China Unveils DRG/DIP 3.0 Payment Reform

China’s National Healthcare Security Administration (NHSA) officially released Version 3.0 of its disease-based payment grouping schemes on September 2, 2026, marking the third major overhaul of how the country’s medical insurance fund reimburses hospitals. The official notice, issued as Document No. 医保发〔2026〕22号, publishes updated technical specifications for both Disease-Related Group (DRG) and Disease-Intervention Packet (DIP) payment, with full national rollout targeted for before the end of March 2027.

The reform is designed to advance what officials call a “triple win” for medical institutions, the insurance fund, and patients, following Version 1.0 in 2019 and Version 2.0 in 2024.

What Is Disease-Based Payment?

DRG and DIP are the two technical paths of China’s payment reform. Instead of settling hospital bills item by item, medical insurance pays a bundled amount based on a patient’s disease grouping or a calculated score. The grouping scheme is the technical core of the system.

China launched pilots in 2019 and expanded them through a 2021 three-year action plan. By the end of 2023, more than 90 percent of coordinating regions had adopted DRG or DIP, and by 2025 the reform had achieved “four full coverages” — covering eligible regions, institutions, inpatient disease types, and fund expenditures.

DRG and DIP Move in Opposite Directions

A striking feature of Version 3.0 is that the two systems diverge. According to the People’s Daily report, DRG core groups increased from 409 in Version 2.0 to 492, while subgroups rose from 634 to 825. DIP, by contrast, cut its core disease types nearly in half — from 9,520 to 5,125, a reduction of 4,395 — even as case coverage rose from 92 percent to 95 percent.

Yan Bing, deputy director of the Beijing Medical Insurance Bureau and head of the DRG Technical Guidance Group, outlined five main changes. DRG 3.0 refines grouping with new high-difficulty combined-surgery categories and separates blood tumors from solid tumors. It places greater emphasis on the “one elderly, one young” groups, subdividing cases under age 6 and age 70 and above — roughly a tenth of all DRG groups — and creating three independent groups for painless delivery. Robotic-assisted surgery is now grouped separately, giving what officials describe as a clear positive payment expectation for costly innovation.

Grouping logic was also optimized: ventilator use exceeding 96 hours now enters the preliminary group only when it is the main operation. And the comorbidity lists were streamlined, with severe comorbidities cut by nearly 3,000 and general comorbidities by more than 1,500.

“The main purpose of this is to exclude some minor conditions with little impact on resource consumption, or chronic diseases unrelated to this hospitalization,” Yan said. “Only comorbidities and complications that truly consume large medical resources count. In simple terms, the layered framework is unchanged, but the conditions triggering layering have been adjusted.”

Ying Yazhen, head of the DIP Technical Guidance Group, explained that DIP merged diagnoses and procedures with similar clinical features and resource consumption while continuing to subdivide cases with markedly different costs. As DRG and DIP advance, the analysis suggests, DIP is gradually moving toward the DRG model.

First National Basic-Level Disease Types

A major addition is the first national definition of basic-level disease types, aimed at meeting public demand for care close to home. Chen Kai, deputy director of the grassroots department at the National Health Commission, said the first batch includes 31 DRG basic-level groups and 127 DIP basic-level types — 158 in total — mainly internal medicine.

Under the “same disease, same payment” mechanism, medical insurance pays the same standard for a given basic-level disease across different tiers of institutions within a coordinating region. According to an NHSA background article, the 31 DRG basic-level diseases include 27 internal medicine conditions — such as hypertension, diabetes, respiratory infections, and coronary heart disease — and four mature surgical procedures, including appendectomy and inguinal hernia repair.

Officials stressed that the list is recommended, not mandatory, and is a payment management tool rather than a division of diagnostic authority. Institutions’ autonomy over admissions and patients’ freedom to choose their level of care remain unchanged.

Warning Against Linking Payment to Doctor Pay

Huang Xinyu, director of the NHSA’s medical management department, issued a pointed warning against using payment standards as performance targets for physicians. The disease payment standard, he said, is an “average” derived from historical costs and patient group data.

“Payment method reform is not a means or purpose of cost control by medical insurance,” Huang said, adding that it is impossible to require every case to stay under the standard. He cautioned institutions not to “crudely” make doctors bear the portion exceeding the payment standard, which he said would distort normal diagnostic behavior and harm insured patients.

Pediatric Concerns and Special Cases

Pediatric care emerged as a focus. Speaking at a DIP interpretation meeting at Beijing Children’s Hospital, president Ni Xin said children “are not smaller versions of adults,” citing rapid disease changes, high medical risk, and heavy human resource investment. He called on the insurance authority to “continue to dynamically optimize pediatric grouping and weight scores” and improve the special-case compensation mechanism so that institutions “dare to admit severe cases and are willing to treat difficult cases.”

Under the new rules, DRG special-case single-negotiation cases may not exceed 5 percent of total inpatient cases, while DIP’s ceiling rises to 1 percent from 2027. Analysts note that actual approved cases remain well below these limits, suggesting room for growth and low patient awareness.

Analysis and Implications

Writing in China News Weekly, healthcare analyst Zhao Heng argued that improving efficiency is the core goal, with safeguarding medical quality as the foundation. He highlighted three priorities: refining the insurance fund’s total budget by splitting it between outpatient and inpatient and between local and non-local care; encouraging a hybrid of fixed and floating payment rates; and adjusting special-case negotiation ceilings.

Zhao cautioned that hierarchical diagnosis and treatment may have limited market impact, because large hospitals facing vacant beds and slowing revenue growth are unlikely to abandon basic-level diseases — instead strengthening cost control to keep them non-loss-making. Hospitals, he concluded, must further improve efficiency to compress costs and build competitive advantages through specialized departments.

Against a backdrop in which China’s basic medical insurance fund took in 3.59 trillion yuan in 2025 while spending about 3 trillion yuan, the stakes are considerable. Early pilot data from Chongqing, one of the first DRG cities, showed the average cost per patient visit fell 9.73 percent and out-of-pocket costs dropped 15.57 percent as of December 2025.

What to Watch

With rollout targeted before the end of March 2027, attention now turns to how provinces adapt the national framework to local conditions. Key questions remain: whether payment standards will be crudely passed down to doctors as performance targets despite official warnings, how large hospitals will respond to basic-level disease pricing, and whether pediatric and ultra-long-stay cases receive adequate compensation. The reform’s success will hinge on whether it can deliver efficiency gains without eroding the quality of care at the heart of its stated “triple win.”