Implications of hospital financing on hospital strategies

The introduction of the DRG-System for the reimbursement of stationary care fundamentally changes the incentive system to which German hospitals are exposed. They are to be remunerated not according to input-oriented measures like the number of treatment days, but instead by their output as measured by the number of patients they treat (weighted for their degree of severity). The number of days it takes a hospital to treat a patient moves from being a revenue factor to becoming an important cost driver. This opens up new possibilities for German hospitals, but also entails substantial risks which they need to tackle in order to maintain their ability to provide a high level of health care in the future. In particular, the German hospital market is to become more transparent than ever before. This transparency, together with already existing over-capacities and a diminishing demand for hospital beds (through a decreasing average length of stay) will expose hospitals to substantial competitive pressures, a term that was virtually unknown to most of them 20 years ago. In the light of these developments, the author addresses the question as to how German hospitals are to position themselves in order to emerge from this process successfully. In doing so, two aspects are focused upon, namely the external strategic positioning of a hospital in its market environment and the internal positioning of a hospital with respect to its organisational structure. The conceptual findings are compared to experiences from the United States with reference to the introduction of the DRG-System there in the 1980s.