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Financial Heterogeneity During Early Diagnosis-Related Group Payment Reform: A Two-Year Hospital-Based Study
Wei Shao1,2, Lixin Shu3, Xufang Wang3
1Department of Pharmacy, Liaoning Institute of Basic Medical Sciences, Shenyang, 110101, People's Republic of China.
Risk Management and Healthcare Policy
|August 14, 2026
Summary
China's diagnosis-related group (DRG) reform showed improved financial alignment in its early phase, with fewer loss-making cases. However, significant financial heterogeneity across DRGs persists, highlighting ongoing challenges in DRG-based payment implementation.
Area of Science:
- Healthcare Economics
- Health Services Research
- Public Health Policy
Background:
- China's national diagnosis-related group (DRG) reform aims to enhance healthcare efficiency and financial risk alignment.
- Empirical evidence on the early implementation of DRG-based payment in China is limited.
- Understanding financial heterogeneity and loss factors is crucial for successful reform.
Purpose of the Study:
- To assess financial heterogeneity across diagnosis-related group (DRG) categories during the early implementation of DRG-based payment in China.
- To identify factors associated with financial loss in inpatient encounters under the new payment system.
- To evaluate changes in financial deviation and loss-making cases over the initial implementation period.
Main Methods:
- Retrospective analysis of 64,864 inpatient encounters from a Shanghai tertiary teaching hospital (2023-2024).
- Assessment of financial deviation using absolute and relative measures, comparing DRG-predicted payment to actual costs.
- Multivariable logistic regression to identify factors predicting financial loss, with sensitivity analyses.
Main Results:
- The proportion of loss-making cases decreased from 38.9% in 2023 to 28.8% in 2024, indicating improved financial alignment.
- Significant financial heterogeneity persisted across DRGs, with variations in improvement and deterioration observed.
- Longer length of stay (LOS) increased the likelihood of financial loss (OR=1.075), while older age decreased it (OR=0.996).
Conclusions:
- DRG-based payment demonstrated improved financial alignment in its second year of implementation, but substantial heterogeneity across DRGs remains.
- Length of stay (LOS) continues to be a significant predictor of financial loss under DRG payment.
- Findings offer hospital-level insights into financial risk variation during early DRG implementation, with limitations on generalizability.
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