Case-based hospital financing: the case of Norway

Several European countries are experimenting with new ways of organising and financing the hospital sector. This paper discusses the present Norwegian reform, where a system of fixed grants is replaced by a combination of payment per case and fixed grants. Initially implemented in four hospitals only, the decision to move to a full-scale reform will be based on the evaluation of this pilot project. The paper presents two alternative hypotheses on how a system with case-based financing will influence the performance of hospitals. Given that hospitals adjust passively to the constraints imposed by the financing system, increased efficiency is to be expected. If hospitals and hospital owners (i.e. the counties) interact in a game dominated by the hospital, however, the efficiency of the hospital will not be influenced by the financing system. We argue that the design of the pilot project limits the possibility of discriminating between these two hypotheses. Nevertheless, a comparison of key variables in the pilot hospitals with a set of reference hospitals indicates that the change of financing system has not had any substantial effect on hospital efficiency. Thus we are inclined to believe that hospitals in fact are able to set the level of efficiency independent of whether they are financed by fixed grants or a payment per case.