Basics of the Financing System for Hospitals in Germany

1. Basics of the Financing System for Hospitals in Germany HOPE – President’s Committee Pärnu, Estonia - 07 May 2007 Georg Baum, Director General German Hospital Federation

2. The German Hospital Federation • The German Hospital Federation represents hospitals in all health policy decisions and is the partner of politicians, institutions, associations and scientific groups. • As a national association, the German Hospital Federation represents 28 member associations: • 16 state associations, • 12 national organisations.

3. „German Experiences with the Implementation of a DRG-System“ Hospital Data Germany (2003)

4. „ German Experiences with the Implementation of a DRG-System“ German Hospital Sector in Comparison, approx. 2002 Sources: OECD, 2004; Federal Statistical Office 2004 (* Data for 2002); Basys (Eu15), 2004.

5. The system of hospital financing

6. General framework of the hospital system

7. „ German Experiences with the Implementation of a DRG-System“ Ownership of hospitals in Germany

8. „ German Experiences with the Implementation of a DRG-System“ Number of beds in 2003 according to hospital owners

9. The system of hospital financing • The principle of dual financing (introduced in 1972) • Investments (capital costs) are financed through the States • Assets with an average economic life of more than three years • Running costs are financed through the sickness funds(55 Billion E) • The financing through the States is effected by • Flat-rate grants (usually in relation to the number of beds) • Case-by-case grants • Total 2.7 Billion E • Special rules for university hospitals.

10. „ German Experiences with the Implementation of a DRG-System“ Changes in the remuneration system of German hospitals

11. „German Experiences with the Implementation of a DRG-System“ Targets of the G-DRG-Implementation More transparency, efficiency, quality • Improved performance-oriented reimbursement, better allocation of financial resources • Improved internal and external comparability of in-patient services • Utilisation of additional profitability reserves (LOS, optimisation of operational and organisational structure)

12. Main players „German Experiences with the Implementation of a DRG-System“  Self-government partner * Associations sickness-funds * Associations of Hospitals * together with DRG-Institute www.g-drg.de • Ministry of Health www.bmgs.bund.de * takes over if negotiations on level of self-government fail • DIMDI for ICD + ICPM (OPS) www.dimdi.de * federal agency under Ministry responsibility

13. Keyelements „German Experiences with the Implementation of a DRG-System“ DRG Value – each DRG has a relative weight in comparison to the cost of other cases that is adjusted each year up to seven comorbidity splits are possible calculation of relative cost-weights nationwide (real costs) price-setting via base rate (statewide)

14. Steering elements „German Experiences with the Implementation of a DRG-System“  annual negotiation of the statewide base rate * wage-rate as growth limitation * increase of cases reduces the growth of base rate annual adjustment of the system * annual cost-monitoring with new calculations and * clinical adjustments incl. adopting new procedures and new technologies

15. „German Experiences with the Implementation of a DRG-System“ Calculation Basis 2005 • Number of hospitals 148 • Total number of cases used 2,5 Mio. (ca. 15 %)

16. AR-DRG 4.1 G-DRG 1.0 G-DRG 2004 G-DRG 2006 G-DRG 2005 664 Case Groups 824 DRGs National CW 25 additional fees (1 calc.) 845 DRGs Refined National CW 71 additional fees 664 DRGs National CW 954 DRGs Refined National CW 83 additional fees „German Experiences with the Implementation of a DRG-System“ The road to a German DRG-System 30/6/2000: Decision made by Selbstverwaltung (self-administration) Selection of the Australian AR-DRG version 4.1 Source Result 2003 Result 2004 Result 2005 Result 2006

17. From the budget system to DRGs Schedule for implementation of DRGs From individual budgets to a uniform price system on state level Uniform Prices Budget Neutrality Individual Base rates Convergence Phase 2005 2003 2004 2008 2009 Optional Year

