DRG-related prices applied in a public health care system—can Finland learn from Norway and Sweden?

doi:10.1016/S0168-8510(01)00169-5

Health Policy

Volume 59, Issue 1, January 2002, Pages 37-51

https://doi.org/10.1016/S0168-8510(01)00169-5 Get rights and content

Abstract

In the early 1990s, DRG based hospital financing was introduced into some hospital districts in Finland. The 1993 state subsidy reform decentralising all hospital financing to municipalities, and the aim of improving productivity, were the driving forces for introducing DRG. This study addresses the pros and cons of DRG in hospital financing in the Finnish health care system and puts forward several solutions to avoid potential problems. We consider the objectives and optimal features of hospital financing systems in the context of the public health care system, where the public sector owns and finances hospitals. We analyse impacts of introducing different types of DRG based hospital financing systems, taking into account earlier experiences in countries such as Sweden and Norway, as well as Finnish system specific features. DRG could assist the Finnish municipalities to compare quality, costs and prices of services between hospitals, and related cost information might help them budget expenditure more accurately. System specific features mean that traditional uses of DRG in hospital pricing are not feasible in Finland. But some benefits of DRG could be exploited, for instance in the controlled contracts between municipalities and hospitals.

Introduction

The Diagnosis Related Groups (DRG) classification was originally developed in the USA for the product line management of hospitals. From the hospital inpatient data the DRG classification system groups inpatients by principal diagnosis, comorbidities, surgical procedures, age, sex and discharge status in order to obtain homogenous resource groups. In hospital management systems based on DRG resource consumption is calculated for each DRG group, reflecting average treatment costs in that group [1], [2].

Applications of DRG tend to vary between countries and hospital care systems. DRG has been applied to health care resource allocation, hospital pricing, management, quality control and productivity research. Growing health care expenditures and the move to more efficient hospital production in most countries have been the driving forces behind adoption of the DRG system. Accordingly, the main focus of DRG use has been in resource allocation and pricing [3], [4], [5], [6], [7].

Since the 1980s DRG based financing has been applied in US MEDICARE as a hospital pricing system, while in Canada, Australia and some West European countries DRG is used for resource allocation [6]. The effects of DRG based hospital pricing have been studied widely especially in the USA, and several technical and incentive problems have emerged. Although average length of stay and thus health care costs in the Medicare system initially decreased due to DRG based pricing, several negative impacts, such as DRG-creep, patient selection and early discharges, have been noted [8], [9], [10], [11], [12], [13]. In other countries, extensive studies on the effects of DRG based financing systems remain relatively rare.

The application of the US studies to health care systems based largely on the public provision of hospital services is made problematic by the numerous specific features and objectives of the US hospital pricing systems. For instance, besides reducing costs and increasing efficiency the aims of the Medicare Prospective Payment System (PPS) include adjusting the structure of service provision and closing inefficient hospitals [8], while the pricing approaches in public systems like those of the Nordic countries focus on equal and cost effective resource allocation.

During the 1990s, DRG-based hospital financing systems were introduced in the Nordic countries, particularly in Sweden, Norway and Finland. The earliest Nordic DRG applications employed various US DRG classifications adapted to local hospital information systems by the use of special tables for converting the Nordic diagnosis and procedure codes to those in the clinical modification of the 9th revision of the International Classification of Diseases (ICD-9-CM) applied in the USA. In the mid 1990s, the Nordic countries launched a modified DRG system based on the Nordic version of the ICD-10 and a new Nordic classification of surgical procedures introduced in 1996 [14]. The current version of the NordDRG applies the Nordic diagnosis and procedure codes but imitates the DRG classification rules in the 12th edition of the DRG classification issued by the US Health Care Financing Administration (HCFA) in 1994.

In Sweden, Norway and Finland, where the financing and ownership of hospitals are public, the aim of using DRG based financing is to improve the control of hospital production [15], [16]. This study focuses on the problems of DRG based hospital financing in the public health care system, and considers how to avoid them. Using the Finnish system as an example, the study examines the specific objectives and features of the public health care system, taking into account earlier studies of DRG in this context [12]. The study also describes problems in DRG based hospital financing systems in Sweden and Norway, and discusses how the experiences there could be applied to the Finnish system.

Section snippets

Financing hospital care in Sweden, Norway and Finland

The Nordic Health Care Systems are usually classified as tax funded systems, but a special characteristic is that their health services are predominately financed and organised by counties or municipalities rather than the state. Local authorities own the hospitals, which are partly financed by local taxes. Physicians and other staff work on a salary basis. However, there are some important differences in the financing of hospital care between Sweden, Norway and Finland. Firstly, in Finland and

Swedish and Norwegian experiences of DRG hospital financing

Due to organisational differences in health care, the principles of DRG use vary between the Nordic countries. In Sweden DRG prices are calculated according to the costs of some specific hospitals, while nationally fixed DRG weights are used in Norway. In Sweden, price lists and limits and quotas of treated patients are ratified by the county authorities. In other words, unlike Norway, Sweden has no national DRG policy, but the tendency is to use national hospital data for DRG weights more

DRG related prices in the Finnish health care system

The DRG system was first promoted for hospital management in Finland in the 1980s. However, it was not introduced to any great extent in Finnish hospitals until the mid-1990s. Case based pricing systems based on DRG were introduced by two large southern hospital districts in 1997 and by Helsinki University Central Hospital in 1998. Some other hospital districts are also considering the use of DRG and its applications for pricing their services.

In the public debate on hospital financing in

Conclusions

Although the introduction into Finnish hospital care of a DRG based hospital pricing system could lead to several improvements, such as better transparency and more accurate information, it is obvious that DRG pricing systems based on principles applied in other countries, even in Sweden and Norway, are not feasible in the Finnish system. For instance, the centralised system applied in Norway would only work if the state instead of the municipalities were to take more responsibility for

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DRG-related prices applied in a public health care system—can Finland learn from Norway and Sweden?

Abstract

Introduction

Section snippets

Financing hospital care in Sweden, Norway and Finland

Swedish and Norwegian experiences of DRG hospital financing

DRG related prices in the Finnish health care system

Conclusions

Health Policy

Health Policy

Health Policy

Health Policy

Health Policy

Health Policy

Journal of Health Economics

Journal of Health Economics

Diagnosis related groups: product line management within hospitals

Academy of Management Review

Hospital payment based on diagnosis related groups

Journal of the Society for Health Systems

International Use of DRGs

Development and Applications of DRGs in Other Countries

The Migration of Managerial Innovation

Diagnosis Related Groups and Health Care Administration in Western Europe

Health care and cost containment in the European Union

The effect of the Medicare Prospective Payment System

Public Health

The hospital response to Medicare's Prospective Payment System: an econometric model of Blue Cross and Blue Shield Plans

Medical Care

Use of medicare services before and after introduction of the Prospective Payment System

Health Services Research

Efficiency measurement and hospital financing: the Diagnosis Related Groups in Norway

The Nordic Lights

New initiatives in Health Care Systems

Cost Containment in Finnish Health Care in the