Among the important reforms to the Medicare model in Stockholm, no single step has been of greater importance than the restoration of prices for health care procedures in hospitals. The acronym for the price tag per treatment is known as “Diagnostic Related Group”. The DRG price mechanism, introduced in 1990, underpins the remarkable increases in productivity and efficiency in the delivery of publicly funded Swedish health care. By attaching an official price tag to every hospital treatment, government budget makers enabled providers both to improve their performance and to shift the system’s focus to the needs of health-care consumers.
In a single-payer model without prices, providers and consumers both act out a classic “tragedy of the commons.” Health-care workers do everything possible to treat patients successfully, which is their mission, and people who need treatment tend to swamp the system with demand. Funders constricted by budgets try to control runaway costs by putting a ceiling on the volume of care, an action which creates shortages and waiting lists. When compensation beyond the limit is reduced or withdrawn, the production of services slows down and even stops.
Putting prices back into the equation in Sweden changed incentives. The system was told not only that hospital funding could be improved by the increased production of services, but also that private providers were available to perform treatments on an equal basis. This stimulus to productivity required that reimbursement levels be transparent, stable and reliable. The fairness implicit in the DRG pricing system and the information it conveyed enabled purchasers to be split from providers within publicly funded healthcare.
Download this pdf file to read the entire newsletter. This special extended issue (14 pages) includes the actual prices for almost 500 healthcare treatments in Swedish hospitals (in Canadian dollars)