Kabayarang Sapat, Serbisyong Tapat, DRG Dapat : transitioning from PhilHealth All Case Rates to a fairer, responsive, and transparent provider payment system (a retrospective policy analysis of the All Case Rates from 2018 to 2023)

In the Philippines, household out-of-pocket or direct payment made by patients, has persistently accounted for nearly half of the country's health spending, which suggests financial burden experienced by Filipinos in accessing care. Since 2013, PhilHealth has paid accredited public and private providers for inpatient services using a case-based payment scheme called "All Case Rates" (ACR), with a fixed case rate for costs of treating a disease or procedure. Recognizing the limitations of ACR, PhilHealth was mandated to shift to a prospective payment system based on Diagnosis-Related Groups (DRG) for inpatient cases. Under DRG, patients are classified into a group using their demographic information, clinical presentations, and all procedures done during their stay. Each DRG has an associated average payment amount corresponding to the resources used to treat patients, depending on their case complexity. Using literature review and thematic analysis, we analyzed the Philippine ACR across six characteristics of provider payment systems: (1) sufficiency of payment rates, (2) bundling of services, (3) payment schedules, (4) performance measurement, (5) transparent adjustments, and (6) accountability mechanisms. We also inform readers about the design and features of DRGs by presenting how other countries navigated their transition and highlighting what lessons can be learned for Philippine implementation. We supplemented these by conducting quantitative analyses of available PhilHealth claims and financial in 2024. As a result, data used in the study is only until 2023. The use of data from this period aligns with the goal of the study which is to give PhilHealth a baseline on the features of ACR that could be improved by a DRG system. We found three structural and design features of ACR that led to inadequate and unresponsive payment rates: (1) Because of a flat case rate per disease or procedure, ACR does not realistically reflect services required to treat patients of varying clinical complexities, (2) Payment rates are not tied to hospitals' organizational service utilization or performance in delivering quality healthcare, and (3) ACR does not have mechanisms to systematically update payment rates, and opaque adjustment processes erode public trust in PhilHealth policies and reforms. As such, costs in excess of ACR payments are passed onto patients with comorbidities and severe illnesses-disproportionately the poor, elderly, and those in living conflict areas. DRGs have the potential to transform the health financing system towards the attainment of universal healthcare goals. DRG-based payments account for the complexity of treatment and resource use associated with patients' clinical and sociodemographic characteristics. Paired with a prospective global budget (spending target) based on facility case mix and patient volume, PhilHealth payments can incentivize efficient and quality delivery of healthcare services. Updates or adjustments to the DRG classification scheme and payment rates have a clear clinical basis. As such, DRGs can provide PhilHealth an opportunity to engage with different stakeholders and transparently report their progress towards providing Filipinos financial risk protection. The experiences of countries who have advanced DRG systems show that the success of adoption is not limited to the development of technical capacity, such as the information technology to routinely collect hospital data, update the grouping software, and payment rates. PhilHealth must implement adaptive solutions such as impressing upon providers the importance of value-based care and implementing a governance model to institutionalize DRGs. These will entail working closely with the Department of Health, an arms-length agency that functions as a case mix center, and engagement with providers, patient-interest groups, and the general public.