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Activity based payment in hospitals: Evaluation

Partner Institute: 
Institut de Recherche et Documentation en Economie de la Sant (IRDES), Paris
Survey no: 
(15) 2010
Zeynep Or
Health Policy Issues: 
Remuneration / Payment
Reform formerly reported in: 
Reform of Hospital Payment System
Current Process Stages
Idea Pilot Policy Paper Legislation Implementation Evaluation Change
Implemented in this survey? no no no no no yes no


Activity based payment (ABP) was first introduced in 2004/2005 to pay for acute care services with the objectives of: improving efficiency; creating a ?level playing field? for payments to public and private hospitals; improving the transparency of hospital activity and management; and improving quality of care. So far, ABP does not appear to have achieved any of its announced objectives. Results from recent evaluations are presented and discussed.

Purpose of health policy or idea

Activity based payment (ABP) was first introduced in 2004/2005 to pay for acute care services (including home hospitalisation) with the objectives of: improving efficiency;  creating a "level playing field" for payments to public and private hospitals; improving the transparency of hospital activity and management; and improving quality of care.

Under the ABP system, the income of each hospital is linked directly to the number and case-mix of patients treated as defined in terms of homogeneous patient groups (GHM, Groupe Homogène des Malades). The current version (v11) of the GHM classification, which was introduced in January 2009, accounts for 2291 groups compared with 784 in the previous version.

Before the ABP, two different funding arrangements were used to pay public and private hospitals. Public and most private not-for-profit hospitals had global budgets, mainly based on historical costs, while private for-profit hospitals had an itemised billing system with different components: daily tariffs covering the cost of accommodation, nursing and routine care; and separate payments for each diagnostic and therapeutic procedure carried out, with separate bills for costly drugs and physicians' fees. 

The implementation of ABP has been progressive. In public hospitals, the share of all activities paid by the ABP has increased gradually each year: from 10 percent in 2004 to 25 percent in 2005 and reaching 100 percent in 2008. Private-for-profit hospitals have been paid entirely by the ABP since February 2005. A transition period is in place until 2012, where "national prices" are adjusted for each provider taking into account its own historical costs/prices.

Price setting

The GHM prices (tariffs) for each service are set annually at the national level based on average costs. Nevertheless, there are two different sets of tariffs: one for public (including private-non-profit) hospitals and one for private for-profit hospitals. The initial objective of achieving price convergence between the two sectors in 2012 was recently pushed back to 2018. Cost calculation methods underlying the prices and what is included in the price differ between the public and private sectors. The tariff for public hospitals cover all of the costs linked to a stay (including medical personnel, all the tests and procedures provided, etc.), while those for the private sector do not cover medical fees paid to doctors (paid by fee-for-services) and the cost of biological and imaging tests (scanner, etc.) which are billed separately.

Extra payments

Public hospitals (and private hospitals participating in so called "missions") receive additional payments to compensate for specific "public missions", including: education, research and innovation-related activities; activities of general public interest such as to meet national or regional priorities (e.g. developing preventive care); and the financing of investments in infrastructure contracted with the Regional Hospital Agencies.

Costs of maintaining emergency care and related activities are paid by fixed yearly grants, plus a fee-for-service element taking into account the yearly activity of providers.

Finally, a restricted list of expensive drugs and medical devices is paid retrospectively, according to the actual level of prescriptions made. Expenditure on these drugs and devices has increased by 37 percent between 2005 and 2007.

A macro-level control of volume and price

In order to contain the level of hospital expenditure, national level expenditure targets for acute care (with separate targets for the public and private sector) are set by the parliament. If the actual growth in volume exceeds the target, prices subsequently go down.

Main points

Main objectives

The stated objectives of the reform are: improving efficiency; creating a "level playing field" for payments to public and private hospitals; improving the transparency of hospital activity and management; and improving quality of care.

