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"Casemix: In Pursuit of Quality and Affordability"

Speech by Minister for Health, Mr Yeo Cheow Tong, at the NHC Research and Education Lunchtime Lecture, 1.00 pm, 11th November 1998, COMB Auditorium.

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Financing pressures

Last year, Singapore spent about $4 billion or 3% of GDP on healthcare. This is low compared to 6% in the UK and 14% in the US. Our national health expenditure has remained stable at about 3% of GDP for the last decade. This was possible because we have learnt from the experiences of other countries and avoided both open-ended health insurance and free healthcare at the point of service.

While our financing policies have helped keep health costs low, other factors are also important. First, our population remains young. Only 7% of our population is elderly, compared to 10% in Hong Kong, 13% in US and 16% in UK. Second, our high economic growth over the last decade made it possible for us to afford similar rates of increase in health cost.


The population ages, the economy matures

But this situation will not last. In the next century, our population will age very rapidly. An NUS/SP study commissioned by my Ministry estimated that our national health expenditure will grow to 7% of GDP by the year 2030, due to the ageing factor alone. This rapid growth in the number of elderly persons will place our health care delivery and financing systems under great stress. Also, as our economy matures, we cannot expect to sustain the high growth rates that we had seen in the past.


Hi-tech medicine, rising patient expectations

What else contributes to rising cost? Like in the developed countries, our patients increasingly expect the best and the newest medical treatment. While it is natural for us to want the best health care possible, we should introduce new treatments only if they are proven to be cost-effective and only if the price is one which we can afford.

We have to remember that no matter who pays for health care first – whether Government, Medisave or insurance – ultimately, Singaporeans themselves bear the burden. If Government pays for it, it will have to collect more taxes. If Medisave use is to be more generous, the contribution rate will have to be raised to ensure its adequacy. If insurance benefits are increased, the premiums must go up. Therefore, to ensure that healthcare remains affordable to Singaporeans, we have to be vigilant against unnecessary increases in healthcare costs, and explore more cost-effective ways of providing health care.


What cannot be measured, cannot be improved

The key to providing more cost-effective care is to better understand what resources are used to treat patients and how these affect the outcome of the care provided. Casemix will help to accomplish this. Casemix is a logical way of classifying and describing the mix of patients in a hospital or health care system. Unlike the better-known form of disease classification – the International Classification of Diseases or ICD _ Casemix categorises patients such that those who belong to the same group have similar clinical conditions, and therefore should cost about the same amount to treat. There are many types of Casemix classifications being used in the world today. The most widely-used is the Diagnosis Related Groups, or DRGs.

DRGs have been in use elsewhere for many years. In the USA, in the early eighties, Medicare, a state insurance scheme for the elderly and disabled, first used the DRG system to pay for hospital care of eligible patients. The DRG was gradually extended to cover conditions unrelated to the elderly, such as medical conditions of children. The Australians adapted the American DRG system and came up with their own version of DRGs, called the Australian National DRGs, or AN-DRGs. We have studied the various systems available today and have decided to adopt the AN-DRG system for Singapore because it is a comprehensive, well-validated, and yet manageable system.

Casemix will allow doctors in different hospitals treating patients with similar medical conditions to compare the treatment protocols used by them, the total amount of resources used, and the outcomes achieved. They can then identify which is the most optimal and cost-effective treatment protocol. This will enhance patient care, and ensure that the patient is not subjected to unnecessary treatment which only serve to increase the size of the medical bill. Of course, there will be patients whose condition requires more than the recommended treatment. The system must therefore be flexible enough to cater for these outliers.


Improving affordability

Casemix information will also help hospital administrators and doctors to better control healthcare costs. With better cost control, healthcare will remain affordable. This benefits not only the Government, as a purchaser of service on behalf of Singaporeans, but also health insurers, employers and most importantly, the patients themselves.

Let me first explain how this applies to our public hospitals. In the past, hospitals received a fixed budget each year, regardless of the number of patients they treat. With restructuring, the hospitals are now funded on a per patient-day basis. This instils market discipline in the restructured hospitals, and motivates them to improve their efficiency.

