How Are Hospitals in Germany Funded by the DRG System? And What Is Its Impact on Length of Stay?
What is the DRG System? DRG = Diagnosis Related Groups It is a German hospital financing system introduced in 2004 to price medical services. The idea is that each treatment case is classified into a fixed diagnostic group (DRG). Each group has a fixed price paid to the hospital, regardless of the length of stay.
How Does Hospital Financing Work Under DRG?
| Stage | Explanation |
|---|---|
| Diagnosis and Classification | The doctor enters diagnostic data and procedures into the system. |
| Assignment to DRG | The system matches the case to a DRG group based on diagnosis, treatment, age, and complications. |
| Payment | A fixed lump sum (pauschale) is paid by the health insurance company to the hospital, regardless of stay length. |
| Reference Stay | Each DRG has a “typical length of stay” (Verweildauer): minimum, maximum, and average. |
Impact of DRG on Length of Stay
| Effect | Details |
|---|---|
| Shorter stays | Hospitals are incentivized to shorten stays to reduce costs and increase profit. |
| Fixed reimbursement | Whether the patient stays shorter or longer, the amount remains mostly unchanged except in special cases. |
| Risk of early discharge | Patients may be discharged too quickly to save costs, raising professional criticism. |
| Exceptions | Very long stays or complications may trigger additional payments (Zusatzentgelt). |
Criticism of DRG:
Increases pressure on doctors to prioritize speed over quality
Threatens smaller hospitals that cannot achieve profitability
Turns medicine into financial calculations
Upcoming Changes: Yes. The German government plans a comprehensive reform of the DRG system by 2025–2030, partially replacing it with fixed allowances (Vorhaltepauschale) to improve service quality and reduce excessive profit orientation.