18. 1% Upper limit of adjustment in % of hospital budget 15% 1,5% expensive hospitals 20% 2% 20% adjustment-rates for hospital budgets 2,5% 20% 3% 25% Budgets /hospital individual base-rates state-wide base-rate 25% 20% low-price hospitals 20% 20% 15% 1.1.2003 1.1.2004 1.1.2005 1.1.2006 1.1.2010 1.1.2007 1.1.2008 1.1.2009 Convergence Phase Budget Neutrality 2003 Optional Year - voluntary DRG-billing - 95% budget-loss compensation - 75% budget-exceed comp. - Notification period 31.10.2002, prolonged till 31.12.2002 (exemption from zero-growth) 2004 Compulsory DRG-billing - 40% budget-loss comp. - 65% budget-exceed comp. • - stage to stage adjustment of budgets/hospital individual base-rates to state-wide base-rates: 2005: 15% , 2006-2008: each with 20%, 2009: 25% • for expensive hospitals rising upper limit of adjustment in percent of hospital budget: from 1% in 2005 till 3% in 2009 „German Experiences with the Implementation of a DRG-System“ Schedule for the G-DRG-Implementation

19. From the budget system to DRGs • Functionality of the convergence phase • Budget neutrality until the year 2004 (DRGs are brought to account by individual base rates) • From 2005 the individual base rates will be assimilated to uniform base rates according to the States • The process of assimilation takes 5 years with steps of 15, 20, 20, 20 and 25 percent. • The reduction of a hospital budget is limited to 1.0, 1.5, 2.0, 2.0 and 3.0 percent in these years. • In 2009 uniform base rates on State level

20. From the budget system to DRGs

21. The DRG financing system • Elements of hospital financing • Uniform cost weights or prices on national level • case-related relative cost weights for defined case groups (DRGs) • per diem cost weights for reduction for short-term treatments and transferred patients • per diem cost weights for surcharges for outliers • additional fees with uniform prices • supplements for assisting persons • reduction for hospitals not participating in medical emergency service

22. The DRG financing system • Individuel Elements of hospital financing • Individually negotiated prices between hospitals and health insurers • DRGs without uniform cost weights • additional fees without uniform prices • fees for semi-in-patient treatments • financing of separately defined institutions • additional fees for innovations in diagnostics and treatments • Individual cost weights in the case of highly specialized health care • supplements to secure care in isolated areas • supplements for centres with specialized tasks

23. Results • The DRG-system is nation-wide introduced. • 96% of the hospitals account with DRGs • More than 50 Billions E and 15 Mio.cases • Besides US highest rate in world • It is accepted by the major stakeholders. • Only some doctors-associations are in worry of the“ economisation“ • No more money. • The spendings of the funds for hospitals) increased not more than in the past. • More winners than loosers • About 60% of the hospitals have increasing base-rates in the convergenz-process • The loosing hospitals are primarily the great hospitals (maximum providers) • Due to the anual adjustments in calculation-methods and medical differentiations the high level treatments are much better weighted – some loosers became winners !

24. Results The efficiency of our hospitals increased Incentive to make profits – the need to prevent deficits Cost-transparency and the higher comparability caused a lot of activities to gather a better performance Reduction of people working in hospitals - but more doctors l.o.s. declines continiously Portfolio adjustments Spezialisations and corporations with other hospitals (common drug-supply or IT) Hospital-fusions / public to privat More activities in the out-patient treatments and corporations with office based doctors

25. Results • Quality did not suffer • There are no negative reports or bloody releases known • Increase of quality insurance activities due to new rules

26. „German Experiences with the Implementation of a DRG-System“ Further frameworks must be decided • From statewide base rates to nation-wide? Our postion: we need more time • Base rate as administered prices or reference-price withnegotiation options for the individual hospitals withindividual sickness funds? Our postion: administered fixed prices • One common budget with all funds or selected contracts Our position: common Integrating capital-investment financing in the DRGs From dualistic to monistic

27. Our central problems The new system is better than the old - but it protects not against unexpected cost-contain measures of the government The latest health care reform act introduced a price-reduction of 0,5% in 2007/8 total 380 Mio. E every year Since 10 years there is a steady decline in the investment-money which the regional states provide – hospitals have to help themself The costs increase faster than the revenues • Doctor wages increased • VAT-increased • Energy-costs a.s.o

28. New forms of intersectoral cooperation • Contact: • Deutsche Krankenhausgesellschaft e.V. • Wegelystraße 3 • 10623 Berlin • Tel: +49 (0)30 – 39801 1000 • Fax: +49 (0)30 – 39801 3011 • Mail: mail@dkgev.de • Internet: www.dkgev.de

29. THANK YOU VERY MUCH FOR YOUR ATTENTION !