Prospective Payment System via Diagnostic Related Groups

Diagnosis Related Group (DRG) is a system that categorizes medical cases into groups and assigns weights to each group that indicate the amount of resources necessary to treat a patient with a given diagnosis. The original idea of promoting payment systems based on DRGs was to reduce costs, increase benefits and increase quality of healthcare systems.

Here is some examples of the DRGs.



But soon before long, problems regarding misclassification of diseases and errors in the assignment of codes started to emerge, causing distortions in hospital funding and biases in system measurements. This is partly for the reason that the payment system itself provides high incentives to opportunistic behaviour, giving way to the act of intentionally assigning codes for more serious treatments than the truly provided to obtain larger reimbursements, known as upcoding. Counteractive measure have been taken to address this cheating behaviour, which is by installing a code specification specialist that review the discharge summary and the DRG code.

What is the meaning of prospective payment?

It means that the payment amount by the Health Financing Body (Medicare in the US, Askeskin in Indoneisa) is pre-determined according to the diagnosis-related groups (DRGs). The health providers (hospitals) will no longer get full reimbursement on whatever costs they charged to treat the patients. It is a form of managed care which the financer is able to control the physician’s behaviour in giving therapy.

It sounds like a good news for the consumer. The supplier-induced demand is prevented. For every diagnosis, the hospital will be paid a fix amount of money. If extra resources is used, the extra cost will be bore by the hospital.

Is this really a good news? The reality in Indonesia tells otherwise. When the financial incentive is removed, some of the physicians become less interested in treating patient of the social insurance (Askeskin). The physicians can only prescribe generic drug to the Askeskin patients, so they lose the commission that bundled with prescribing patent drug.

We might blame the physician for such biased behaviours. Aren’t they supposed to treat every patients equally without bias? The medical ethics says so. But to fully practice what the ethics preaches, it is a bit difficult when money comes into the play.

One of the reasons is due to the vast difference in income derived from the Askeskin patients and the private patients. For example, a doctor will be paid 5,000 rupiah (about 0.5 USD) for consultation with Askeskin patient while the private patient would pay 50,000 rupiah (5 USD). The difference is huge, about 10 times. So it can be understood that why doctors don’t give same level of service to the patients. Less time is spent for each consultation and perhaps less smile on the face.

A possible solution in pushing for the  Askeskin in Indonesia is by increasing the coverage of the insurance. So far it only covers about 20% of the population, mainly the poor and near poor. If the coverage can reach 90%, then the doctors would probably have no choices but to treat all patients equally.


Capital PPS: trekking through the labyrinth – Health Care Financing Administration’s new method in prospective payment system

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