This article was written by Chris L. Hardesty, an independent expert on global health-related policy matters, particularly pertaining to economically-viable innovation access programmes.

Like many countries in the Asia-Pacific region and beyond, pricing of medical equipment, including in vitro diagnostic (IVD) technologies, remains a hot-button item in China. While many stakeholders recognise the value of innovative and high-quality health technologies, they must also balance the desire for access with the need to manage budgets carefully.

As the world’s second largest IVD market [1], China’s recent pricing reforms may have ripple effects across the clinical laboratory community. In this article, we cover some key takeaways from the China IVD New Technology Summit, an October 2021 event that included extensive discussion of the country’s cost containment measures and their impact on the practice of laboratory medicine.

DRGs and the advent of medical payment reform in China

As part of China’s 14th Five-Year National Medical Security Plan, the country has undertaken bold pricing reforms in recent years. By some estimates, these reforms have led to a decrease in health expenditures by 3.5% on a per-patient, risk-adjusted basis [2].

“The medical payment reforms in China will have a profound impact on the performance appraisal system across the healthcare ecosystem,” said Professor Yang Yansui, from the Institute of Hospital Management of Tsinghua University. “This may mark the end of the hospital expansion era, and instead drive greater stakeholder positioning and collaboration.”

In China and elsewhere, the idea of payment reform is not new. In 1983, the United States pioneered legislation that evolved medical insurance schemes from Fee For Service (FFS) into the Diagnosis Related Group (DRG) concept. The goal was to create a better system for patient classification across diagnosis, treatment, comorbidity factors, and prognosis, leading to improved patient management and overall medical insurance savings [3].

The DRG concept soon made its way to the Asia-Pacific region, starting with Australia in 1993. South Korea, like many Asian countries facing rapid medical inflation, initiated its adoption of DRGs in hospitals and clinics from 2012. Beijing began its trial operations of DRGs in six tertiary hospitals in 2011, enrolling nearly 50,000 patients and leading to noticeably shorter lengths of stay [4,5].

In May 2019, China’s National Healthcare Security Administration, Ministry of Finance, National Health Commission, and National Administration of Traditional Chinese Medicine joined together to issue the ‘Notice on Printing and Distributing the List of National Pilot Cities for DRG-based Medical Payment’, selecting 30 cities as initial pilot sites. One year later, an expansion notice was issued that introduced the terminology of Diagnosis Intervention Packet (DIP), a slight variation of the DRG concept that incorporates an adjustment mechanism in which final reimbursement is determined ex post [2].

One of the pilot cities was Guangzhou, which benefited from a two-year period to try new technologies with basic reimbursement. “The approach allows us to gather sufficient evidence to prove the clinical and economic benefits, aligned to the spirit of the DRG/DIP reform,” said Professor Liu Dayue, Deputy Director of the Medical Affairs Department of the First Affiliated Hospital, Sun Yat-sen University. “We hope to see more provinces in China adopt such forward-thinking policies.”

To date, more than 200 cities in China have undertaken DRG/DIP efforts, leading to the September 2021 notice, issued by the General Office of the State Council as tied to the 14th Five-Year National Medical Security Plan, requiring adoption of DRG or DIP models nationwide by 2025 and expected to account for the majority of hospitalisation expenses [6].

What China’s DRG/DIP reforms mean for the clinical lab community

At the Summit, stakeholders from across China’s healthcare ecosystem acknowledged that accurate, timely diagnostics are essential for the effective implementation of the DRG/DIP concept. Throughout the discussions, representatives from the clinical laboratory community showed a strong willingness to support and adapt to the changes.

Many laboratory leaders are already enhancing their own capacity development activities in anticipation of the DRG/DIP reforms. One area of focus is improving clinical lab turnaround times. “We have strong needs for quick reporting,” said Professor Sun Zhijun, Director of the Cardiology Department at Shengjing Hospital of China Medical University. “Particularly in growing disease burdens like heart failure, the risk of complications will only increase as time goes on.”

Some lab leaders are going beyond internal process management and helping authorities to shape policy on diagnostic testing under the new DRG/DIP schemes. Others are pursuing novel collaborations within and beyond the healthcare systems that they serve, leveraging tools like WeChat for rapid coordination efforts. At the Summit, several stakeholders commented that there is room for improvement in how value and supply chain partners communicate with one another.

“Accurate, fast results require strengthened communications amongst laboratories and care facilities,” noted Professor Liming Cheng, Deputy Director of the Clinical Laboratory Department of Tongji Hospital, Tongji Medical College, Huazhong University of Sciences and Technology. “We need better feedback loops.”

Another area of focus is improving the quality of testing services; however, some stakeholders expressed concerns that excessive focus on cost-cutting could undermine these efforts by reducing access to innovative or high-quality technologies, especially since medical insurance remains fairly basic in China. In line with the spirit of DIP, there is also talk of a further ‘adjustment fund’ at provincial levels once the population disease stratification data becomes richer over time.

Broader implications for healthcare in China

As many stakeholders at the Summit noted, China’s DRG/DIP reforms are designed primarily to help drive successful cost containment and improve reimbursement. As a byproduct though, they also establish a need for more systematic medical recordkeeping on diagnostic results, patient care pathways and health outcomes. These elements then pave the way for greater digitalisation of the healthcare systems and implementation of a true value-based healthcare ecosystem.

“With DRGs in mind, the biggest job in front of us is to improve our diagnostic capabilities,” said Professor Liming.

References:

[1] “In Vitro Diagnostics Worldwide Global Comparison”. Statista: Jan 2022.
[2] Yi, Lai et al. “Hospital response to a case-based payment scheme under regional global budget: The case of Guangzhou in China”. ScienceDirect: Jan 2022.
[3] Yi, Rong and Liu, Wendy. “On the journey of cost containment – China’s DRG development and implementation”. MCOL: Sep 2021.
[4] Kim, Seung Ju et al. “The effect of competition on the relationship between the introduction of the DRG system and quality of care in Korea.” European Journal of Public Health, Volume 26, Issue 1: Feb 2016.
[5] Yu, Lihua and Lang, Jingjing. “DRG pricing and payment policy in China: Where are we?”. Hepatobiliary Surgery and Nutrition: Dec 2020.
[6] “National medical security system to be advanced”. The State Council, The People’s Republic of China: Sep 2021.