DaCHE discussion papers,
University of Southern Denmark, Dache - Danish Centre for Health Economics

Abstract: The present paper is a longer version of an article written for a special issue of Samfundsøkonomen (spring of 2015) on the work of the Productivity Commission. The mandate for the article was to discuss critically the findings and the recommendations of the Commission as regards financial management in the public sector. An extensive English summary is provided below. The Danish Productivity Commission was set up by the government in 2012 with independent experts and specialists to analyze Danish productivity trends and to come up with specific recommendations for enhancing productivity in the private and public sector. The commission among other things analyzed ’financial management’ mechanisms in the public sector, i.e. public payment for services provided by public institutions (hospitals, high schools, universities etc). Examples are payment to hospitals based on diagnosis related groupings (DRGs), municipal co-payment for regionally provided health services to the citizens of the municipality – or value-added grants to universities (payment per student and/or per examen passed, often called ‘taxameter payment’). Using reimbursement mechanisms in the health care as an example the commission found many of them lacking as regards incentives to create socially optimal results, not supporting/enhancing professional quality (rather than volume), and by creating incentives to focus on budgetary impact for the institution in question rather than societal impact. Hence, the tone was critical of activity based reimbursement schemes. In addition, the commission also found problems with reimbursement for ‘service chains’, e.g. patient related services from different authorities like municipality, region and general practice linked together in patient pathways, and collaboration across these jurisdictions. Hence, the overall recommendations were to ensure socially optimal reimbursement mechanisms. The commission focused more on criticism than on proposing alternatives. The Commissions discussion of the DRG-system and municipal co-financing is analyzed critically against theoretical and empirical evidence. It is found lacking for DRG, in particular due to almost total absence of solid empirical evidence (as compared to ‘case stories’), e.g. does DRG negatively impact professional quality, and for assuming perfect rational hospital and clinician behavior without regard for intrinsic motivation. The Commission’s analysis of municipal co-financing including the proposal to change the system only to include regional health services is spot on and here supplemented with some often overlooked points when setting up this type of incentive system. JEL Classifications: H5, I18,

Keywords: DRG; municipal co-financing; incentives; reimbursement; evidence

JEL-codes: I10; I18; I28

24 pages, April 10, 2015

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