DRG-type hospital payment in Germany: The G-DRG system

In Germany, there are about 2100 hospitals providing care for about 17 million inpatient cases per year.3 Hospitals are financed through a system of ‘dual financing’, which means that they receive funds from two different sources: infrastructure investments are covered directly by tax-funded state budgets, whereas operating costs are paid mostly by sickness funds and private health insurers.4 The introduction of DRGtype hospital payment goes back to the Statutory Health Insurance Reform Act of 2000, which reformed hospital financing for operating costs. The main objective of the reform was to replace previously existing historically-based hospital budgets (using per diem charges as the unit for reimbursement) with a more activityoriented payment system assuming that it would promote efficiency, quality and transparency in the hospital sector.5 The reform legislation outlined the fundamental characteristics of the new payment system but delegated the responsibility for developing and managing the future G-DRG system to the selfgoverning corporatist bodies (the then federal associations of sickness funds, the Association of Private Health Insurance, and the German Hospital Federation). The legislation further specified that the system should apply to all hospitals irrespective of ownership status. Psychiatric services were excluded since DRG-type payment was perceived to be inadequate at that time. For the technical management of the system, the self-governing bodies founded the Institute for the Payment system in Hospitals (InEK). Currently, about 1700 hospitals (80% of all hospitals but accounting for 97% of all discharges) receive reimbursements through DRG-type hospital payment.3 Figure 1 illustrates three phases in the introduction process of DRGtype hospital payment in Germany. During the preparatory phase, the fundamental characteristics of the system were defined. This was followed by a budget-neutral phase, during which the payment units within the budgets were changed from per-diems into DRGs. In the ‘convergence phase’ the relevance of the budgets was reduced step by step in favour of a uniform statewide price system for DRGs.