One of the major proposals of the government on health care reform is to make private hospital charges more transparent and predictable, to enhance efficiency and contain costs. At present, most private hospitals use a pay-as-you-go system, where there is full cost recovery and no upper limit to what patients may pay - that is, retrospective cost-based reimbursement.
There is a price tag on everything done in a hospital besides the basic bed charge, from the cost of a cotton swab to a PET scan. On admission, patients are told only an estimate of the total cost. A major complication can inflate the total bill to many times the original estimate and beyond the coverage of most insurance policies.
In theory, if the patient pool is large enough, such rare occurrences can be absorbed by a modest and affordable increase in payment from other patients. To do that, however, there must still be an estimate of the upper limit of the eventual costs. Unfortunately in medicine, that limit can be very elastic, depending very much on the attending physician's preference and the resources available in a particular hospital. This cost-based payment system is also inflationary, as it does not encourage service providers to consider cost-effectiveness of treatments.
In countries where insurance is the major payer of health care services, an alternative payment method, prospective per-case payment, has been in use for many years.
Patients are grouped according to their diagnoses (diagnosis-related groups, or DRGs) and reimbursements for individual patients are set prospectively according to representative population statistics, regardless of the actual number or types of services received.
Under such a system, hospitals are rewarded if they are efficient but will incur financial losses if their patients require an extraordinary amount of resources. There are many versions and refinements of the system to more accurately reflect the actual costs of treatment. Reimbursement for the same diagnosis can be different depending on the age of the patient, severity of the illness, or even the location of the hospital.
The government proposes some form of DRG-based, prospective packaged charging in the new Health Protection Scheme as a means to increase transparency and improve competition among private hospitals. This has aroused strong resistance from private hospital administrators and doctors who consider such a method of payment an infringement of their professional autonomy. Some doctors also view packaged charging as a form of price control, as it removes from them the option of imposing exorbitant fees. At least part of this resistance has to do with the novelty of packaged charging in Hong Kong but, to a large extent, it is also caused by ambiguities and confusion in the government's proposal.