Type of incentives


Groups affected

Public and private hospitals, Social security funds, Regional hospital agencies, patients

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Characteristics of this policy

Degree of Innovation traditional traditional innovative
Degree of Controversy consensual highly controversial highly controversial
Structural or Systemic Impact marginal rather fundamental fundamental
Public Visibility very low high very high
Transferability strongly system-dependent rather system-neutral system-neutral

Political and economic background

The introduction of the activity based payment was part of the government's (elected in 2002) hospital reform plan "Hospital 2007" which aimed to reinforce public hospitals' autonomy and efficiency (Zeynep Or. "Hospital 2007". Health Policy Monitor, 10/04/2007. Available at

Purpose and process analysis

Current Process Stages

Idea Pilot Policy Paper Legislation Implementation Evaluation Change
Implemented in this survey? no no no no no yes no

Origins of health policy idea

See previous reports:

Zeynep Or. "Hospital payment reform". Health Policy Monitor, March 2005. Available at

Zeynep Or. "Hospital 2007". Health Policy Monitor, April 2007. Available at

Initiators of idea/main actors

  • Government
  • Providers
  • Payers

Approach of idea

The approach of the idea is described as:

Stakeholder positions

At the beginning both public and private hospitals and all of the medical organisations involved agreed with the major principles of the reform and the proposed new method of financing. The need for more transparency, efficiency with better and more autonomous management in public hospitals has long been recognised by most stakeholders. Private sector hospitals, providing one third of all inpatient care and more than half of all surgery, on the other hand, have seen the new system as an opportunity for improving their market share.

However, this initial consensus on the reform did not continue for long once the actual implementation of the new system is started.  

See below.

Actors and positions

Description of actors and their positions
Ministry of Healthvery supportivevery supportive strongly opposed
Public hospitalsvery supportiveopposed strongly opposed
private hospitalsvery supportivesupportive strongly opposed
Social Health Insurance Fundvery supportivevery supportive strongly opposed
Complementary insurance fundsvery supportiveneutral strongly opposed

Influences in policy making and legislation

See previous reports.     

Legislative outcome


Actors and influence

Description of actors and their influence

Ministry of Healthvery strongvery strong none
Public hospitalsvery strongstrong none
private hospitalsvery strongneutral none
Social Health Insurance Fundvery strongvery strong none
Complementary insurance fundsvery strongneutral none
Ministry of Health, Social Health Insurance Fundprivate hospitalsComplementary insurance fundsPublic hospitals

Positions and Influences at a glance

Graphical actors vs. influence map representing the above actors vs. influences table.

Adoption and implementation

Both public and private hospitals complain about the problems linked to the implementation process, in particular, the lack of clear information on DRG grouping updates and transparency of prices. The methods of calculating tariffs and the base prices used in public and private sector are not clear at all.

The construction of the "MIGAC budgets" for public hospitals to finance the education, research activity and other "public missions" is also unclear. The private sector claims that this budget is used as a mechanism to cover actual efficiency deficits of public hospitals, while public sector asks for better evaluation of the value of their "public mission".

Moreover, the macro-level regulatory mechanism creates confusion and an extremely opaque environment where it is very hard for the hospitals to predict their income based on their activity. With a level and range of activity being equal, a hospital could get less funding, because of the production decisions of other hospitals. For example, because the increase in activity in 2005 was higher than the targets set, the government reduced GHM prices by 1 percent in 2006. Subsequently, overall activity went down about 3.5 percent in 2007, but it is difficult to say how much of this was in areas deemed "desirable". It is difficult for most providers to see clearly what will be their budget situation by the end of the year.

Increasingly, attention is also being paid to the implications of a unique payment system with one price and limits of public hospital governance to deal with this new financial environment. The government, with the active support from private hospital federation, pushes for one price which would mean in practice price reductions for publics hospitals and price increase for private ones since tariffs are based on average costs.

Monitoring and evaluation

No national evaluation is currently available on the effects of ABP on measurable outcomes, including activity rates, readmissions, and throughput (length of stay, etc.).

Several committees were set up initially by the Ministry of Health to monitor the impact of the new payment policy on the productivity and quality of hospitals. Despite their ambitious names and missions, very few reports have been issued by these committees working under the Minister.

No external and independent evaluation is commissioned.

Results of evaluation

The first evaluation report has been published in September 2009 (Mission T2A, 2009). The report examines the financial situation of the health care facilities since the introduction of activity based payment, questions the coherence between the incentives provided by the activity based payment and regional hospital planning, and examines organizational change in hospitals.

According to the report, the financial situation of private hospitals has improved generally since 2004, while that of public hospitals has deteriorated. Over the period 2003 to 2007, average costs seem to increase faster than the production revenues in public hospitals (especially in teaching and big general hospitals), whereas overall turnover and profitability of private hospitals has grown about 8 percent and 4 percent, respectively, over the period 2005 to 2006. In 2007, one over three public hospitals was in deficit, with a total budget deficit of about 500 million Euros. The report points out that it has been difficult for the public hospitals to reduce their costs despite a slight increase in their activity.

