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Hospital Payment Based on Diagnosis-Related Groups Differs in Europe, and Holds Lessons for the United States

The Issue

Originally developed by the U.S. Medicare program for inpatient hospital care, diagnosis-related groups (DRGs) help classify patients by characteristics such as diagnosis and treatment to determine how much money health care providers will be given to cover future procedures and services. Today several European countries use an expanded version of DRGs in their payment systems. Noting that these countries spend less on hospital care than the U.S. while delivering high-quality services, Commonwealth Fund–supported researchers identified the distinguishing features of the European models and what lessons they may hold for U.S. policymakers.

What the Study Found

DRG systems in England, France, Germany, the Netherlands, and Sweden are more detailed than Medicare’s system and are usually broader in scope, including payment for physician salaries. The European systems also draw on a more diversified body of information to determine payment, and they adjust for severity of illness more accurately.

Unlike in the United States, DRG payments in Europe often exist within a global budget that places limits on the volume of activity. In Germany, for example, the total volume of services that a hospital is expected to provide is negotiated each year. If the hospital exceeds this target, the DRG-based payment is reduced by a certain percentage.

In most European countries, hospitals do not receive a second DRG payment if a patient is readmitted within 30 days. In some case, the scope may be longer: in Sweden, hospitals in one county do not receive a second payment for hip- or knee-replacement patients readmitted for complications from surgery within two years of discharge. 


The payment innovations of European countries warrant consideration by U.S. policymakers as a possible way to promote higher-quality care and lower costs for Medicare enrollees.

Publication Details



W. Quentin, D. Scheller-Kreinsen, M. Blümel et al., "Hospital Payment Based on Diagnosis-Related Groups Differs in Europe, and Holds Lessons for the United States," Health Affairs, April 2013 32(4):713–23.