre for Health Economics, University of York.
- Carmichael, H Lorne & MacLeod, W Bentley, 2000. "Worker Cooperation and the Ratchet Effect," Journal of Labor Economics, University of Chicago Press, vol. 18(1), pages 1-19, January.
- Charness, Gary & Kuhn, Peter J. & Villeval, Marie Claire, 2008.
"Competition and the Ratchet Effect,"
IZA Discussion Papers
3784, Institute for the Study of Labor (IZA).
- Gary Charness & Peter Kuhn & Marie-Claire Villeval, 2011. "Competition and the Ratchet Effect," Post-Print halshs-00333590, HAL.
- Gary Charness & Peter Kuhn & Marie-Claire Villeval, 2008. "Competition and the Ratchet Effect," Working Papers 0828, Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure.
- Gary Charness & Peter Kuhn & Marie-Claire Villeval, 2010. "Competition and the Ratchet Effect," NBER Working Papers 16325, National Bureau of Economic Research, Inc.
- Kjeld M�ller Pedersen & Terkel Christiansen & Mickael Bech, 2005. "The Danish health care system: evolution - not revolution - in a decentralized system," Health Economics, John Wiley & Sons, Ltd., vol. 14(S1), pages S41-S57.
- McGuire, A., 1985. "The theory of the hospital: A review of the models," Social Science & Medicine, Elsevier, vol. 20(11), pages 1177-1184, January.
- Pope, Gregory C., 1989. "Hospital nonprice competition and medicare reimbursement policy," Journal of Health Economics, Elsevier, vol. 8(2), pages 147-172, June.
- Broyles, Robert W. & Rosko, Michael D., 1985. "A qualitative assessment of the medicare prospective payment system," Social Science & Medicine, Elsevier, vol. 20(11), pages 1185-1190, January.
- Anni Ankjær-Jensen & Pernille Rosling & Lone Bilde, 2006. "Variable prospective financing in the Danish hospital sector and the development of a Danish case-mix system," Health Care Management Science, Springer, vol. 9(3), pages 259-268, August.
- Joseph P. Newhouse, 1996. "Reimbursing Health Plans and Health Providers: Efficiency in Production versus Selection," Journal of Economic Literature, American Economic Association, vol. 34(3), pages 1236-1263, September.
- Iversen, Tor, 1993. "A theory of hospital waiting lists," Journal of Health Economics, Elsevier, vol. 12(1), pages 55-71, April.
- O'Reilly, Jacqueline & Busse, Reinhard & Häkkinen, Unto & Or, Zeynep & Street, Andrew & Wiley, Miriam, 2012. "Paying for hospital care: the experience with implementing activity-based funding in five European countries," Health Economics, Policy and Law, Cambridge University Press, vol. 7(01), pages 73-101, January.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Terkel Christiansen).
If references are entirely missing, you can add them using this form.