Please cite this article in press as: Annear PL, et al. Pathways to DRG-based hospital payment systems in Japan, Korea, and Thailand. Health Policy (2018), https://doi.org/10.1016/j.healthpol.2018.04.013 ARTICLE IN PRESS G Model HEAP-3897; No. of Pages 7 Health Policy xxx (2018) xxx–xxx Contents lists available at ScienceDirect Health Policy j our na l ho me page: www.elsevier.com/locate/healthpol Pathways to DRG-based hospital payment systems in Japan, Korea, and Thailand Peter Leslie Annear a , Soonman Kwon b,∗ , Luca Lorenzoni c , Stephen Duckett d , Dale Huntington e , John C. Langenbrunner f , Yuki Murakami c , Changwoo Shon b , Ke Xu g a Nossal Institute for Global Health, School of Population and Global Health, University of Melbourne, Australia b School of Public Health, Seoul National University, Republic of Korea c OECD, Paris, France d The Grattan Institute, University of Melbourne, Australia e Johnson and Johnson, Singapore f Consultant, USA g World Health Organization, Geneva, Switzerland a r t i c l e i n f o Article history: Received 27 October 2016 Received in revised form 21 March 2018 Accepted 30 April 2018 Keywords: DRG Diagnosis-related groups Case-based payment Hospital payment system a b s t r a c t Countries in Asia are working towards achieving universal health coverage while ensuring improved quality of care. One element is controlling hospital costs through payment reforms. In this paper we review experiences in using Diagnosis Related Groups (DRG) based hospital payments in three Asian countries and ask if there is an ¨ Asian way to DRGs ¨ . We focus first on technical issues and follow with a discussion of implementation challenges and policy questions. We reviewed the literature and worked as an expert team to investigate existing documentation from Japan, Republic of Korea, and Thailand. We reviewed the design of case-based payment systems, their experience with implementation, evidence about impact on service delivery, and lessons drawn for the Asian region. We found that countries must first establish adequate infrastructure, human resource capacity and information management systems. Capping of volumes and prices is sometimes essential along with a high degree of hospital autonomy. Rather than introduce a complete classification system in one stroke, these countries have phased in DRGs, in some cases with hospitals volunteering to participate as a first step (Korea), and in others using a blend of different units for hospital payment, including length of stay, and fee-for-service (Japan). Case- based payment systems are not a panacea. Their value is dependent on their design and implementation and the capacity of the health system. © 2018 Elsevier B.V. All rights reserved. 1. Introduction Many countries in Asia have introduced, piloted or are now considering the introduction of case-based payment mechanisms, including Diagnosis-Related Groups (DRGs), with a view to increas- ing efficiency in hospital funding. In most Asian countries hospital funding is based on pre-existing fee-for-service (FFS) methods or, in the case of public hospitals, line-item budgeting [1]. The FFS meth- ods often encourage an oversupply of services in order to increase utilization and revenue; fixed capitation payment systems can have the perverse effect of reducing inputs in order to reduce costs below the capitation level; and line-item budgeting may encourage rigid- ∗ Corresponding author. E-mail address: kwons@snu.ac.kr (S. Kwon). ity, low productivity and low responsiveness in service delivery. Moving towards universal health coverage requires that hospitals are efficient and that out-of-pocket payments for hospital services are constrained [2,3,4]. To improve both allocative and technical efficiency, managing hospital costs is critical in both high-income and in low- and middle-income countries (LMICs). Diagnosis-Related Groups (DRGs) are one example of case- based or activity-based funding (ABF) arrangements [5]. DRG-based payment systems adopt a standard pricing framework that pro- vides equity in payments across health-care providers for services of the same kind. DRGs, therefore, provide a technical means for achieving more efficient management and financing of pub- lic and/or private hospital services and are often linked both with social health insurance and with government funding mechanisms. However, careful implementation is required as planners are often faced with unintended consequences they did not anticipate [6]. In https://doi.org/10.1016/j.healthpol.2018.04.013 0168-8510/© 2018 Elsevier B.V. All rights reserved.