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Journal number 4 ∘ Avtandil Jorbenadze Tengiz Verulava
Diagnosis of Hospital Funding (DRG) Hospital Funding Method and 1995 Health Care Reforms

Doi:  10.36172/EKONOMISTI.2021.XVII.04.Avtandil.Jorbenadze/Tengiz.Verulava

Expanded Summary

One of the most important challenges of the health care reform started in Georgia in 1995 was the introduction of healthcare financing system, which would be balanced with the economic situation of the country. The budgetary funding of hospitals has been replaced by targeted program funding. Under The new financing system, the activities of the medical institution and the health care worker was reimbursed in proportion to the volume, quality and importance of the work performed.

With the creation of a new system of funding for medical organizations, the choice was made to adopt medical economic standards, which was based on the principles of world-recognized cost-effective method, funding with Diagnostic Related Groups (DRG), where similar diseases are united in one nosological group.

The introduction of medical economic standards was preceded by discussions of medical professional associations, doctors, economists, health experts. At the very first stage of the healthcare reform, the process of consistent introduction of the model of financing by medical economic standards began. In particular, similarly diagnosed diseases (e.g., diseases of the cardiovascular system) were combined into one nosological group. The state has determined the volume of necessary treatment-diagnostic measures for each group, concomitant diseases, the average duration of hospitalization. Based on the actual costs of each disease, the average cost of each nosological group was determined.

Each type of medical service was evaluated according to the volume of pre-defined standard medical interventions. The price of this service depended on the objectively required volume of services, the number of diagnostic and laboratory tests, the cost of "required" medicines and medical supplies. In addition, this standard price also included some indirect costs, which depended on the number of beds required for the full-fledged treatment specified in the standard. The method of financing according to medical economic standards took into account the geographical division of the country (city, district), the level of medical institution (general profile hospital, regional, city and district hospitals).

Tariffs for medical services should be based on certain technology. As we have mentioned, medical economic standards are used to calculate tariffs. Medical economic standards are based on the method of financing Diagnosis-Related Groups (DRGs). The state must determine the volume of necessary treatment and diagnostic measures for each group, concomitant diseases, the average duration of hospitalization. The average cost of each nosological group should be based on the actual costs of each disease.

The assessment of diseases should also take into account the geographical division of the country (region, city, district, village), the level of the medical institution (general hospital, university clinic, regional and city hospitals), the qualifications of the staff. For each hospital, the level of deviation from the average value of the standard should be determined, which is a characteristic of the specificity of the medical institution (level of medical care, character).

Depending on the specifics of the medical service, additional funding should be provided:

• For clinical hospitals where expensive medical-diagnostic methods are used;

• For hospitals in some districts that need some support from the state;

• For hospitals that treat patients in expensive categories (e.g., the elderly).

The cost of nosological standards should change every year. It should be adjusted annually according to the "Update Index", which takes into account the costs associated with the expected changes next year, such as the use of new technologies, updating the material and technical base, increasing the salaries of staff. The index should be set by the Ministry of Health.

Experts have recognized the method of funding similar diagnostic groups as one of the most important innovations in healthcare financing, a revolutionary change around the world. The biggest turning point was that the new funding system completely changed the balance of political and economic power between health care providers (hospitals and doctors) and financing institutions (insurance company). The power of the hospital industry has been balanced by the regulatory mechanisms of the state, which has had a positive effect on the containment of healthcare expenditures.