Global Budget Payment with Diagnosis-Related Group Payment : Approach and International Experiences

Overview & Synopsis

The diagnosis-related group (DRG) payment mechanism alone is not expected to control cost escalation. The DRG payment is expected to motivate hospital providers to improve efficiency in provision of care for cases in the same DRG. Global budget payment sets an upper limit or cap on payments to providers. Global budget payment uses an upper limit or cap to incentivize a provider to manage cases within the set limit or face reimbursements with lower cost recovery levels for services exceeding the cap. The limit can be set on total case mix (a measure of severity-adjusted volume), provider volume, or total payments to a provider. However, caps, regardless of how strictly they are enforced in terms of downside risk to providers, may lead a provider to select healthier patients (cream skimming). Caps may also lead to delays, stinting, and longer waiting times for services, such as elective surgery.