Do hospitals respond to decreasing prices by supplying more services?

Country-level effects of diagnosis-related groups: evidence from Germany's comprehensive reform of hospital payments

Hospitals account for about 40% of all healthcare expenditure in high-income countries and play a central role in healthcare provision. The ways in which they are paid, therefore, has major implications for the care they provide. However, our knowledge about reforms that have been made to the various payment schemes and their country-level effects is surprisingly thin. This study examined the uniquely comprehensive introduction of diagnosis-related groups (DRGs) in Germany, where DRGs function as the sole pricing, billing, and budgeting system for hospitals and almost exclusively determine hospital revenue. The introduction of DRGs, therefore, completely overhauled the previous system based on per diem rates, offering a unique opportunity for analysis. Using aggregate data from the Organisation for Economic Co-operation and Development and recent advances in econometrics, we analyzed how hospital activity and efficiency changed in response to the reform. We found that DRGs in Germany significantly increased hospital activity by around 20%. In contrast to earlier studies, we found that DRGs have not necessarily shortened the average length of stay.

Price and income effects of hospital reimbursements

Health insurance systems in many countries reimburse hospitals through fixed prices based on the diagnosis-related groups (DRGs) of patients. We quantify the effects of price and income changes for the full spectrum of hospital services as average and heterogeneous elasticities of quantities (number of admissions) and quality-related outcomes. For our empirical analysis, we use data on over 160 million hospital admissions, constituting the universe of hospital admissions in Germany between 2005 and 2016. Our identification strategy is based on instruments exploiting a two-year lag in regulatory price setting. The strategy lends itself to a placebo test demonstrating that our instruments do not have substantive anticipatory direct effects. We find that the compensated own-price elasticity of quantity is positive (0.2), while the income elasticity is negative (-0.15). On net, increasing all prices increases costs due to a behavioral response of larger quantities in addition to the mechanical increase.

Does Etanercept Biosimilar Prescription in a Rheumatology Center Bend the Medication Cost Curve?

OBJECTIVE

The market entry of biosimilars is expected to bring budgetary relief. Our objective was to determine how the introduction of biosimilars influences medication costs in patients with rheumatoid arthritis (RA) and which patients gain access to biologics due to the availability of biosimilars.

METHODS

Using hospital data of patients with RA between 2014 and 2018, an interrupted time series was performed. The interruption in the time series was placed at June 2016 (i.e., the introduction of the etanercept biosimilar). The changes in trends for rheumatic medication costs before and after the interruption were measured. Secondary analyses focused on explaining these trends.

RESULTS

In the first quarter after the interruption, there was a decrease in total costs for biologic users of -€63,020 (95% CI -€96,487 to -€29,553, P = 0.001). The postinterruption trend did not differ from the preinterruption trend (95% CI -€6695 to €6715, P = 0.998) and after 3 quarters, the medication costs were back at the interruption level. After the interruption, the average cost per biologic user decreased by -€370 (95% CI -€602 to -€138, P = 0.005), followed by a quarterly decrease (relative to the preinterruption trend; 95% CI -€86 to -€14, P = 0.010), bending the average cost curve. The percentage of patients being treated with biologics increased in postinterruption by 0.50 percentage points quarterly (95% CI 0.38-0.62, P < 0.001). Also, the average age at the start of the first biologic increased after the interruption (P = 0.057).

CONCLUSION

The average cost per patient treated with biologics decreased after the introduction of biosimilars with a persistent trend. However, the budgetary relief due to market entry of biosimilars vanished quickly due to an increase in patients treated with biologics.