April 15, 2015

Tapering mechanisms for hospital payment

Tapering payments in hospitals

In Germany, payment to hospitals is based on DRGs. This means that there are some estimateas of specific relative weights and an expected volume of cases. The base rate is the pivotal element of the system. Health insurers want to avoid any surprise on their budget ceilings. Therefore some criteria in paying hospitals is the key to accomplish the budget. And what they do is the following:
Any increase in activity volume (based on the case-mix) compared to year t-1 within the range of negotiated volumes for year t is reimbursed at rate tapered by 25% (rate in force in 2013 and 2014) 
The tapering criteria is also known in our country as marginal payments, the amount that it is paid beyond a certain ceiling of discharges or visits.
Tapering is always controversial, because it may be applied to volume or to the costs (through shrinking the base rate). In both situations it is difficult to have a clear verdict of wether there is too much suplier induced demand, or just an epidemic (?).
Therefore if appropriateness criteria are not in place, the result can be anything but the fair: penalising efficient hospitals or incentivising waste.
I have always been concerned about marginal payments. A recent OECD report on this topic describes current practices and puts some caution in its application. As far as this is the first report that informs us about these practices, I specially recommend it to those officials reponsible for the issue.

PS. OECD Graph of the month. Slowdown in health spending in Europe has affected all spending categories, particularly pharmaceuticals and prevention