DRG payment, financial signals, and low-value hospitalizations in China

Objective To examine whether China’s Diagnosis-Related Group (DRG) payment reform is associated with low-value inpatient admissions—defined as entire hospitalizations of questionable necessity—and to identify the primary drivers of this type of care. Methods We developed a new rule to identify low-value admissions using claims data, synthesizing international standards and Chinese health policies. We conducted a analysis of all DRG payment records (2022–2024, N = 251,811) from a large tertiary hospital in a region that adopted the reform early. A multilevel mixed-effects logistic regression model was applied, with the DRG Medical Expense Ratio (DER)—a measure of profitability at the case level—as the key explanatory variable. Results The overall incidence of low-value hospitalizations was 4.86% and rose by 76.5% from 2022 to 2024, resulting in insurance expenditures of 51.23 million Chinese Yuan. Admissions with the highest profit margins (low DER) were significantly more likely to be low-value (high vs. low DER: OR = 0.056). By 2024, 80.74% of low-value cases were classified as “check-up dominated” admissions. Conclusion Within the DRG payment environment in China, the financial incentives created by the reform are associated with hospitals admitting patients for low-value, low-complexity care, effectively shifting rather than eliminating waste in the healthcare system.