HRGs are the UK equivalent to the DRG's used in other countries. HRGs were introduced in the UK in response to what was perceived to be unacceptably high variation in costs between acute providers. An ideological statement was made that the 'same' admission should cost the same across all types of provider and that casemix was the sole source of cost variation. A statement which was somewhat unsupported by the evidence even back in the early 1990's

It would seem that this flawed assumption has led to a system of calculating average costs that do not reflect the huge variation in the cost of the same procedure conducted in different specialties. After all, what appears to be the same procedure conducted by a Plastic Surgeon should cost more than the apparent same procedure conducted by a Dermatologist, etc. Teaching hospitals should cost more than a general hospital and those hospitals which adopt new technology to give enhanced patient benefits will cost more than one which retains older methods. It would appear that HRG's and PbR have inadvertantly introduced greater inbalances in financial flows than the perceived problems they sought to remedy!

Governments around the world are seeking to shift the responsibility for containing rising healthcare costs onto primary care. There are some serious limitations of such an approach if it is operated within a capitated budget. Firstly the financial risk associated with a population of less than 100,000 head is unacceptably high. There are very few GP practices with 100,000 patients! Secondly the risk associated with the very high cost elements of acute care (heart transplants, high cost drugs, etc) require a combined risk pool over one million head to avoid the risk pool itself becoming a source of financial risk.

Studies by HCAF show that the risk associated with emergency admissions is up to 3-times higher than simple chance-based variation. It would seem that PBC exists within a statistical conundrum. The idea sounds good but the real world of financial risk defeats the good intent. For PBC to thrive it must be backed by detailed actuarial studies to determine exactly what aspects of acute care should be within the scope of PBC. For example, what mix of elective and emergency HRGs should be covered or should PBC groups be allowed to choose which HRG they wish to concentrate on?

A modest investment in some actuarial studies will give greater clarity as to which policies & projects will have the greatest impact. Refer to the 'Financial Risk' folder for more details.