Assessing DRG cost accounting with respect to resource allocation and tariff calculation: the case of Germany

Abstract

The purpose of this paper is to analyze the German diagnosis related groups (G-DRG) cost accounting scheme by assessing its resource allocation at hospital level and its tariff calculation at national level. First, the paper reviews and assesses the three steps in the G-DRG resource allocation scheme at hospital level: (1) the groundwork; (2) cost-center accounting; and (3) patient-level costing. Second, the paper reviews and assesses the three steps in G-DRG national tariff calculation: (1) plausibility checks; (2) inlier calculation; and (3) the "one hospital" approach. The assessment is based on the two main goals of G-DRG introduction: improving transparency and efficiency. A further empirical assessment attests high costing quality. The G-DRG cost accounting scheme shows high system quality in resource allocation at hospital level, with limitations concerning a managerially relevant full cost approach and limitations in terms of advanced activity-based costing at patient-level. However, the scheme has serious flaws in national tariff calculation: inlier calculation is normative, and the "one hospital" model causes cost bias, adjustment and representativeness issues. The G-DRG system was designed for reimbursement calculation, but developed to a standard with strategic management implications, generalized by the idea of adapting a hospital's cost structures to DRG revenues. This combination causes problems in actual hospital financing, although resource allocation is advanced at hospital level.

Figure 1

Goals in the G-DRG costing process.

Figure 2

The cost accounting scheme in the G-DRG system, Source.[15].

Figure 3

The cost-matrix for every case, Source[15]. Notes: Cost-centers and cost categories are merged to the cost-center groups and cost category groups shown in the cost-matrix. Costs are allocated to cases according to the key cost drivers for cost modules shown in the cost-matrix.

Figure 4

R² over time (based on each year’s G-DRG system), Source[6,22,25-30].

Figure 5

The Coefficient of Homogeneity over time (based on each year’s G-DRG system), Source[6,22,25-30].