In many countries, including the United States and the United Kingdom, hospitals are paid per admission by payers (ie, commercial insurers and governments), with more reimbursement for treating more severely ill patients and lower reimbursement for treating lesser ill patients. This system is known as the Diagnosis-Related Group (DRG) system in the United States because the DRG is used to assess the severity of admissions and the level of hospital reimbursement.In England, changes to the system are implemented as described Aragon et al. (2022):

Beginning in 1989, the purchaser’s intent was to enter into contractual agreements with hospitals and to determine for themselves the specific form of these agreements. However, the system of setting hospital-level budgets – known in NHS procurement terminology as monolithic contracts – tends to persist, although procurement should move towards activity-related payments. So, starting in 2003, the DRG system we were working on started rolling out.In the NHS this is called [Payment by Results] PBR is functionally a DRG system. Patients treated in hospitals are assigned to a category called HRG, which is identical in purpose and definition to DRG. The hospital pays a fixed, national price for each patient in each HRG. Relevant to our study, the system differentiated between patients who were hospitalized in advance (called elective treatment) and those who were admitted to the hospital in an emergency (called emergency cases either through the emergency department or by their physicians)

To examine the impact of implementing a DRG system on length of stay (LOS), the authors used data from the Hospital Seizure Statistics (HES) data set of admitted patients in England, and for their control group, the authors used equivalent data from Scotland, saying 01 was recorded for Scottish incidence. From these data, the authors used a variety of econometric norms, including difference-in-difference (DiD), integrated control (SC), and interrupted time series (ITS).Because they found that the SC approach did not fit well in the pre-policy period, the authors applied the Arkhangelsky et al., 2019; This approach adjusts for bias due to poor pre-policy fit. The following table lists the advantages and disadvantages of each econometric method:

Using this approach, the authors found:

For elective care, we estimated the long-term effect (measured in 2013) using the DiD and ITS methods to be between -1.4 and -0.7 days. SDID gives an estimate of -0.4. These figures represent a decrease of 35% to 70% relative to the 2002 average service level. For urgent care, overall results ranged from -1.4 to -3 days, representing a 14% to 30% reduction in LOS relative to the 2002 average. In contrast, the initial impact for the period 2003-2005 was small and borderline significant. In particular, the outcome of emergency treatment is not well established at this early stage.

While it is not surprising that the LOS decreased after implementing the DRG system, it is interesting that it took some time for the hospital to fully implement this shorter LOS. Potentially, changing management practices will take time for staff to understand how to discharge patients more quickly while minimizing any impact on the quality of patient care.