DRGs U.K. style: a comparison of U.K. and U.S. policies for hospital cost containment and their implications for health status

Health care cost containment in the U.K. has been characterised by the imposition of cash limits on health and personal social services. More recently performance appraisal has been introduced. The U.S. approach, on the other hand, has linked both cost containment and implicit performance appraisal by funding hospital activities on a DRG basis. Under the U.K. approach there is an internal inconsistency between the funding of hospital activities, primarily determined by the characteristics of the served population, and the appraisal of hospital performance by reference to the use of resources in relation to national norms not necessarily corresponding to the characteristics of the served population. Under the U.S. approach performance is appraised implicitly, not by the use of real resources but by the cost to the hospital of the service provision for each individual patient. Consequently the incentive is to minimise the cost of the service provision regardless of the output produced. The incentives, in both the U.K. and the U.S. approach, generate similar effects: an off-loading of responsibility for service provision at the margin onto other sectors of the health care system. They are the response to the incentive to minimise the costs incurred by the hospital in providing services to the patient. Until greater attention in paid to the monitoring of the outcomes achieved by all sectors of the health care system, and to the incentives generated to shift demands between the sectors, the respective policies will continue to be successful simply in controlling the resource cost of the hospital system.