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TRENDING IN HEALTHCARE

Disrupting the Market with IR DRG

A new health insurance payment system has been rolled out by the Dubai Health Authority (DHA), which will be adopted across the emirate

By: Jayata Sharma

UAE is known for taking up disruptive initiatives. Systems that positively disrupt the market, giving the region a competitive edge.
One such initiative recently rolled out is the International Refined Diagnosis-Related Group (IR DRG). It is a new health insurance payment system that the Dubai Health Authority (DHA) will adopt across the emirate.
As per news reports, under the new system, payments to hospitals will be based on the level of care required and hospital resources, rather than the patient’s length of stay. It uses statistics for classifying inpatient stays into groups for payment purposes. IR DRG also has a medical inflation indicator that caters to increases in cost for the medical sector, which can produce indicators of inflation particular to health care.
Humaid Al Qatami, DHA Chairman and Director-general, was quoted as saying in new reports, “The system would help Dubai’s health providers adopt a clear pricing method, allowing hospitals and clinics to provide fair prices.”
The system was planned after holding many meetings with insurance providers. It appears to be an extensive system, because as per the reports, it will be implemented within three years starting 2017 and ending in 2019, in order for hospitals and clinics to adapt.
The pilot phase with shadow billing has already begun in some hospitals for hospital accommodation only, and will last till the end of 2017. By the start of 2018, all services will be included and the pilot phase for outpatient clinics will begin. In 2019, the system will be implemented in full.
This is not the first time the DHA has taken disruptive measures for progress. In 2014, Dubai made it mandatory for all expatriates to carry at least the minimum level of medical insurance. Expats in Dubai can get primary coverage through the state-issued DHA card that has a (minimum) premium of USD 135 to USD 190 that provides insurance services of up to USD 40,000 annually. Holders of the health card issued by the DHA are entitled to receive treatment from state-funded hospitals and all other government clinics.
Taking yet another step in the health insurance segment, in December 2016, the DHA announced that it would adopt a new health insurance payment system that aims at improving the quality and transparency of the universal health care services in Dubai – the IR DRG.
Mr. Al Qatami stated that the executive council had given the 'go' signal to implement the IR-DRG. As per reports, unveiling the new payment scheme is in line with the launch of the third phase of the Insurance System for Advancing Healthcare (ISAHD) Dubai.
With the new health insurance payment system, hospital inpatients will be classified into several groups for billing purposes. Fees will no longer be based on the length of stay of patients but by the hospital resources and level of care that they require.
It is said that the system was chosen after a number of evaluations, which proved that it can use the authority’s unified data system.

With the new health insurance payment system, hospital inpatients will be classified into several groups for billing purposes. Fees will no longer be based on the length of stay of patients but by the hospital resources and level of care that they require.

The industry’s reaction

A system like IR DRG has multi-level effects. However, most players are assured of IR DRG’s benefits. “We consider adoption of DRGs a positive move by the DHA. It will push us to optimise our processes, implement and follow best clinical practice guidelines, and manage our costs to deliver best kind of care with better margins,” says Dr. Mohaymen Abdelghany, CEO, Al Zahra Hospital & Al Zahra Medical Center, Dubai.
Agrees Dr. Taha K Al-Hazarmerdi, General Manager, Dr. Sulaiman Al Habib Medical Group, Dubai, “The biggest impact is in improvement of efficiency of hospital operation to achieve the targeted profit.”
Another positive response comes in from Vinay Lazarus, Director - Operations, Medeor 24x7 Hospital, Dubai, “As a hospital, we would benefit with the bundle charges of IR DRGs, which is cost homogeneous, clinically coherent and mutually exclusive as each patient is assigned to a single DRG.”
As with any new system, there are some challenges and apprehensions around IR DRG too. “We don’t see major impacts. However, the IR DRG may result in a change in our billing patterns; we may tend to gain in collections in a few cases on the basis of acute or severity of diagnosis. At the same time, we may lose patients as the system restricts the choice of investigations the patient needs or what the doctor has to recommend based on the clinical judgment,” says Taher Shams, Managing Director, Zulekha Healthcare Group.

