Hospital Payment Systems and Quality of Care

Hospital payment systems form the financial backbone of healthcare delivery, shaping incentives for efficiency, patient outcomes and equitable access. Traditional fee-for-service models reimburse providers for each service rendered, often driving volume rather than value. By contrast, case-based systems such as Diagnosis-Related Groups (DRGs) assign fixed payments per episode of care, encouraging hospitals to optimise length of stay and resource use. Activity-Based Funding (ABF) refines this approach by weighting reimbursements to reflect patient complexity. While these models can enhance cost containment and operational transparency, they may also prompt unintended behaviours, including up-coding or premature discharges. Recent policy reforms worldwide have sought to balance economic pressures with quality benchmarks such as readmission rates, mortality and patient satisfaction. Intersectoral comparisons highlight that context-specific design features—such as expenditure ceilings, coding standards and performance monitoring—are critical to preserving clinical integrity. A growing body of research underscores the necessity of integrating robust outcome measures into payment reform, ensuring that cost incentives reinforce rather than undermine high-quality care across diverse healthcare systems.

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Hospital Payment Systems and Quality of Care publication trend

The graph below shows the total number of articles in hospital payment systems and quality of care across all publications each year (not limited to Nature Index journals).

Technical terms

Diagnosis-Related Group (DRG): Classification system grouping hospital admissions by clinical similarity and expected resource consumption to determine fixed reimbursement per case.

Activity-Based Funding (ABF): Method of allocating hospital budgets based on the volume and complexity of services delivered, typically via DRG-weighted payments.

Case-Mix Index (CMI): Numerical measure reflecting the average clinical complexity and resource intensity of a hospital’s patient population.

Readmission rate: Proportion of patients readmitted within a specified period (often 30 days), used as an indicator of care quality and discharge planning.

References

1. The effects of diagnosis-related groups payment on hospital healthcare in China: a systematic review. BMC Health Services Research (2020).
2. Association of the Swiss Diagnosis-Related Group Reimbursement System With Length of Stay, Mortality, and Readmission Rates in Hospitalized Adult Patients. JAMA Network Open (2019).
3. Variations in the impact of the new case-based payment reform on medical costs, length of stay, and quality across different hospitals in China: an interrupted time series analysis. BMC Health Services Research (2023).