1. DEUTSCHEKRANKENHAUSGESELLSCHAFT 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. DEUTSCHEKRANKENHAUSGESELLSCHAFT Georg Baum 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. DEUTSCHEKRANKENHAUSGESELLSCHAFT Georg Baum German Experiences with the Implementation of a DRG-System „German Experiences with the Implementation of a DRG-System“ Hospital Data Germany (2003)

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

5. DEUTSCHEKRANKENHAUSGESELLSCHAFT Georg Baum The system of hospital financing

6. DEUTSCHEKRANKENHAUSGESELLSCHAFT Georg Baum General framework of the hospital system

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

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

9. DEUTSCHEKRANKENHAUSGESELLSCHAFT Georg Baum 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. DEUTSCHEKRANKENHAUSGESELLSCHAFT Georg Baum Changes in the remuneration system of German hospitals German Experiences with the Implementation of a DRG-System „ German Experiences with the Implementation of a DRG-System“

11. DEUTSCHEKRANKENHAUSGESELLSCHAFT Georg Baum 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) German Experiences with the Implementation of a DRG-System „German Experiences with the Implementation of a DRG-System“

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

13. DEUTSCHEKRANKENHAUSGESELLSCHAFT Georg Baum Keyelements 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) German Experiences with the Implementation of a DRG-System „German Experiences with the Implementation of a DRG-System“

14. DEUTSCHEKRANKENHAUSGESELLSCHAFT Georg Baum Steering elements  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 German Experiences with the Implementation of a DRG-System „German Experiences with the Implementation of a DRG-System“

15. DEUTSCHEKRANKENHAUSGESELLSCHAFT Georg Baum Calculation Basis 2005  Number of hospitals 148  Total number of cases used2,5 Mio. (ca. 15 %) German Experiences with the Implementation of a DRG-System „German Experiences with the Implementation of a DRG-System“

16. DEUTSCHEKRANKENHAUSGESELLSCHAFT Georg Baum 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 AR-DRG 4.1 664 Case Groups G-DRG 1.0 664 DRGs National CW Result 2004 G-DRG 2004 824 DRGs National CW 25 additional fees (1 calc.) Result 2005 G-DRG 2005 845 DRGs Refined National CW 71 additional fees German Experiences with the Implementation of a DRG-System „German Experiences with the Implementation of a DRG-System“ G-DRG 2006 954 DRGs Refined National CW 83 additional fees Result 2006

17. DEUTSCHEKRANKENHAUSGESELLSCHAFT Georg Baum Schedule for implementation of DRGs Optional Year 2003 20042008 2005 From individual budgets to a uniform price system on state level Budget Neutrality Individual Base rates Convergence Phase 2009 Uniform Prices From the budget system to DRGs

18. DEUTSCHEKRANKENHAUSGESELLSCHAFT Georg Baum 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) Budget Neutrality Convergence Phase 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 expensive hospitals state-wide base-rate Budgets / hospital individual base-rates 1.1.20101.1.20031.1.20041.1.20051.1.2006 1.1.20071.1.2008 1.1.2009 Upper limit of adjustment in % of hospital budget 1% 1,5% 2% 2,5% 3% 15% 20% 25% 15% 20% 25% adjustment-rates for hospital budgets low-price hospitals Schedule for the G-DRG-Implementation German Experiences with the Implementation of a DRG-System „German Experiences with the Implementation of a DRG-System“

19. DEUTSCHEKRANKENHAUSGESELLSCHAFT Georg Baum 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 From the budget system to DRGs

20. DEUTSCHEKRANKENHAUSGESELLSCHAFT Georg Baum From the budget system to DRGs

21. DEUTSCHEKRANKENHAUSGESELLSCHAFT Georg Baum 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. DEUTSCHEKRANKENHAUSGESELLSCHAFT Georg Baum 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 The DRG financing system

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

26. DEUTSCHEKRANKENHAUSGESELLSCHAFT Georg Baum 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 with negotiation options for the individual hospitals with individual 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 German Experiences with the Implementation of a DRG-System „German Experiences with the Implementation of a DRG-System“

27. DEUTSCHEKRANKENHAUSGESELLSCHAFT Georg Baum 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. DEUTSCHEKRANKENHAUSGESELLSCHAFT Georg Baum 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. DEUTSCHEKRANKENHAUSGESELLSCHAFT Georg Baum THANK YOU VERY MUCH FOR YOUR ATTENTION !