OBJECTIVES Diagnosis Related Groups (DRG) like financing method was introduced in Hungary in 1993. In addition to DRG based reimbursement, an degressive upper ceiling (financial cap) was introduced for hospital reimbursement. The aim of our study was to investigate the financial effects of degressive financing method on the Hungarian DRG-based hospital financing. METHODS The data in our analysis were derived from the nationwide administrative dataset of the National Health Insurance Fund Administration (OEP), the only health care financing agency. We examined the period between 2011 and 2013. In 2011 and 2012 hospital activity over financial cap was reimbursed up to 110 % by 30 % of DRG base rate, while in 2013 hospital activity over financial cap was reimbursed up to 104 % by 25 % of DRG base rate. RESULTS In 2011 hospital activity exceeded the financial cap by 4.6 % with a monthly variation of 1.5 % - 6.6 %. In 2012 hospital activity exceeded the financial cap by 4.2 % with a monthly variation of 1.1 % - 6.5 %. In 2013 hospital activity exceeded the financial cap by 1.9 % with a monthly variation of 1.1 % - 2.6 %. Between 2011 and 2013 the DRG base rate remained the same (150000 Hungarian Forint / DRG costweight). CONCLUSIONS Introduction of degressive financing method – in addition to DRG reimbursement – managed to control the activity of hospitals. The soft regulation in 2011 and 2012 resulted in a 4.2-4.6 % excess activity of hospitals, while the more rigorous regulation in 2013 managed to decrease the excess hospital activity to 1.9 %. Degressive regulation can serve as a cost containment tool for health policy decision makers.