Leading Regional Insurance Organization

Diagnosis Related Groups (DRG): understanding the system and how it can ensure more competitive medical costs and increased efficiency in an evolving world

Diagnosis Related Groups (DRG): understanding the system and how it can ensure more competitive medical costs and increased efficiency in an evolving world

Healthcare tariffs and how they are calculated have been a constantly evolving topic in countries that operate a private healthcare system.  With the current global health crisis stretching the sector even further, it has become more apparent that standardised systems for patient care could help increase efficiency and mitigate financial burden for all parties.

Diagnosis Related Groups (DRGs) is a patient classification system that standardises prospective payments to hospitals and encourages cost containment initiatives. First implemented in the United States more than 30 years ago, DRGs group patients in respect of diagnosis, necessary treatment and length of hospital stay. Before this categorisation, hospitals would be inclined to maximise the length of stay and over-utilise services, to inflate costs. 

The overarching benefit of the DRG system is that it fosters increased efficiency and transparency in costs per service, while reducing average length of hospital stay. Under this system, insurers pay hospitals a predetermined amount for a patient’s care based on a variety of metrics as well as a cost base rate and relative weight. Cost base rate factors in the overall average hospital charge, while the relative weight assesses the weight of resources that are pulled from a hospital to perform the procedure, mainly driven by its complexity.

There are, according to figures from the US Centers for Medicare and Medicaid Services (CMS), approximately 740 categories of DRGs. Among the most common groups are natural births, caesarean section, neonate with significant problems, heart failure, angina pectoris, specific cerebrovascular disorders, psychoses, pneumonia, joint replacement, rehabilitation, kidney and urinary tract infections. Evolution of the system means some outpatient surgeries are now categorised under DRGs.

DRGs look at several personal factors, such as age, sex, primary diagnosis, secondary diagnosis, previous procedures, comorbidities and complications, and more. Each category covers the costs of physician care, nursing care, technician services, therapies, radiology, laboratory, pharmaceuticals, room, meals. Through this process, costs can be directly related to the diagnosis of the patient, thus ensuring that healthcare processes are optimised. Exceptions must be considered with complex situations as two patients with the same condition may require different procedures.

While the system is designed to enhance efficiency and transparency, one counter argument is that the system creates financial incentives for early discharges. There is a view that occasionally certain policies are not in full accordance with the clinical benefits of the patient.

However, correctly implemented, DRGs can help effectively control costs, a welcome benefit for any industry in the current climate, and particularly for a health insurance sector that has felt financial strain and witnessed rising costs in the wake of COVID-19.

Regionally the implementation of DRGs is still in its early stages, although since 2010 Abu Dhabi has been at the forefront of a successful adoption of the system in all its healthcare facilities. Neighbouring emirates including Dubai have also began to ensure that DRGs are an integral part of the healthcare reimbursement system.

At SAICOHEALTH we have long been advocates of DRGs. Our teams work alongside providers to ensure that analysis of cost patterns can create amicable budget positions for hospitals and insurance providers.

Following a turbulent year for the healthcare industry, it is important to understand that the structure and transparency that DRGs offer will be vital for the future of healthcare billing. The success of further implementation relies on key factors including curated data from a sufficient data pool to better understand what the ecosystem would look like once the DRG transfer has occurred. Success will also be dependent on the ongoing support of authorities, medical institutions, and further data analysis to standardise medical costs.

Trust and open communications between all parties will light the way standardised costs and resource allocation and, ultimately, quality patient care.

Check out this article published in the Middle East Health Magazine here

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