While this method of funding has served us well thus far, we need a more rigorous funding mechanism to help us better manage future increases in healthcare costs. This is because the present funding method does not adequately take into account the differences in resources needed to treat different medical conditions. Moreover, the longer the patient stays in hospital, the more the hospital gets. Let me give you a simple illustration. Take the case of a relatively simple procedure like haemorrhoids. A patient goes to hospital A and stays 2 days. Another patient goes through an equally uncomplicated operation and stays in hospital B for 4 days. Under our present system, MOH would pay hospital B twice as much as hospital A for the same treatment.

Casemix funding will change this. The Government will give higher subsidy for medical conditions that require more resources. Since medical treatment in each DRG requires the use of very similar resources, funding based on DRG will be fairer to the public sector hospitals. Furthermore, Government will give the same subsidy to all hospitals for the same DRG. This will encourage the hospitals to search for more efficient and cost-effective treatments while maintaining the quality of the outcome.

Casemix also enables us to set Medisave withdrawal limits according to resources needed to treat patients for each medical condition. Currently, the Medisave withdrawal limit is $300 per day, regardless of the medical condition. Had the withdrawal limit been set too low, Singaporeans will have to make large out-of-pocket cash payments for their hospital care. But if the withdrawal limits are set too high, patients may be tempted to opt for the frills in higher class wards at the expense of conserving Medisave for their old-age needs. To strike a better balance, the Medisave withdrawal limit should be proportional to the resources needed to treat their medical condition. Casemix will make this possible.

Similarly, the MediShield claim limits should vary according to the Casemix. Private insurers can also take advantage of Casemix information to provide more cost-effective insurance policies.


The case for limiting private sector charges

But for Singaporeans, the most visible impact of Casemix will be when it is used to limit private hospital charges. The Government’s intention to do this was announced in 1993 in the White Paper on Affordable Health Care.

We all know that the health care market is an imperfect one. The pricing of health care cannot be left totally to the free market. For a start, the patient is not in a position to dispute the treatment prescribed by his doctor or to bargain with the doctor. To be successful in constraining hospital charges, it is not enough to just regulate the public hospital charges. This is because the public and private healthcare markets are inter-linked. The uncontrolled private hospital charges translate into very high earnings for many of the specialists in the private sector. As a result, the public sector has had to continue increasing the salaries of its health care professionals to avoid losing too many of our best. These higher salaries are then passed on to patients as higher fees. To avoid this vicious cycle, it is also necessary to regulate private hospital charges.


Introducing Medisave charging limits

In the US, doctors participating in Medicare are not allowed to charge more than 15% above an approved amount. Any overcharges must be refunded to the patients. The private health insurance companies also have their own controls on what the doctors are allowed to charge for each medical condition.

In Singapore, about half of each private hospital bill is paid using Medisave. The Medisave scheme allows Singaporeans to save for their hospitalisation needs when they are healthy and lighten the burden of cash payment when they are hospitalised. However, the success of Medisave has enabled the private sector to charge more, and helped Singaporeans to pay these higher charges. Therefore, one way of influencing charges in private hospitals is to set limits on what the service providers can charge for each medical condition whenever Medisave is used. Only those hospitals and specialists which accept the set limits will be accredited to treat patients wishing to use Medisave to pay part of their bills. Casemix will allow us to determine this charging limit with greater accuracy, and ensure that is fair to both the patient and the service provider.


Implementation schedule

As Casemix will change the way we deliver and fund health care, my Ministry has adopted a phased approach in its implementation:

a) A pilot run was started first in Changi General Hospital and the National Heart Centre in May this year. Since October, this pilot was extended to all the public acute hospitals. During the pilot run phase, important clinical and financial data will be collected. These are necessary for the development of the Casemix system. We will also use this phase to refine the operational procedures in the hospitals.

b) By the year 2000, the Government plans to start using Casemix as the basis for funding our public hospitals.

c) As we gather more experience with Casemix, the Government will adapt it to regulate private hospital charges for Medisave patients. We expect to do this in 3 _ 5 years’ time. We will work closely with the private sector on the details of the scheme to ensure its smooth implementation.

d) We have sent several groups of people to Australia to study their Casemix system. We have also brought in experts from Australia to advise us on the implementation of Casemix.


