How do countries adjust hospital payment systems for COVID-19?

Cross-Country Analysis

How do countries adjust hospital payment systems for COVID-19?

The coronavirus crisis creates three important challenges for hospital finances.

First, the costs of care related to COVID-19 patients can be substantial and these costs could not have been anticipated at the time when hospital budgets or hospital payments were determined. In addition, hospitals might have to invest in new ventilators or buy protective personal equipment (PPE) to prepare for COVID-19 patients. Second, in many countries with activity-based payment systems, hospitals experience revenue shortfalls because they have to cancel elective procedures or because patients avoid being admitted to hospitals. Third, non-contracted acute care facilities (including private hospitals) are being used in several countries to provide care (both for COVID-19 and other patients), and they need to be compensated for the services provided.

This policy snapshot aims to support policy-makers across countries who have to respond to these challenges by taking decisions about the payment of hospitals: Should payment be adjusted to reflect the costs of COVID-19? Should payment be kept the same irrespective of activity to compensate for revenue shortfalls? And what mechanisms can be used to channel financial resources to non-contracted providers?

We used information available in the COVID-19 Health System Response Monitor (HSRM) (up to 15 May 2020) to understand whether and how countries are adjusting hospital payment systems in response to COVID-19. The analysis focuses on a selection of countries including Belgium, Bulgaria, the Czech Republic, Finland, Germany, Israel, Poland, Romania, and Switzerland but draws also on examples from Cyprus, Malta, Slovakia, and Slovenia, where relevant. 

Hospitals are paid for treating COVID-19 patients using the usual system, modified DRGs or new fees 

Figure 1 provides an overview of payment systems used by different countries to pay for COVID-19 patients. Several countries use their regular hospital payment systems: In Bulgaria, hospitals are paid using a mix of case payment (based on an existing general case definition) and per diems (for patients treated in intensive care units, ICU). In Israel, hospitals are paid based on per diems, which differ depending on whether patients are treated on general medical wards or in ICUs. In the Czech Republic, hospitals simply receive their usual monthly instalments, but it is still uncertain how the final bill will be settled at the end of the year. 

In GermanyRomania and Switzerland, where hospitals are paid using a Diagnosis-related Group (DRG)-based payment systems, these systems had to be slightly modified to enable payment for patients with COVID-19. For example, coding guidelines for diagnoses and procedures were adjusted to enable hospitals to code for isolation treatment for patients with confirmed coronavirus. In addition, hospitals in Germany receive a top-up of €50 for every hospital case (including for non-COVID-19 patients) treated between April 1st and June 30th to cover the additional costs of PPE.

In Belgium, where hospitals are usually paid based on a mix of global budgets, DRGs, and fee-for-service (FFS), new FFS billing codes have been created, e.g. for physicians taking care of COVID-19 patients, as well as for ICU care and for specialist services. In Finland, the central government will compensate hospital districts (i.e. hospital owners) for additional costs related to care for patients with COVID-19. In Poland, where most hospitals receive a DRG-based budget, the National Health Fund has established a FFS list, which includes fees for hospitalization, hospitalization in an ICU, isolation in a designated facility, dialysis for patients with (suspected) COVID-19 etc. Over time, the list has been extended to include 30 COVID-19 related fees for inpatient and outpatient care. 

Concerning necessary investments, governments in several countries (e.g. the Czech Republic, Israel, Malta, Slovakia, Slovenia) have directly purchased ventilators and/or PPE and distributed these to hospitals. In Germany, hospitals received a lump sum payment of €50,000 for every new ICU bed set up to prepare for the expected influx of patients.

Hospitals receive their usual budget or new money to compensate for revenue shortfalls

Figure 1 also shows that several countries have responded to revenue shortfalls resulting from the interruption of usual activities, in particular the cancellation of elective admissions. However, these responses differ considerably. 

Some countries provide substantial resources to hospitals through new payment approaches to compensate for revenue shortfalls. In Germany, a new law was approved at the end of March guaranteeing that hospitals receive per diem payments (€560 per day) for every empty bed until the end of September 2020. In Belgium, the federal authorities created a short-term cash advance to hospitals (of € 1 billion), amongst others to compensate for revenue losses. In Poland, hospitals in the public hospital network receive their usual monthly instalments despite considerably reduced activity, and hospitals outside of the network can apply to receive monthly instalments for contracted services under the assumption that these will be provided later during the year. 

In the Czech Republic, where hospitals continue to receive their regular monthly instalments, the question of revenue shortfalls will arise only at the end of the year, when the annual bill will be settled. In Switzerland, hospitals do not receive financial compensation for the loss of revenue resulting from the cancellation of elective admissions. However, hospitals can apply for bridging credits and short-time work compensation just as any other business entity in the country. If hospitals apply for short-time work, they can reduce their salary costs, and 80% of the difference between the current salary and the normal salary of their employees will be covered by the government. 

Only a few countries are paying non-contracted providers 

Only very few countries seem to have put in place specific rules to pay for services provided by non-contracted (public and private) providers, either to increase capacity for treating COVID-19 patients or to compensate for reduced capacity in public hospitals, which are busy taking care of COVID-19 patients. For example, in Cyprus, patients who cannot be treated in public hospitals due to closures of departments can be treated by private providers, and the full costs of care will be reimbursed by the Ministry of Health through FFS payments. In Switzerland, acute care hospitals that are not included in cantonal hospital plans and are usually not reimbursed through DRG-based payment, can be mandated by cantons to provide care for designated groups of patients during the crisis. In this case, they will be paid by DRG using the same tariff as for other general hospitals in the canton. In addition, in order to expand ICU capacities, the government has allowed hospitals to bill ICU related DRGs for all patients treated in non-certified ICUs. 

Discussion and key messages

When faced with sudden financing challenges, hospital payment systems have been adjusted in several European countries. Although a complete overview of all countries currently remains unavailable, all of the countries included in this overview have responded relatively quickly to find pragmatic solutions to evolving challenges, yet the adopted approaches differ considerably across countries. Germany stands out as having made substantial additional resources available to hospitals, both to pay for COVID-19 and to compensate for revenue shortfalls. Also, Belgium has responded very quickly to mobilize additional resources for hospitals. Other countries, such as the Czech Republic and Poland continue to pay the usual monthly instalments to hospitals, which effectively compensates for revenue shortfalls in the short-term. 

In consideration of a potential second wave of COVID-19, all countries in Europe will have to find solutions to adequately reimburse hospitals for their additional resource needs related to the care for COVID-19 patients, e.g. by adjusting DRG-based payments, increasing per diem rates, or adding additional fees to FFS system. In addition, given the risk of future pandemics, processes need to be put in place to rapidly adjust payment systems to meet new challenges where needed. Concerning revenue shortfalls, keeping the existing budget intact can be an effective safety net for hospitals. However, it also reduces the incentive for hospitals to restructure service delivery in line with new provision needs during the pandemic. Ultimately, reducing the impact of COVID-19 on regular service provision (e.g. by concentrating care for these patients at fewer providers) will also reduce the need for compensating revenue shortfalls. Given the short timeframe since health system responses to the crisis began, it is not yet possible to draw conclusions about optimal payment approaches for hospitals. 

Wilm Quentin