A Normative Legal Framework for Diagnosis-Related Group Financing of Acute Hospitals: Reconciling Efficiency, Quality, Equity, Integrity and European Health-Data Law
Abstract Diagnosis-related group (DRG) financing replaces reimbursement of hospitals’ reported expenditure with prospective payment for clinically defined categories of inpatient cases. Properly designed, it can improve cost awareness, comparability, transparency and technical efficiency. Its incentives are nevertheless incomplete. Because hospitals may retain savings when the cost of treating a patient is below the applicable DRG tariff, they may also have incentives to increase admissions, select financially attractive patients, classify cases into higher-paying groups, discharge patients prematurely, reduce clinically necessary inputs or shift costs to other providers. A humane and legally sustainable DRG system must therefore be designed as a regulated form of strategic purchasing rather than as a stand-alone price mechanism (e.g. public and/or private health insurance). In this essay I intend to derive the governing principles of such a system from World Health Organization (...