Activity Based Payment using Diagnosis Related Groups

Advantages of activity based funding

Activity-based funding is the process of financing healthcare where the benefactors are allotted
with funds based on the type and capacity of the services they deliver. It is also based on the
complication of the patient populace they attend (Eagar, 2011). With diagnosis-related group,
hospitals will get a patient classification system that will standardise the prospective payment to
the hospitals and will encourage the cost containment activities.

Some of the advantages of it are:

 Increased efficiency and transparency and reduce the average length of stay of patients.
 Provides precise calculation of the costs of the services delivered in health
establishments.
 Ensures that the areas where resources need to be allocated are properly identified.
 Gets patient classification system which helps to standardise the prospective payment.
 Increases the practical and allocation efficacy of the resources by preventing unnecessary
services.

Challenges in introducing activity based funding

 One of the main challenges is that global expenditure is more difficult that global
budgets. Many believes that it is not powerful enough mechanism to restrain overall
expenditure.
 It is not suitable for acute services and requires alternative arrangements to encourage
quality improvements (Palmer et al., 2014).
 It might compromise quality though provides an opportunity to improve the monitoring
of care.
 Restricts the access to the services requested by more complicated and advanced
expertise.
 Difficulty in identifying products and outputs.
References

Eagar, K. (2011). What is activity-based funding? ABF Information Series No. 1.

Palmer, K. S., Agoritsas, T., Martin, D., Scott, T., Mulla, S. M., Miller, A. P., & Merglen, A.
(2014). Activity-based funding of hospitals and its impact on mortality, readmission, discharge
destination, severity of illness, and volume of care: a systematic review and meta-analysis. PLoS
One, 9(10).