DOES DRG PAYMENT UNDER A GLOBAL BUDGET WITH PRICE ADJUSTMENT END THE MEDICAL ARMS RACE? EVIDENCE FROM HOSPITAL CARE PROVISION IN CHINA
Author(s)
Xinyue Dong, Ph.D1, Jing Wu, PhD2.
1School of Medicine and Health Management, Tongji Medical College of Huazhong University of Science and Technology, Wuhan, China, 2School of Pharmaceutical Science and Technology, Faculty of Medicine, Tianjin University, Tianjin, China.
1School of Medicine and Health Management, Tongji Medical College of Huazhong University of Science and Technology, Wuhan, China, 2School of Pharmaceutical Science and Technology, Faculty of Medicine, Tianjin University, Tianjin, China.
OBJECTIVES: In 2020, China launched the nationwide China Healthcare Security-Diagnosis Related Group (CHS-DRG) system as a cornerstone of value-based provider payment reform. The study aims to examine how the CHS-DRG framework, implemented in city A under a global budget with price adjustment, reshaped hospital care provision amid persistent concerns over the traditional Medical Arms Race (MAR).
METHODS: We extended a physician utility framework to theorize provider responses to DRG incentives under budget constraints. Empirically, a difference-in-differences design was employed using provincial claims data from November 2020 to September 2022 (12 months pre- and 11 months post-implementation). Generalized linear models and generalized estimating equations estimated changes in admissions, care intensity, case-mix complexity and service efficiency.
RESULTS: Theoretically, the DRG program were predicted to curb inpatient expansion while increasing service complexity and LOS. Empirically, total admissions fell by 10.90% (P=0.006), driven by lower admission probability (unique inpatients: -10.37%, P=0.010) rather than fewer readmissions (per-patient hospitalizations: 2.58%, P=0.530), with no outpatient substitution. Conversely, care intensity rose, showing significant increases in medication (2.63%, P<0.001), material/device (2.23%, P<0.001) and examination orders (0.62%, P<0.001). Surgical case proportion grew by 5.99 percentage points (P<0.001), signaling higher case-mix complexity. Crucially, despite clinical intensification, corresponding expenditures did not escalate. Modest LOS increases (1.05%, P=0.003) and dwindling day-case activities (-22.27%, P=0.098) suggested limited short-term efficiency gains, yet reductions in admission splitting (-0.04%, P=0.028), bed blocking (-1.59%, P<0.001) and low-value drug use (-1.90%, P<0.001) indicated gradual efficiency improvements. All findings remained robust across alternative specifications and sensitivity analyses.
CONCLUSIONS: This blended DRG program partially mitigated the competitive impulse of MAR, shifting the focus from volume expansion to per-case intensity while disabling its financial transmission mechanism. Continuous policy refinement is critical to enhance care efficiency and guide future payment reforms.
METHODS: We extended a physician utility framework to theorize provider responses to DRG incentives under budget constraints. Empirically, a difference-in-differences design was employed using provincial claims data from November 2020 to September 2022 (12 months pre- and 11 months post-implementation). Generalized linear models and generalized estimating equations estimated changes in admissions, care intensity, case-mix complexity and service efficiency.
RESULTS: Theoretically, the DRG program were predicted to curb inpatient expansion while increasing service complexity and LOS. Empirically, total admissions fell by 10.90% (P=0.006), driven by lower admission probability (unique inpatients: -10.37%, P=0.010) rather than fewer readmissions (per-patient hospitalizations: 2.58%, P=0.530), with no outpatient substitution. Conversely, care intensity rose, showing significant increases in medication (2.63%, P<0.001), material/device (2.23%, P<0.001) and examination orders (0.62%, P<0.001). Surgical case proportion grew by 5.99 percentage points (P<0.001), signaling higher case-mix complexity. Crucially, despite clinical intensification, corresponding expenditures did not escalate. Modest LOS increases (1.05%, P=0.003) and dwindling day-case activities (-22.27%, P=0.098) suggested limited short-term efficiency gains, yet reductions in admission splitting (-0.04%, P=0.028), bed blocking (-1.59%, P<0.001) and low-value drug use (-1.90%, P<0.001) indicated gradual efficiency improvements. All findings remained robust across alternative specifications and sensitivity analyses.
CONCLUSIONS: This blended DRG program partially mitigated the competitive impulse of MAR, shifting the focus from volume expansion to per-case intensity while disabling its financial transmission mechanism. Continuous policy refinement is critical to enhance care efficiency and guide future payment reforms.
Conference/Value in Health Info
2026-09, ISPOR Asia Pacific 2026, Bangkok, Thailand
Value in Health, Volume 55, Issue S1
Code
HPR18
Topic
Health Policy & Regulatory
Topic Subcategory
Insurance Systems & National Health Care
Disease
No Additional Disease & Conditions/Specialized Treatment Areas