DRG Payment System

At PUMCH, all average hospitalisation costs remained substantially below DRG ceilings across both disease types and all insurance groups, so hospitals consistently generated a financial surplus. International experience with DRG systems shows mixed results: Japan's variant reduced costs but did not improve quality, while South Korea's mandatory DRG shortened stays. The DRG payment system originated in the USA and has since been implemented in approximately 40 countries, including Australia, Canada, Germany, France, and Japan. China began nationwide DRG implementation in 2021, driven by rising costs from an ageing population, uneven medical resource distribution, and the need to curtail over-treatment under fee-for-service models. Under Beijing's DRG model, hospitals retain a financial surplus when actual costs fall below the DRG payment ceiling, and absorb an over-expense when costs exceed it. Known challenges of DRG systems include uneven resource allocation, potential reduction of necessary services, diagnostic upcoding, misalignment with new technologies, financial strain on small hospitals, and premature discharge.