We are devoting our efforts to develop a 'Time based Activity Based Costing' through which real cost per activity can be managed


Dr. Mohaymen Abdelghany,
CEO, Al Zahra Hospital & Al Zahra Medical Center, Dubai


Yet another expert opines that IR DRG is a good methodology for inpatient remuneration for a hospital, if it is properly priced. “Assigning a proper relative weight will be the greatest challenge with the health authorities by understanding the proper cost involved. Traditional method of pay for service is mostly driven by various insurance companies’ different way of remunerating with inclusions and exclusions, which leads to uncomplete coding basically for consumable items. The risk of completing the treatment is shared by the provider and limits the liability of the insurance company up to a predefined level. There should be a mechanism to cover any prolonged treatment cost due to the patient’s condition similar to an outlier payment implemented in Abu Dhabi. If proper relative weight is assigned then it will be the most encouraging thing for a hospital to improve their quality to reduce the cost of the treatment without compromising on the outcome,” highlights Jayagopal Pallath, Senior Manager – Insurance Contract & Pricing, NMC Healthcare, UAE.
It seems those hospitals will gain more whose clinical excellence is good.
While most people are highlighting the positive effects of the system, we have someone with a rather radical point of view. Mark Adams, Founder and CEO, Anglo Arabian Healthcare, UAE, recently published an article on Linked In Pulse, in which he wrote: The DRG system is far from a perfect science. DRG categories are decided upon based on averages – how often the hospital deals with that type of condition, how much it usually costs and so on. Here in Dubai that poses a particular problem, as medical coding misrepresentation is rife. Therefore, the data used by the DHA to decide DRGs will not be scientific enough to reach base prices for each procedure, which can have huge financial consequences for insurers. This is just one of the reasons why the roll-out of DRGs in Dubai is considered by many to be rather premature. As the DHA says itself – ‘a DRG system crucially depends upon accurate coding of inpatient hospital stays, so hospital coding needs to be first reviewed and upgraded if needed’. This is yet to happen. Mr. Adams’ words are surely fodder for the mind.


We will need to modify our HIS system to meet the new billing rules and to improve medical documentation to improve the severity index


Dr. Taha K Al-Hazarmerdi,
General Manager, Dr. Sulaiman Al Habib Medical Group, Dubai

The billing angle

Most people are assured of the transparency that IR DRG can bring to the table. “We feel the billing would be fair and transparent as it would be a level playing field for all healthcare providers. As the DRGs are governed by severity of illness and case mix of patients treated. The hospitals will be paid more if they treat more sick patients and not for their brand image. As the charges would now be calculated on a base rate with relative weights, there would be faster processing of claims by the insurance companies, which was earlier confined to each CPT code pricing structure,” says Mr. Lazarus.
Experts are of the view that the DRG-based reimbursement system brings about transparency as it standardises the way of delivery of care for a given grouper followed by standard reimbursement by insurer. “IR DRG will liberate us from the hassle of requesting approval of individual services. It also emphasises on ‘quality and safety’ aspects of care delivery process,” says Dr. Abdelghany.
“IR DRG will surely bring transparency in billing as it demands the original invoice for all consumables used in the operation,” says Dr. Al-Hazarmerdi. Similar views are echoed by Mr. Pallath, when he says that standardising the relative weight for an inpatient stay based on the diagnosis brings a transparency across the hospital on the billing methodology.
“Even before the new system came into action, we had a stringent and transparent governing process internally. Patients even now are aware of and have access to every detail of service being offered for which they pay. Much information is already available on the eClaimLink that we are following since the initial days of it being introduced. Some patients may find the DRG system more transparent depending on their understanding and expectations. Their greater familiarity of the concept will ensure clear communication,” shares Mr. Shams.


When the prices are capped for in-patient procedures, the providers need to take care of their costs proactively. We will see hospitals losing out on margins if they don't have clarity about the costs of their main procedures, at least


Vivek Shukla,
Senior Advisor, Healthcare & Lifesciences, Frost & Sullivan, MENA & South Asia

