A startling revelation from a recent study exposes how the Philippine Health Insurance Corporation (PhilHealth) continues to burden both hospitals and patients by using payment rates that have remained unchanged for over a decade, despite sitting on massive reserve funds and its commitment to universal health coverage.
Case Rates Frozen in Time
Research conducted by the Philippine Institute for Development Studies (PIDS) reveals that PhilHealth's "All Case Rates" (ACR) system, implemented in 2013 to standardize hospital payments, has failed to adapt to the actual costs of medical care. The system pays hospitals a fixed amount per illness or procedure, regardless of how severe a patient's condition might be.
Out of 8,869 existing case rates, a staggering 99.9% have never been updated since their introduction in 2013. During the same period, hospital inpatient service costs increased by an average of 3.4% annually. This mismatch has caused the real value of PhilHealth reimbursements to plummet by approximately 40% over the past ten years.
The study authors explained, "While PhilHealth's nominal reimbursement has remained the same, its real peso value has declined, and hospital charges have continued to rise." They highlighted the case of normal childbirth, which has been fixed at P6,500 for years. Due to inflation, this amount was worth only P3,900 in 2023—far less than what hospitals actually spend to provide care.
Financial Strain on Hospitals and Patients
The consequences of these outdated rates are severe for both healthcare providers and patients. Between 2018 and 2023, average hospital charges surged by 51 percent—from P23,852 to P36,130—while PhilHealth reimbursements stayed around P11,000.
The study found that 98.8% of hospital claims now exceed the established case rates, forcing hospitals to operate at a loss for covered services. Patients must then cover the remaining balance, with out-of-pocket payments comprising about 44% of total health spending nationwide.
Researchers identified fundamental design flaws in the ACR system. The flat-rate approach doesn't account for differences in case severity or additional health conditions. "Bundling must be fair and appropriate so that it accounts for the costs of a wide range of complexities in health care," the authors emphasized.
The current system becomes even more problematic for complex cases, as PhilHealth pays for only up to two case rates per patient, with the second diagnosis reimbursed at just 50% of the standard rate. This effectively penalizes hospitals that treat patients with multiple or complicated conditions.
Delayed Payments Compound the Problem
Beyond inadequate payments, hospitals face significant delays in reimbursement processing. In 2023, even the most straightforward claims took a median of 87 days to process, while those requiring corrections averaged 221 days—more than seven months.
Hospitals typically spend about 49 days preparing and filing claims after patient discharge. Once submitted, PhilHealth takes another 31 days to process and pay. These delays severely strain hospital cash flow and threaten the financial stability of smaller facilities, particularly in provincial areas where most low-income Filipinos seek care.
The Path Forward: Diagnosis-Related Groups
The PIDS study recommends that PhilHealth transition to a Diagnosis-Related Groups (DRG) payment model, an evidence-based system that classifies patients by diagnosis, severity, and resource requirements. This ensures reimbursements match the actual complexity of care provided.
"Payments based on DRGs are more realistic, offering better financial coverage for both providers and patients," the authors stressed.
Under the proposed reform, hospitals would receive prospective payments through a Global Budget arrangement as mandated by the Universal Health Care Law. Instead of waiting months for reimbursements, hospitals would receive their allocated budget at the start of the fiscal period, allowing better financial planning and smoother operations.
The researchers cautioned that one-off rate increases won't solve the system's fundamental design flaws. Despite having a P600 billion reserve fund in 2024 and recent announcements of a 30% across-the-board rate hike, PhilHealth has yet to undertake systematic updates of its payment structure.
"Resolving the underlying design issues of the payment system requires reform to the entire provider payment mechanism as mandated by the UHC Law," the authors concluded, emphasizing that proper implementation of DRG and Global Budget systems could better align incentives, reward efficiency, and promote transparency in healthcare financing.
