Do Mixed Reimbursement Schemes Affect Hospital Productivity? An Analysis of the Case of Denmark

The majority of public hospitals in Scandinavia are reimbursed through a mixture of two prospective reimbursement schemes, block grants (a fixed amount independent of the number of patients treated) and activity-based financing (ABF). This article contributes theoretically to the existing literature with a deeper understanding of such mixed reimbursement systems as well as empirically by identifying key design factors that determines the incentives embedded in such a mixed model. Furthermore, we describe how incentives vary in different designs of the mixed reimbursement scheme and assess whether different incentives affects the performance of hospitals regarding activity and productivity differently. Information on Danish reimbursement schemes has been collected from documents provided by the regional governments and through interviews with regional administrations. The data cover the period from 2007-2010. A theoretical framework identified the key factors in an ABF/block grant model to be the proportion of the national Diagnosis-Related Group (DRG) tariff above and below a predefined production target (i.e. the baseline); baseline calculations; the presence of kinks/ceilings; and productivity requirements. A comparative case study across the five regions in Denmark demonstrated presence of inter-regional variation in the design of reimbursement schemes. This variation creates different incentives regarding activity and productivity. Using gender-age standardized rates across year and region we show that there have not been any significant changes in the number of hospital discharges for any of the regions from 2007 to 2010 within any of the treatment groups.