Understanding the costing effects

Costing is going to be the central character in the movie of IR DRG. Says Vivek Shukla, Senior Advisor, Healthcare & Lifesciences, Frost & Sullivan, MENA & South Asia, “DRG will change the rules of the game for hospitals, because from fee for service model, they will now move to fixed revenue model and this means that they will have to rework their costs based on the price that is being set for them. So, it is a price-based costing.”
He further explains that hospitals will have to be crystal clear on what are their prices, how much does each service cost them, and are they making enough profit for the price that they are being paid. At the same time as they are optimising their costs, they also have to look at maintaining quality because it will backfire on them to compromise on quality and then reduce costs. Hospitals which are able to do this successfully will have a distinct advantage over the others, because they will have higher margins. If they have higher margins, they can use the additional money that they make for improving quality, for hiring better physicians, for brand building, and such. In short, it is going to be a cost game, he concludes.
Hospitals too, agree to this as they have either already started looking at their costs or are soon planning to do the same. “We are devoting our efforts to develop a ‘Time based Activity Based Costing’ through which real cost per activity can be managed. This approach will help us estimate the cost per unit of capacity so that managers can directly estimate the resource demands imposed by each activity, for example, resources cost of caesarean section,” says Dr. Abdelghany.

As the charges would now be calculated on a base rate with relative weights, there would be faster processing of claims by the insurance companies, which was earlier confined to each CPT code pricing structure


Vinay Lazarus,
Director - Operations, Medeor 24x7 Hospital, Dubai


NMC Healthcare, Dr. Sulaiman Al Habib Medical Group and Medeor 24x7 also shared that they are relooking at their cost structure.
“For a humungous organisation such as ours, costs are a day to day discussion and we have our cash flows and costs monitored all the time for decision making purposes. For IR DRG, yes, we are preparing in phases for the new move while trials are on,” says Mr. Shams.
The IR DRG has already been implemented in Abu Dhabi, and Dubai is now on its way to follow suit. “With increasing insurance penetration, this is likely to become a norm in other geographies too. Implementation of DRG impacts the economics of healthcare significantly. When the prices are capped for in-patient procedures, the providers need to take care of their costs proactively. We will see hospitals losing out on margins if they don’t have clarity about the costs of their main procedures, at least,” warns Mr. Shukla.
He stresses that one of the salient characteristics of an insurance driven healthcare market is that the providers need to manage their current costs keeping in mind the turn-around time of the claims submitted to the insurance companies. “Daily Sales Outstanding will be a metric that will become more and more relevant with increase in the numbers of insured patients.”

Additional expenses & investments required

With an extensive system like IR DRG, hospitals will have to up their game and in the process, will be required to do some extra investments as well.
“Additional investments have been made to equip our Hospital Information System (HIS) to work with DRG. Investment in training of doctors and other providers and key delivery process re-engineering is also ongoing,” says Dr. Abdelghany.
Similar thoughts are of Dr. Al-Hazarmerdi when he says that they will need to modify their HIS system to meet the new billing rules and to improve medical documentation to improve the severity index.
NMC’s Mr. Pallath says, “Cost of purchasing the DRG grouper and hiring additional coders with specialisation in DRG is the extra investment required by us in implementing the DRG system.”
It is fairly understood that hospitals will have to invest in the software requirements to facilitate the application of the new system, and manpower to oversee and use the software. Zulekha Healthcare has begun with investing in the 3M software that helps in DRG code generation. It is also hiring medical coders and investing on training its existing staff on medical coding. Mr. Lazarus, too, says that they have already introduced major additions to the hardware and software systems within their provider networks. “Doctors and staff are also being trained to ensure a smooth transition from the CPT codes to IR DRG.”

We may lose patients as the system restricts the choice of investigations the patient needs or what the doctor has to recommend based on the clinical judgment


Taher Shams,
Managing Director, Zulekha Healthcare Group


Mr. Adams, in his article, also pointed out the fact of increased investments and efforts: There is the cost of new technology to consider. Because IR DRG is a 3M product, it requires all providers to install and integrate their systems accordingly – the cost of which falls only on the provider. Inflation and revision is another concern for insurers. The DHA calculates a 3% annual increase with a revision price based on this. However, the vast majority of insurers have contractual periods ranging between one and three years without a default clause for revision.
Finally, it hasn’t been taken into account that many providers are not yet up to speed with other recent systems such as e-prescription – rolled out two years ago and still not implemented across the board smoothly. The addition of another new system this year will only make matters worse.
However, Mr. Adams is not here to only give us a grim picture. He did point out that there is a silver lining to the new system: IR DRG is a phased process starting in 2017 that will take up to three years, giving providers time to adapt to the changes.

