Payment systems and considerations of case mix--are diagnosis-related groups applicable in Japan?

Cost containment is a large concern. Japanese medical institutions operate on a fee-for-service basis, giving few incentives for healthcare providers to control the number of procedures performed or to save the healthcare costs. Thus, the objective of this study was to determine the feasibility of applying diagnosis-related groups (DRGs) in Japan, since systems that employ DRGs provide these incentives.

Three types of data (patient discharge, hospital cost and hospital characteristics data) were collected from 17 acute general hospitals in Japan. These data were used to calculate variance (R2) for length of stay for each of 3 US-based DRG systems [health care financing administration (HCFA)-DRG, all-patient (AP)-DRG, all-patient refined (APR)-DRG] in order to determine which of the systems is most appropriate for use in Japan to classify patients. We also examined the financial impact for hospitals through budget simulations when DRG is used as a payment tool.

Of the DRG alternatives examined, we have found that the AP-DRGs are the preferred alternative. The data in Japan are not sufficiently complete to support the APR-DRGs, and we believe that the HCFA-DRGs are not as clinically sophisticated as the AP-DRGs and may not be as well accepted by the medical community. As there is a clear intention in Japan of developing Japanese-specific DRGs, the AP-DRGs represent a sound starting point for this effort. Our work demonstrates that basing payments on DRGs is partially feasible for Japan. This means that the treated case was found to be feasible as the unit of payment.

Changing to a prospective payment system in Japan will give hospitals powerful incentives to become more efficient. This, in turn, will open hospital capacity, which should assist Japan in providing the care needed by an aging population in a cost-effective way.