Hospital financing reform and case-mix measurement: an international review

Health Care Financing Review, Summer, 1992 by Miriam M. Wiley

In this pilot project, it is recognized that in addition to the introduction of the appropriate incentives, the achievement of project objectives will also require improvements in the information systems, particularly the financial systems, operating in the hospitals. To safeguard quality of care within the new funding arrangements, a central peer review group has been established with a mandate to detect possible poor quality of care and to ensure that hospitals perform in accordance with the intentions of the project (Slattebrekk, 1991).

Following the completion of the pilot test, external evaluators will be asked to report on achievements in productivity, quality, and management in the test sites. On the basis of this evaluation, a decision will be made by the Norwegian government on the expansion of this reform throughout the hospital system.

Portugal

Portugal has a centralized health care system that is primarily financed from tax revenues. As dominant payer and provider of hospital services, the government provides 87 percent of hospital revenues and owns 80 percent of all hospital beds (Bentes et al., 1991). Inpatient care provided under NHS is funded on the basis of prospectively determined budgets allocated to hospitals on an annual basis.

In 1981, the Portuguese Government made a commitment to the principle of output-based funding for hospital care within the constraint of overall budget neutrality. An important concern underlying this commitment was "to rationalize the process of distributing a central budget to hospitals, which is determined by a political and social process largely external to the health sector itself" (Bentes et al., 1991). The pursuit of this objective led the Ministry of Health in 1984 to study the feasibility of using the DRG system as a framework for the definition of the hospital product. Encouraging results from this study resulted in the study being extended to all public acute care hospitals, and in 1987 a plan was developed to undertake major revisions in the funding of hospital care (Bentes et al., 1989).

Following an extensive research and development program involving the development of hospital information systems, the updating of coding systems, and the introduction of training and education programs, a resource allocation model within which a designated proportion of the hospital budget is estimated on a case-mix, DRG, basis, was put in place in 1990 (Bentes et al., 1991). The model applied may be summarized as follows:

"Appropriations for each hospital for inpatient care

under the National Health Service are determined by

multiplying its expected number of cases times its

case-mix index and times its base-rate which is partly

related to the hospital's specific costs. Adjustments

to the budget allocations are applied to account for

outlier and transfer cases and to ensure overall

neutrality of the NHS budget" (Bentes and

Gonsalves, 1992).

Key features of this model, therefore, include: projecting hospital activity, estimating the case-mix index and the base rate, and determining adjustments for outliers, transfers, and budget neutrality.