The pilot of a new patient classification-based payment system in China: The impact on costs, length of stay and quality

With the urgent need to regulate provider behaviors, China developed a novel patient classification with global budget payment system, expecting to achieve both easy implementation and cost containment. The new system, called “diagnosis-intervention packet (DIP)” payment, is based on a deterministic patient classification approach, which groups patients according to the combination of principal diagnosis ICD-10 (International Classification of Diseases, 10th Revision) codes and procedure ICD-9-CM3 (International Classification of Diseases, 9th Revision, Clinical Modification) codes and links each group to relative historical costs market-wide. This study investigated the impact of the DIP-based payment on inpatient costs, length of stay, and quality of care in the largest DIP pilot city of China. In 2018, the city changed from the “fixed rate per admission with a cap on annual total compensation” policy to DIP with global budget for all insured inpatients. A difference-in-differences approach was employed to identify changes in outcome variables before and after the DIP policy among insured relative to uninsured patients. We found an average of 8.5% (p = 0.000) increase in inpatient costs per case (as intended), trivial changes in length of stay, and a 3.6% (p = 0.046) reduction in postoperative complication rate in response to DIP adoption among patients with high severity. Our findings suggested that the DIP-based payment helped regulate provider behaviors when treating high-risk patients. And the new payment has the potential for rapid rollout in resource-limited areas where lack a uniform coding practice or high-quality historical data.