Optimizing DRG-based payments for diabetes in China: evidence from cost variations across types and complications

Diabetes subtypes differ substantially in treatment modalities, and complications further diversify clinical care pathways. Under China’s Diagnosis-Related Groups (DRG) payment framework, where case grouping is primarily based on complication severity without differentiating diabetes subtypes, the combined impact of diabetes type and complication severity on hospitalization costs remains underexplored. Examining cost variations and provider incentives under DRG is critical for optimizing resource allocation, improving health outcomes, reducing access disparities, and aligning care delivery with insurance systems. This retrospective cross-sectional study analyzes 12,202 hospitalization cases of type 1 diabetes mellitus (T1DM), type 2 diabetes mellitus (T2DM), and unspecified diabetes with complications from a large tertiary hospital in central China (2019–2021).Descriptive statistics and multiple regressions are used to analyze the differences in treatment costs between different types of diabetes in different DRGs. Mean hospitalization costs (RMB) for T1DM, T2DM, and unspecified diabetes were 7,143/8,997, 9,101/9,933, and 8,982/12,316, respectively (without/with Major Complications or Comorbidities (MCCs)). Hospitalization costs and length of stay significantly increase for all diabetes types when MCCs are present. T2DM incurs higher total costs and its subsets (Western medicine, examination, laboratory, and surgical fees). T1DM has higher treatment fees and a longer stays. Unspecified DM cases exhibits even greater cost impacts. DRG groupings have mixed effects, most show significant positive impacts. Total costs were 17% higher (95% CI, 8% − 25%, predicted mean difference: ¥1,214 Yuan) for T1DM with MCCs, 11% higher (95% CI, 8% to 14%, ¥1,001 Yuan) for T2DM, and 31% higher (95% CI, 22% − 40%, ¥2,784 Yuan) for unspecified diabetes. There are significant differences between T1DM, T2DM, and unspecified diabetes cases regarding the presence or absence of complications when coding the DRG group for diabetic patients. This study reveals the positive impact of the DRG policy, but there are costs differences in grouping rules among different types of diabetes patients. To enhance personalized care, reduce costs for patients, and improve grouping consistency, hospitals should prioritize chronic disease coding, outline structural costs by diabetes type, and develop standardized treatment protocols to minimize unnecessary expenditures.