DRG (Diagnosis-Related Group) and DIP (Diagnosis-Intervention Packet) have been introduced since 2021 as payment models implemented by the Chinese healthcare system, aiming to standardize and control hospital expenses. The central role of DRG and DIP, mainly carried out by National Healthcare Security Administration (NHSA), is promoting DRG/DIP reforms to optimize resource allocation, cost management, and healthcare quality. Here we explore the effects of DRG/DIP on procurement and usage trends in hospitals and the response strategies among medical device companies.
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Overview of DRG/DIP Reforms in China
The primary objectives of the Diagnosis-Related Group (DRG) and Diagnosis-Intervention Pair (DIP) reforms in China focus on improving cost efficiency, optimizing resources, and standardizing healthcare practices. By establishing fixed reimbursements based on diagnostic categories and treatment plans, the system aims to limit overall healthcare spending. Additionally, these reforms are designed to reduce unnecessary medical procedures while promoting the use of cost-effective medical devices and treatments. Another critical goal is to create uniform treatment standards across hospitals, which is facilitated by the centralized management of medical consumables.
The implementation of the DRG/DIP reforms began in 2021 under the leadership of the National Healthcare Security Administration (NHSA), starting with 101 pilot cities. The aim is to achieve nationwide coverage by 2025, which involves a phased rollout that affects various healthcare stakeholders, particularly hospitals and device suppliers. Furthermore, it is essential to understand the key differences between DRG and DIP. The DRG system categorizes patient cases based on similar clinical needs, providing hospitals with a fixed payment for each group. In contrast, the DIP system relies on combinations of diagnoses and interventions drawn from medical record data to determine payments, placing a greater emphasis on precision in both clinical and administrative processes.
Centralized Procurement Trends under DRG/DIP
Since 2020, there has been a notable expansion in the scope of centralized procurement for high-value medical consumables in China. This shift has moved away from broad category purchases to a more focused approach that emphasizes procedure-based needs. As a result, over 80% of surgical consumables are now encompassed within this centralized procurement framework, which aims to streamline costs and improve efficiency in healthcare delivery.
The centralized procurement model has significantly impacted the medical device market, favoring price over product diversity. This trend compels hospitals to select awarded devices that are centrally procured, which in turn limits the market opportunities for non-awarded products. As the emphasis remains on cost-effective devices, products not included in the procurement lists face a challenging environment for market entry and competitiveness. Specific categories of medical devices, such as coronary stents and balloons, have been particularly affected by these procurement reforms. Centralized procurement has led to notable price reductions in some device categories, while simultaneously increasing clinical dependence on these products within hospitals. This dual effect influences both the overall cost structure and procedural dynamics in healthcare settings.
Hospital Management and Clinical Impacts
The implementation of the DRG/DIP reforms has significantly changed hospital management practices, shifting the focus from service expansion to cost control and efficiency. One of the most impactful changes is the alteration of payment models, where reimbursements are now directly linked to coded patient records. This shift necessitates a more meticulous approach to documentation and coding, as accurate records are crucial for securing proper payments. Additionally, hospitals are incentivized to optimize resources, leading them to minimize costs while still adhering to established diagnostic and procedural standards. This focus on efficiency has become a critical aspect of hospital management in the wake of the reforms.
These changes have also influenced clinical decision-making and treatment protocols among healthcare providers. Clinicians are now required to prioritize cost-effective treatments and select consumables that align with DRG/DIP guidelines. Consequently, there is a heightened emphasis on utilizing lower-cost alternatives and developing streamlined clinical pathways that can meet budgetary constraints without compromising patient care. The introduction of standardized clinical pathways is a key element in this transition, as these pathways guide treatment plans within the DRG/DIP framework. By establishing clear guidelines, standardized pathways help shape device usage patterns and ensure that hospitals can effectively manage costs while maintaining consistent quality of care, aligning their operations with the broader objectives of the reforms.