PhilHealth, PIDS team up to modernize hospital financing

The Philippine Health Insurance Corp. (PhilHealth) and the Philippine Institute for Development Studies (PIDS) are jointly working to transition the country’s hospital payment system to a Diagnosis-Related Group (DRG)–based model to establish a fairer, more efficient and evidence-based healthcare financing system.

This reform is driven by a recent PIDS study that identified key weaknesses in the current All Case Rates (ACR) system. The study, titled “Kabayarang Sapat, Serbisyong Tapat, DRG Dapat: Transitioning from PhilHealth All Case Rates to a Fairer, Responsive, and Transparent Provider Payment System,” proposed a framework for change that closely aligns with PhilHealth’s RISE30 Mission.

Launched in February 2025 by PhilHealth president and chief executive Dr. Edwin Mercado following his appointment by President Ferdinand Marcos Jr., the RISE30 Mission emphasizes modernizing provider payment mechanisms.

Recommendations from the PIDS study that support this mission include adopting the DRG-based payment model, utilizing prospective payments through Global Budgets and instituting regular cost reviews and stronger data reporting systems.

PIDS and PhilHealth formalized their collaboration earlier this year through a memorandum of agreement to design and implement the DRG-based system envisioned under the Universal Health Care (UHC) Act. PIDS established the Health Economics and Finance Program (HEFP) to strengthen research collaboration on payment reforms.

PIDS researchers and data scientists are working with PhilHealth under HEFP to develop the DRG model, which classifies patients by diagnosis and severity.

This classification aims to ensure reimbursements more accurately reflect the complexity and cost of care, promoting “kabayarang sapat at serbisyong tapat”—fair compensation for hospitals, better patient protection, and greater transparency and efficiency in health financing.

The DRG model supports PhilHealth’s RISE30 efforts to enhance data-driven decision-making, streamline claims processing, and adopt prospective payment mechanisms like Global Budgets. These budgets allow hospitals to receive funds in advance based on expected service volume and performance.

“This partnership between PIDS and PhilHealth represents a landmark collaboration that integrates rigorous research with operational reform,” said PIDS senior research fellow and HEFP program director Dr. Valerie Gilbert Ulep.

“By combining the Institute’s analytical expertise with PhilHealth’s implementation capacity, we are better positioned to resolve the systemic challenges that have long affected the country’s healthcare payment system,” said Ulep.

Both agencies asked hospitals and healthcare providers nationwide to actively participate in the transition to improve the quality of care, strengthen financial sustainability, and ensure equitable access to health services for all Filipinos.

PIDS said it would host a health systems research dissemination forum, “UHC in Numbers: A Forum on the Philippines’ Progress in Universal Health Care,” on Noc. 20, 2025, at Marco Polo Ortigas Manila. Experts from PIDS, PhilHealth, the Department of Health, and other key stakeholders will present findings on UHC reforms, including the DRG-based provider payment system.