Elsevier

Health Policy

Volume 109, Issue 3, March 2013, Pages 290-300
Health Policy

Improving patient-level costing in the English and the German ‘DRG’ system

https://doi.org/10.1016/j.healthpol.2012.09.008Get rights and content

Abstract

Objectives

The purpose of this paper is to develop ways to improve patient-level cost apportioning (PLCA) in the English and German inpatient ‘DRG’ cost accounting systems, to support regulators in improving costing schemes, and to give clinicians and hospital management sophisticated tools to measure and link their management.

Methods

The paper analyzes and evaluates the PLCA step in the cost accounting schemes of both countries according to the impact on the key aspects of DRG introduction: transparency and efficiency. The goal is to generate a best available PLCA standard with enhanced accuracy and managerial relevance, the main requirements of cost accounting.

Results

A best available PLCA standard in ‘DRG’ cost accounting uses: (1) the cost-matrix from the German system; (2) a third axis in this matrix, representing service-lines or clinical pathways; (3) a scoring system for key cost drivers with the long-term objective of time-driven activity-based costing and (4) a point of delivery separation.

Conclusion

Both systems have elements that the other system can learn from. By combining their strengths, regulators are supported in enhancing PLCA systems, improving the accuracy of national reimbursement and the managerial relevance of inpatient cost accounting systems, in order to reduce costs in health care.

Section snippets

Introduction: DRG patient-level costing

Both the English health care resource group (HRG) system [1] and the German diagnosis related groups system (G-DRG) [2] is used for national reimbursement calculation, and they influence management decisions in hospitals. The accuracy of reimbursement and the practical relevance of the standardized cost accounting schemes are dependent on precise case-based cost apportioning. DRGs serve as the basis for budgeting and cost control in hospital management [3]. Thus, the full costs of the complete

Conceptual framework and method

This paper claims not to analyze the whole inpatient cost accounting systems of England and Germany for national tariff calculation (therefore see [13], [14], [26], [27]). It focuses on the most controversial and demanding stage: cost apportioning at patient-level. The conceptual framework for this study is the G-DRG cost accounting scheme according to the InEK handbook for calculation [8] and the publications from the Department of Health and Monitor on PbR costing and management schemes

English patient-level cost apportioning

The mandatory HRG costing scheme follows a top-down approach and is defined by the costing manual from the Department of Health [15], summarized by Epstein et al. [14], [26]. General ledger costs are apportioned until costs are distributed to high-level control totals. Thus, costs are apportioned directly to specialties, services or patients. If this is impossible (e.g., for indirect costs and overheads), cost pools consisting of related apportioned costs and related direct cost-centers are set

German patient-level cost apportioning

Before the patient-level cost apportioning on all direct cost-centers (patient contact) is performed, all DRG-relevant costs on indirect cost-centers (no patient contact, e.g., management) are apportioned to direct cost-centers in a way that takes the service exchange between indirect cost-centers and direct cost centers into account. Cost drivers for the apportioning of costs between cost-centers (e.g., the number of cases for the apportioning of administrative costs) follow the method of

Comparison of the patient-level cost apportioning methodologies

To compare the G-DRG scheme and the PbR scheme, only organizations that perform PLICS (and in some categories SLR) can be compared. According to a Chartered Institute of Management Accountants study, 17% of all providers in the PbR system participating in the survey currently use highly detailed PLICS systematics; this is comparable to the 16% of calculation hospitals in the G-DRG system [20], [33]. The remainder uses SLR or only the mandatory costing guidelines, both less accurate, and not

A best available patient-level cost apportioning standard

Materiality by quality score/relative value units/key cost drivers. Participation rates in patient-level cost accounting of around 16–17% in the PbR and G-DRG systems cause representativeness issues in reimbursement calculation. The technical and most common reason for non-participation is that hospitals do not have the cost accounting prerequisites to calculate accurately at the patient-level [7]. The PbR system uses a stepwise integration of all providers in a partially standardized

Advantages and limitations of the best available standard

Without this best available standard, the measurement of process efficiency in terms of capacity utilization is weak. Transparency is limited. Resource planning and management at several aggregation levels (customers/products/channels/segments/processes) is a characteristic of a high-quality cost apportioning methodology [11]. The best available standard enables similar aggregation levels in hospitals: patient/DRG/DRG group/department/service-line. However, there are costing recommendations

Conclusion

Improving and harmonizing inpatient cost accounting in Europe is a current topic for stakeholders in the health policy literature, especially for regulators [8]. The analysis of several DRG systems in Europe [8] shows that this new costing scheme, combining the most sophisticated elements from both the English PbR scheme and the G-DRG scheme is applicable in general in many European countries. For example, the French DRG costing scheme [56], [57] or the Dutch DBC costing scheme [58], [59] is

Acknowledgment

Special thanks go to Dr. Anja Kern from the Health Management Group, Imperial College Business School, London, for providing valuable inputs on the English costing schemes.

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