representative of all hospitals. Another technical issue is which costs are to be recognized in costing studies, e.g. how capital is to be handled. In a sense, these management and technical capacity considerations can provide guidance about steps to be taken in preparing for transition to casebased payment. The issues outlined above – policy and implementation capacity, coding, data systems and costing – can, of course, be addressed in parallel as part of a coordinated implementation plan.
Design elements A critical choice in case-based payment system design is coverage of the activity measure, such as DRGs (O’Reilly et al., 2012). Case-based payment implementation may be phased in terms of hospital functions, typically starting with inpatient activity, as this is the largest component of hospital expenditure, and also has the best developed casemix classifications. Other hospital functions typically slated for early phase-in include outpatient services and emergency department activity. Other choices include the length of the phase-in period. The longer the phase-in, the smaller the impact in any year. However, long phase-in periods add to system complexity (maintaining different funding systems in parallel), and may provide opportunities for hospitals that are adversely impacted to lobby for deferring change into the distant future. There are a number of options for phasing in case-based payments for inpatient activity (O’Reilly et al., 2012; Mathauer & Wittenbecher, 2013):
• phasing of the proportion of inpatient activity covered, e.g. phasing of the number of DRGs subject to case-based payment (and, potentially, uncapped volume) or those with long wait times;
• phasing of the proportion of the average price to be paid under new, standardized arrangements, and what proportion to be paid based on a hospital’s own, historic level of funding;
• phasing the nature of costs covered by case-based payments, e.g. non-salary costs might be covered but salary costs might be paid as input-based subsidies. “Shadow funding” arrangements
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