China Aims to Complete Transition to DRG Payment Model for Inpatient Care by 2024

In November 2021, the Chinese government announced its 3-year (2022-2024) payment reform plan with the end goal to fully implement a diagnosis related group (DRG) payment model for inpatient care. Under the government’s 3-year plan, a specific target of 70% of government funded inpatient care costs would need to be paid using the DRG model by the end of 2024.

Discussions on a transition from a fee for service (FFS) to DRG payment model started back in 2018/2019 when the National Healthcare Security Administration announced a pilot phase that would run from 2019 to 2021.

As the policymakers’ intention is to shift financial risk to the hospitals to slow down the ever-increasing healthcare expenditure, we will need to examine the extent to which provider behavior changes around purchasing and prescribing with implementation of the DRG payment model. We have already heard from some hospital lab physicians working in the pilot sites that test volumes have decreased by approximately 15% since the DRG pilot started.

Providers with hospital or departmental budget responsibilities will now likely have a different mindset and economic model when evaluating a new technology or a new supplier. As a result, the industry, i.e., the device manufacturers and innovators, must be prepared not only to revisit the value proposition for an existing product that now needs to resonate with the payers and/or the providers within the new DRG payment context, but also to rethink the new product development strategies and rationales for customers, especially given the change in practitioners’ economics and incentives. Under the DRG model, Chinese payers and care providers may begin to appreciate and embrace a more holistic approach toward pricing such as VBP (value-based pricing).

Veranex, as an integrated service provider for the medical device industry, is well positioned to take our in-depth understanding of ongoing policy changes and market trends around the globe to product design and evidence development processes to help Veranex customers achieve successful commercialization.

Read our previous posts on the topic.

August 2019

November 2020