Summary of Key Points
The National Healthcare Security Administration has introduced the DRG/DIP (Disease Group/Condition-based Pricing) 3.0 version, which represents the third iteration following versions 1.0 and 2.0. The main goal of this upgrade is to address the policy-induced losses experienced by hospitals due to the mismatch between the disease grouping system and clinical practice. Version 3.0 optimizes the grouping process by applying a more tailored approach, with a focus on providing support for vulnerable medical specialties such as those caring for the elderly and children, as well as obstetrics and infectious diseases. It also adjusts the payment mechanism (increasing the proportion of special case negotiations, introducing flexible fee rates, and allowing hospitals to keep any surplus). Additionally, it explicitly prohibits linking healthcare payment standards to doctors' performance. The new system will be implemented by the end of March 2027.
Detailed Explanation
1. More Precise Grouping to Prevent Hospital Losses
The previous grouping system was overly generalistic, categorizing both complex and routine cases in the same group, resulting in hospitals incurring losses despite treating more expensive complex cases. Version 3.0 makes the following adjustments:
- Separate grouping for complex cases: Cases such as extremely premature infants (weighing less than 1000 grams), drug-resistant tuberculosis, and robotic-assisted surgeries, which require significant resources and technical expertise, are now grouped separately. This ensures that the healthcare payment reflects the actual costs. For example, the average cost for treating an extremely premature infant is six times that of a normal newborn, and the fee is now determined based on the infant's weight.
- Combination of similar cases: Routine diseases with similar treatment pathways and resource consumption are grouped together to avoid waste. The number of core DIP disease categories has been reduced from over 10,000 to 5,125, yet they cover a wider range of cases.
In summary, cases that require higher compensation are grouped separately, while those with lower costs are combined, ensuring that hospitals do not incur losses regardless of the type of patients they treat.
2. Special Support for Vulnerable Departments
Departments that traditionally faced significant losses, such as those caring for the elderly and children, obstetrics, and infectious diseases, receive targeted support in Version 3.0:
- Children and the elderly: Cases involving children under 6 years old and adults over 70 years old are categorized more precisely (accounting for 10% of all cases). For instance, extremely premature infants are now grouped separately, and elderly patients with multiple comorbidities receive fair compensation.
- Obstetrics: Three separate groups have been established for painless childbirth, and fetal intrauterine treatments are also classified separately. Previously, the cost of painless childbirth increased, but the fees did not reflect this. With the new grouping, hospitals can cover these additional costs, which encourages more such procedures (the national pain management rate has risen from 16% to 60%).
- Infectious diseases: Drug-resistant tuberculosis is now grouped separately from non-drug-resistant tuberculosis, and whooping cough has been given its own category. The criteria for including patients with AIDS in the AIDS group have been revised, so they are no longer classified solely based on an HIV diagnosis but according to the main condition during the hospital stay. This helps prevent hospitals from incurring losses due to treating infectious disease patients.
In other words, healthcare providers in these previously underfunded departments will now receive more reasonable compensation for their services.
3. Support for Medical Innovation
Version 3.0 encourages innovation in two ways:
- Incentive for using new technologies: Robot-assisted surgeries have been given their own group, and hospitals receiving payments for these procedures will receive higher reimbursement, reducing the risk of incurring losses due to the use of advanced technology.
- Increase in special case negotiations: The proportion of special case negotiations under the DIP system has been increased from 0.5% to 1% (while DRG remains at 5%). Hospitals can request additional compensation for cases involving the use of new drugs, consumables, or particularly complex conditions. In 2025, special case negotiations accounted for 64.4 billion yuan in national expenditures, helping hospitals cover additional costs associated with innovation.
In simple terms, hospitals no longer have to bear the risks associated with adopting new medical technologies, as the healthcare system provides financial support.
4. More Flexible Payment Mechanisms without Linking to Doctor Performance
The payment rules have been improved while protecting patients' interests:
- Flexible fee rates and surplus retention: The fee rates for severe cases are fixed to ensure hospitals do not lose money, while those for mild cases are adjustable to encourage cost-saving. If hospitals spend less than the allocated amount, they can keep the surplus for bonuses or equipment purchases, motivating them to manage costs efficiently without compromising patient care.
- Prohibition of performance-linked evaluations: Hospitals are no longer required to use healthcare payment standards as a basis for evaluating doctors' performance. This prevents doctors from prescribing fewer medications or discharging patients early to avoid exceeding budget limits. For example, doctors were previously incentivized to use cheaper, less effective treatments to save costs.
In summary, hospitals are encouraged to reduce costs without compromising the quality of patient care.
5. Implementation Timeline and Coverage
After six years of piloting (three years of experimentation and three years of targeted efforts), the disease-based pricing system has been implemented in all eligible regions and hospitals. Version 3.0 will be fully rolled out by the end of March 2027. This means that all hospitals across the country will adopt the new rules over the next three years, benefiting both patients and hospitals.
The essence of this upgrade is to make more efficient use of healthcare funds: it prevents hospitals from incurring losses and ensures that patients receive the necessary treatment. For the general public, this means greater confidence in the healthcare system, as hospitals will be less likely to refuse to treat complex cases or reduce the quality of care to save money.