Evaluation of the DPC-based inclusive payment system in Japan for cataract operations

Since medical care expenses have been increasing rapidly with the ageing of the population, reducing the length of hospital stay (LOS) has become an important political issue in Japan. A new inclusive payment system based on the diagnosis procedure combination (DPC) was introduced in 82 special functioning hospitals in April 2003. Since April 2004, use of the DPC system has been gradually extended to general hospitals. As of July 2009, a total of 1,283 hospitals, about 14% of the 8,862 general hospitals in Japan, had joined the DPC system. These 1,283 hospitals have 434,231 beds, which is nearly half of the total beds (913,234 beds) of general hospitals in Japan. The DPC system is an original system developed in Japan. Inclusive payments based on the DPC system cover fees for the following categories only: basic hospital stays, medical checkups, image diagnosis, medication, injections, treatments under 1,000 points (10 yen per point has been paid to hospitals), and medicines used during rehabilitation treatments and related activities. Fees for all other categories, such as fees for operations, are paid on the basis of the conventional fee-forservice system. Unlike the diagnosis-related group/prospective payment system (DRG/PPS) used in the U.S. and other countries, the Japanese DPC system is a per diem prospective payment system. The per diem payment becomes less as the LOS becomes longer. Three periods, Period I, Period II, and Specific Hospitalization Period, are determined for each DPC code. For stays over the Specific Hospitalization Period, the per diem payment is determined through the conventional fee-for-service system. The introduction of the DPC system was one of the largest and most important revisions of the payment system since the Second World War. For the effective use of medical resources, improvement of the DPC system by thorough analyses of the system is absolutely necessary. In this paper, we first propose a new model that considers heterogeneity of variances. We then present our analysis of the LOS for cataract operations before and after the introduction of the DPC system using the proposed model. The number of cataract patients in Japan has been increasing rapidly with the ageing of the population. According to a survey conducted by the Ministry of Health, Labour and Welfare (2008), nearly 800,000 cataract operations are performed annually and nearly 2.5 billion yen are spent for cataract operations annually. We analyzed the influence of the DPC system and factors that might affect the LOS for cataract patients by examining data collected from 5 general hospitals before and after the introduction of the system. To eliminate the influences of types of operations and treatments, we used data strictly pertaining to the patients who underwent cataract operations and insertion of a prosthetic lens on one eye only. The number of patients was 2,533. The estimates of the Female, Age 50, Age 90, Not_Home dummies are significant and affect the LOS. We found large differences in the changes of average lengths of stay (ALOSs) among hospitals. In hospitals where the ALOSs were long, the ALOSs decreased significantly under the DPC system. On the other hand, in hospitals where the ALOSs were already short, the ALOSs did not decrease under the DPC system. The results of empirical study imply that the DPC system gave strong incentives to reduce the ALOSs for the former hospitals but it gave weak (or no) incentives for the latter hospitals, where the ALOSs were already short.