Public concerns about Casemix

Now let me address some of the concerns of introducing Casemix. One concern is whether Casemix funding will lead to lower quality of care. Will hospitals discharge patients "quicker and sicker"? My Ministry will make sure that this will not be the case. My Ministry has always been monitoring key quality indicators. For instance, our average length of stay in the public sector hospitals is about 5 days. This is a very good achievement by any standard. Our doctors are expected to be no less professional in their assessment of patients when Casemix is in place. I can assure Singaporeans that my Ministry will continue to monitor key indicators to ensure that patient care is not compromised. There is therefore no need for patients and their families to worry that they will be discharged prematurely. My Ministry will also be studying ways of using the Casemix information to further enhance the quality of care provided by hospitals.

Besides quality of care, some may also be concerned that Casemix is a means for Government to reduce healthcare subsidy. Again, I can assure Singaporeans that this is not the Government’s intention. We expect the introduction of Casemix funding to be subsidy-neutral during the initial years. In other words, Singaporeans will get as much subsidy as they did before. Over time, as Casemix helps the hospitals and doctors to evolve more cost-effective treatment protocols and improve efficiency, it will benefit Singaporeans even more. In other words, Singaporeans should benefit from getting even better outcomes from the money that Government will continue to spend on healthcare.


How should health providers prepare themselves for this change

My Ministry will invest a great deal of time and energy to develop and implement Casemix. However Casemix, by itself, does not lead to better quality care for patients. To do this, we will need the leadership, and participation of all health care professionals.

Casemix is a common language for us to discuss issues related to quality of care. For example, today, we cannot accurately compare outcomes between hospitals or doctors because we cannot be sure if the patients are really suffering from the same acuity in their medical conditions, or because one hospital or doctor is better than the other. With Casemix, we can adjust for differences in the types of patients. We can then conclude fairly accurately that any remaining differences in outcomes are due to differences in the way the patients are treated. Such comparisons enable our hospitals and doctors to better understand where they are doing well, and where they can further improve. Ultimately, it contributes to the practice of good and cost-effective medicine. Everyone, from the hospitals, doctors, paramedical staff to patients will benefit.

The clinicians must lead in using Casemix to assess, audit and compare the outcomes of care given. The best practice should be shared by all through the development of evidence-based clinical guidelines and pathways.

The health administrators can use Casemix to better understand the cost behaviour of their care delivery processes. You need to work closely with the doctors and nurses to explore objectively the most cost-effective way of delivering care. This will help minimise unnecessary duplication and waste.



To summarise, Casemix is indispensable in strengthening the practice of institution-based medicine. Evidence-based clinical guidelines and pathways serve to guide and inform the individual doctors’ practice. It will help ensure that patients are given the most appropriate and cost-effective medical treatment. Casemix will allow us to manage the rising health costs due to our ageing population and the rapid developments in medicine, in a way that our maturing economy can afford. It will help ensure that where proven to be cost-effective, new technology can and will be quickly incorporated for the benefit of Singaporeans.

The pricing of health care cannot be left totally to the free market. The relationship between the doctor and the patient will always be an unequal one. The health financing system must therefore limit specialist and hospital charges to a reasonable level. This is already being done in the public sector. In 3 _ 5 years’ time, Medisave will evolve into a purchaser of private sector medical services and help to constrain escalation of private sector charges.

With Casemix, it would be possible to fairly compare outcomes of hospitals and doctors. Singaporeans, who will be paying a rising proportion of their income on health care, will want to know better what they are paying for. With increasing education, they will demand it. Hospitals will have to provide it.

Let me conclude by saying that quality and affordability need not be a matter of trading off one for the other. With Casemix, we can have both. Casemix is a bold new step for Singapore. It will revolutionise the way health care is delivered and facilitate the search for more cost-effective care. All of you have a stake in this mission. Let us together take this great opportunity to further improve health care in Singapore in the next century.