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Open Access Highly Accessed Review

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

Matthias Vogl

Author Affiliations

Helmholtz Zentrum München, German Research Center for Environmental Health, Institute of Health Economics and Health Care Management, Ingolstädter Landstraße 1, 85764 , Neuherberg, Germany

Ludwig-Maximilians-Universität München, Munich School of Management, Institute of Health Economics and Health Care Management & Munich Center of Health Sciences, Ludwigstraße 28, 80539 , München, Germany

Health Economics Review 2012, 2:15  doi:10.1186/2191-1991-2-15

Published: 30 August 2012

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.

Keywords:
Hospital reimbursement; Hospital costs; Accounting; Resource allocation; Prospective payment system; Diagnosis related groups