The balancing act

Hospitals already have a system running, which will now be disturbed as these implementations will be an ongoing process. In such a scenario, how can hospitals have their regular services running smoothly along with the adoption of the ongoing changes?
“Well, the plan is simple. Act pro-actively. All physicians and back-office staff must be trained and educated to work with the new system. Furthermore, we have to have good IT support to facilitate us in doing our job,” says Dr. Abdelghany.
Hospitals are aware of the work needed and have started gearing up for this change. In fact, many hospitals have also started with the shadow billing process.
Al Zahra has started identifying relevant groupers for IP cases and shadow budgeting; which is helping it understand various variations in delivering one kind of treatment. “We must work towards eliminating the causes of such variations,” shares Dr. Abdelghany.
Same is the case with Medeor 24x7. Shadow billing has started at its hospital in Dubai and as per Mr. Lazarus, “It looks good so far as we are expecting DRG to be next game changer for the healthcare services in Dubai and is the next step in regulating the fast changing healthcare space in this part of the world.”

If proper relative weight is assigned then it will be the most encouraging thing for a hospital to improve their quality to reduce the cost of the treatment without compromising on the outcome


Jayagopal Pallath,
Senior Manager – Insurance Contract & Pricing, NMC Healthcare, UAE


Zulekha too is all geared up. “Yes, we are in its first shadow billing phase since February this year and looking forward to the second phase in July. We are gathering as much historical data that will be available as a combination of our current fee for service model and the new IRDRG rates to enable ease of operations,” avers Mr. Shams.
“We are not expecting our front-end customers’ services to be impacted with this. We will deliver our best to our patrons and educate them where needed on the changes in order to sustain relationships. It will take time to ensure everyone gets used to the new IR DRG system. Disturbances if any will be monitored and controlled real-time,” says Mr. Shams.
NMC Healthcare, too, is confident that the new system will not affect its regular services, as, “We are doing the DRG coding parallel to the current system of billing,” says Mr. Pallath.
Then there are some lucky players like NMC Healthcare, with previous experience of adopting IR DRG. “We have started the shadow billing of DRG. Our system was capable of handling this as we had already implemented the same in our Abu Dhabi hospitals, which has gone into DRG earlier,” says Mr. Pallath.

In conclusion

The article can be aptly ended with something that Mr. Adams’ article mentions. It says that a 2013 World Health Organization (WHO) report highlights a balanced assessment of the situation: ‘Ultimately, the introduction of a DRG-based system is part of a long path of continuous development and adjustment of provider payments. It might involve combining different provider payment mechanisms to arrive at the optimal mix of incentives, as has been done in many advanced health financing systems.’
The article further points out that: Dubai, in many ways, is in an enviable position – having been able to watch and learn from the issues faced by other countries when introducing DRGs. The big challenge now is to make sure those pitfalls are avoided.
True, as per the views and inputs of various stakeholders quoted in this article, the industry appears to be rightly equipped with the tools needed to implement the system of IR DRG. The future will be bright for those focussing on their core areas of quality and cost.


The Genesis

The system was created in the early 1970s by Robert Barclay Fetter and John D. Thompson at Yale University with the material support of the former Health Care Financing Administration (HCFA), now called the Centers for Medicare & Medicaid Services (CMS).
DRGs were first implemented in New Jersey, beginning in 1980 with a small number of hospitals partitioned into three groups according to their budget positions – surplus, breakeven, and deficit – prior to the imposition of DRG payment. The New Jersey experiment continued for three years, with additional cadres of hospitals being added to the number of institutions each year until all hospitals in New Jersey were dealing with this prospective payment system.
The system is referred to as ‘the DRGs’, and its intent was to identify the ‘products’ that a hospital provides. DRGs have been used in the US since 1982 to determine how much Medicare pays the hospital for each ‘product’, since patients within each category are clinically similar and are expected to use the same level of hospital resources. Since the introduction of DRGs in the early 1980s, the healthcare industry has evolved and developed an increased demand for a patient classification system that can serve its original objective at a higher level of sophistication and precision. To meet those evolving needs, the objective of the DRG system had to expand in scope. Today, there are several different DRG systems that have been developed in the US. They include: Medicare DRG (CMS-DRG & MS-DRG), Refined DRGs (R-DRG), All Patient DRGs (AP-DRG), Severity DRGs (S-DRG), All Patient, Severity-Adjusted DRGs (APS-DRG), All Patient Refined DRGs (APR-DRG), and International-Refined DRGs (IR-DRG).