The pilot of implementing a diagnosis related group (DRG) payment model to inpatient hospital care, a major initiative of China’s ongoing healthcare reform, started in 2019.
Veranex has been vigilant in tracking this strategic topic given the implications on the industry and the healthcare ecosystem as a whole. In fact, our involvement in China’s payment reform dates back to 2015 with a sponsored international DRG forum co-hosted by government payers and health policymakers. Below is our latest update on the rollout of the DRG payment model in China.
Given the complexity of a prospective payment system, the current focus in China has been the development of the classification system. Not surprisingly, China is interested in developing its own classification known as the CHS-DRG, the abbreviation for China Healthcare Security Diagnosis Related Groups. However, the disease classification is based on the international classification, i.e., ICD-10 (diagnostic codes) and ICD-9-CM Volume 3 (procedural codes).
Building on progress in 2019, when 26 MDCs (Major Diagnosis Categorys) and 376 ADRGs (Adjacent Diagnosis Related Groups) were defined, the very first version [version 1.0] of the CHS-DRGs was released in June 2020. This version contains 618 groups, of which 229 are surgical procedure groups, 26 non-operation room procedure groups, and 363 internal medicine groups.
These classifications span all disease diagnoses of acute and short-term inpatient stays. This does not apply to outpatient care, rehabilitation therapies, long-term inpatient care, or psychiatric disorders.
The CHS-DRG code consists of a 4-digit number. The first three digits indicate the disease related group (or the disease classification), and the last digit indicates the existence and severity level of complications, which are currently differentiated by:
- 1 – major complications or comorbidities
- 3 – mild comorbidities
- 5 – no complications
- 7 – indicative of death or transfer to other facility
- 9 – conditions unspecified
Exhibit 1: Example of CHS-DRG 4-digit Code for Femur Fracture Procedure
The CHS-DRG code IR1 is described as “Procedure, Patient with Pelvis Fracture” and includes the following diagnoses and procedures (non-exhaustive):
S32.300 Ilium fracture
S32.310 Open ilium fracture
S32.400 Acetabular fracture
S32.410 Open acetabular fracture
S32.500×002 Pubic ramus fracture
S32.500×003 Symphysis pubis fracture
S32.510 Open pubic rami fracture
S32.700 Multiple fractures of lumbar spine and pelvis
S32.701 Multiple fractures of pelvis
S32.801 Ischial tuberosity fracture
S32.802 Pelvis fracture
S32.811 Open ischial tuberosity fracture
S32.812 Open pelvis fracture
The classification systems lay the groundwork to enable the implementation of the DRG-based payment model. Even more critical is the payment mechanism the national and local government payers are going to use for higher cost or innovative products, raising several key questions:
- “Will there be a separate coding and payment system for implants and disposables as is the case under the current FFS mechanism?”
- “If not, will there be periodic reviews and updates to the classification and payment systems in order to incorporate costs of new technologies into the DRG?”
These are just two of the questions the industry players have been asking for clarification on at this early stage. However, there is no reason to believe that the payers are going to prioritize the industry’s needs related to higher costs or new technologies. The perceived high price of drugs and devices are already a focus of payers and is considered as a key contributing factor in escalating healthcare costs overall.
Veranex works with innovative medical technology players to help clients unlock the value of innovation. Our in-market experts closely monitor the policy and market trends in strategic markets like China to stay on top of industry trends and develop strategies and action plans to capture opportunities and mitigate barriers. We will continue to monitor and provide updates on the further development of DRG payment reform and its pilot in China.