First results of the introduction of DRGs in Germany and overview of experience from other DRG countries

In spite of numerous discussions and programs aimed at reducing public health care costs in Germany, the country has seen a massive increase in health care costs at an annual average rate of 7% since 1972. When German policymakers decided to reform the health care system by passing legislative measures on 22 December 1999, one of the key elements was to oblige hospitals and health insurance providers to replace the existing retrospective and procedural reimbursement system with a new prospective and diagnostic system based on diagnosis-related groups (DRGs). German policymakers are hoping to accomplish two feats with the introduction of DRGs: firstly, to improve the profitability of the health care system, and secondly, to improve the quality of health care services because DRGs require documentation and coding, which leads to increased transparency and allows for an external comparison of rendered services (benchmarking), as well as for an analysis and assessment of how appropriate and how successful the rendered services were in each particular case. Although the intentions underlying the introduction of DRGs are unquestionable, it remains to be determined whether the introduction has negative effects as well, and to which extent these negative effects have shown up so far. Hence the purpose of our survey will be to provide an extensive and systematic overview of results from other countries, along with preliminary results from Germany. In order to judge the trade-off between the desired and negative effects in a DRG system, we will define the set of parameters that determine the incentives of health care agents in such a system before surveying the economic and medical literature in light of these parameters in Section 3 and summarizing the results in Section 4. In view of the literature analysed, we find that the introduction of DRGs hasstarted a tendency towards a reduction in costs and towards a focus on profitability. If the legislator takes the necessary actions to reduce possible negative effects like manipulation and upcoding, the introduction of G-DRGs will lead to an increase in economic effectiveness and efficiency, while bringing more transparency into the quality of medical services at the same time.