Effects of Activity-Based Hospital Payments in Israel: A Qualitative Evaluation Focusing on the Perspectives of Hospital Managers and Physicians

Background: Since 2010, Israel has expanded the adoption of procedure-related group (PRG) based payments for hospitals. While there is a rich quantitative literature that assesses the effects of payment reforms on efficiency or quality of care, very few qualitative studies have focused on the impacts of diagnosis-related group (DRG)-like payments on hospitals from the perspective of hospital workers as change agents. Methods: We used a qualitative, thematic analysis based on 33 semi-structured in-depth interviews with chief executive officers (CEOs), chief financial officers (CFOs), ward directors and physicians conducted in five public hospitals in Israel, sampled by maximum variation according to hospital characteristics. Results: Interviewees reported that the payment reform led to organizational changes such as increased transparency and enhanced supervision. Interviewees also reported several actions in response to the economic incentives of PRGbased payment. These included (1) shifting activities to afterhours and using operating rooms (ORs) more efficiently to enable increased surgical volumes; (2) reducing costs by shortening lengths of stay and increasing cost-consciousness in procurement; and (3) increasing revenues by improving coding and selecting procedures. Moderating factors reduced the effects of the reform. For example, organizational factors such as the public nature of hospitals or the (un)availability of healthcare resources did not always allow hospitals to increase the number of cases treated. Also, conflicting incentives such as multiple payment mechanisms or underpricing of procedures blurred the incentives of the reform. Finally, managers and physicians have many other considerations that outweigh the economic ones. Conclusion: PRG payments affected the organizational dynamics of hospitals and changed decision-making about admission and treatment policies. However, such effects were moderated by many other factors that should be considered when shaping and analyzing hospital payment reforms.