China Payment Reform: 2020 Update

by | Nov 1, 2020 | Blog

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

Exhibit 2: Example of CHS-DRG for IR1

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:

  1. “Will there be a separate coding and payment system for implants and disposables as is the case under the current FFS mechanism?”
  2. “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.