The organizational changes in hospitals due to activity based payment are also examined. The results of a survey carried out in 800 hospitals suggest that, while hospitals did understand and integrate the logic of activity based payment, their effort has been concentrated on modifying the structure of their activity (through transfers, hospital mergers, etc.) rather than trying to improve efficiency. There has been little change in medical and human resource management.

Finally, the report points out the incoherence between the incentives provided by the ABP and regional health plans aiming to assure a needs-based distribution of hospital resources. Currently, the development of the regional health plans is unconnected from financial planning and often ignores the financial constraints faced by hospitals. But when there is a conflict, the priority is given to assuring access to care.

A second report, an evaluation by the Auditor's Office (Cour des comptes), within the framework of its yearly evaluation of public accounts, is much more critical. The report of the Auditor's office concludes that:

-  Activity based payment has become a very opaque mechanism of cost control for managers and local regulators;

-  The measurement and follow-up of hospital resources (revenues) is inadequate.

The Auditor's Office criticizes severely the ambiguous process of fixing prices given that it is not always clear what is included in the price and what is not. There also seem to be a gap between theory and practice.

To finish, the Auditor's Office estimates that within the hospital in-patient budgets, the categories which are not included in DRG prices escalated between 2005 and 2007: the expenditure for expensive drugs and medical devices increased by 37 percent and other daily supplementary payments by 21 percent, against an average of a 4 percent increase in DRG prices. 

Expected outcome

Activity based payment in France does not appear to have achieved so far any of its announced objectives in terms of improving efficiency, transparency and fairness of funding and quality.

Cost data is missing to identify efficient providers, to understand the differences in medical practices and to monitor any changes in behavior of the various actors.

The monitoring of care quality is also inadequate where basic indicators such as readmission and mortality rates are not routinely available.

The playing field is not much fairer since the GHM prices do not cover the same cost items in public and private hospitals and extra-GHM payments are still opaque. Better monitoring is also required on hospital expenditure that falls outside of the GHM system.

Moreover, the macro-level volume-price control mechanism appears to be counter-productive or ineffective. A contractual approach giving individual providers clear volume and quality signals could improve both efficiency and care quality.

Impact of this policy

Quality of Health Care Services marginal neutral fundamental
Level of Equity system less equitable system less equitable system more equitable
Cost Efficiency very low low very high

No information is available to evaluate the impact of this policy on care quality.

Concerning efficiency/productivity improvements, the situation is unclear. Overall, both public and private hospitals appear to have reacted to ABP by increasing their activity in 2005, the year of its introduction. In public hospitals, both inpatient (1,5 percent) and day cases (5 percent) have increased, while in private sector there seems to be a shift from inpatient to ambulatory surgery with a 3 percent reduction in inpatient care and 9,5 percent increase in day cases.

However, it is not clear how much of this rise in ambulatory activity represents an increase in efficiency, and how much is due to miscoding or over-supply of services. The external audits by the Health Insurance Funds revealed that some of this increase was due to "up-coding" of ambulatory consultations. In 2006, the Ministry of Health issued a decree providing a more strict definition of "ambulatory stays". Subsequently, the overall number of day cases fell by 8 percent in 2007 (4 percent and 10 percent in the public and private sectors, respectively).

While no evidence is available on the impact on equity, there is a risk of overspecialisation (a form of patient selection) to avoid high cost patients in particular in the private sector. Given that in some areas private sector provides up to 80 percent of the surgery, this might be a potential problem for some patients. But there is no analysis of the hospital activity to confirm or reject this possibility.


Sources of Information

DREES (2009). Rapport d'activité du Comité d'évaluation de la T2A, DREES, Septembre 2009.

Cour de Comptes (2009). La Securité Sociale, chapitre 7, La mise en place de la T2A : Bilan à mi-parcours, February 2009.


Reform formerly reported in

Reform of Hospital Payment System
Process Stages: Policy Paper

Author/s and/or contributors to this survey

Zeynep Or

Suggested citation for this online article

Zeynep Or. "Activity based payment in hospitals: Evaluation". Health Policy Monitor, April 2010. Available at