12 March 2025
A new WHO/Europe policy paper explores a key aspect of Kyrgyzstan’s transformative health system reforms – the development and evolution of Diagnosis Related Groups (DRGs). DRGs form the foundation for a case-based hospital payment system which classifies hospitalized patients into standardized groups, determining how much money hospitals receive based on factors such as diagnosis, comorbidities, complications, procedures performed and patient characteristics. This ensures more accurate resource allocation for hospitals.
Over the past few decades, Kyrgyzstan has implemented health system reforms aimed at improving efficiency and equity, particularly in health financing, including purchasing and hospital payment methods. Finalized in late 2023, with implementation set to begin in 2025, the revised DRG system features a refined and updated algorithm to optimize hospital payments and resource allocation.
“Kyrgyzstan’s journey of more than 25 years offers a compelling example of how strategic, data-driven reforms can transform a health system, even in very resource-constrained settings. The lessons learned are not only applicable to Kyrgyzstan but also provide valuable insights for other low- and middle-income countries seeking to strengthen their health systems and achieve better health outcomes for their populations,” said Joseph Kutzin, the former Head of WHO’s Health Financing Team globally, who was WHO Policy Advisor in Kyrgyzstan from 2000 to 2003.
Reducing hospital sector inefficiencies
In the mid-90s, Kyrgyzstan’s health sector faced a dire economic situation. Nearly one fifth of all public spending was absorbed by heating and electricity costs in hospitals. Major infrastructure downsizing became a priority, as well as service delivery reforms to enable more public spending to be devoted to items such as medicines. To meet these challenges, the introduction of DRGs in 1997 by the new Mandatory Health Insurance Fund (MHIF) aimed to reduce hospital sector inefficiencies through new provider payment incentives and granting hospitals a degree of autonomy over the use of these funds.
The experience gained during this period, from 1997–2000, was critical to understanding the new arrangements by both MHIF and hospital staff. In 2001, funding for the previously uninsured population was transferred to the MHIF, enabling the full impact of the new incentives to take effect. Rapid results were achieved, including the implementation of facility restructuring plans and a reduction in out-of-pocket payments in hospitals, especially for treatment items. The efficiency gains in hospitals allowed for a gradual shift in overall resource allocation in favour of primary health care.
"DRGs aimed to align hospital payment with patient health needs and, in combination with the pooling of budget funds in the MHIF and greater provider autonomy, granted health facility managers and doctors with the flexibility to find the most effective way to provide necessary care, while enabling the reallocation of resources that were used to enhance quality of care, pay staff bonuses and ultimately shift some resources and services to primary care settings,” explained Kutzin.
Country-led development
The development of Kyrgyzstan’s new DRG system, initiated in 2018, was guided by international best practices, the analysis of local data and improvements to coding and information systems. A key focus during this process was the institutionalization of regular DRG updates, the establishment of necessary regulations and strong stakeholder engagement to ensure sustainability.
“The recent revision of the DRG system was a key priority in the implementation plan of the “Healthy person – prosperous country” governmental programme for 2019–2030,” noted Aigul Sydykova, Health Financing Officer, WHO Country Office in Kyrgyzstan.
“During the development process, stakeholder engagement was a top priority, as it is vital for fostering country ownership. The working group, established by the Ministry of Health’s decree, brought together 18 representatives from the Mandatory Health Insurance Fund, the Ministry of Health, the E-Health Centre and clinical experts from various disciplines. This collaboration stands as a strong example of inclusive and effective teamwork,” she added.
Key lessons from Kyrgyzstan’s DRG implementation
“One of the key lessons from Kyrgyzstan’s 25-year experience is that developing a domestically tailored DRG system offers distinct advantages over adopting a system from other countries,” said Triin Habicht, Senior Health Economist at the WHO Barcelona Office for Health Systems Financing. “It allowed Kyrgyzstan to begin with a simple DRG model that matched the clinical, economic, technological and operational capacities of the MHIF and health-care providers at the time, as well as the available data. Over the years, they gradually introduced complexities into the system, driven by local needs.”
Several other lessons have been learned.
- Active use of data. Even when initial data quality is poor, actively analysing and continuously monitoring data can help identify system bottlenecks and areas for improvement.
- Monitoring hospital performance. Implementing the DRG system to monitor hospital performance is crucial for identifying areas for improvement.
- Regular adjustments. To maintain the system’s effectiveness, continuous adjustments to the DRG system and financing rules are necessary.
- Sequenced implementation. Developing the DRG system at least 2 years after updating key classification systems for coding diagnoses and surgical interventions ensures it is based on accurate data.
- Building capacity in clinical coding. Ongoing efforts to analyse data quality and build clinical coding capacity are essential for maintaining the integrity of the DRG system.
- Engagement with clinicians. Involving clinicians in developing the DRG system enhances its ownership and understanding among those who implement it.
- Dedicated monitoring unit. Establishing a dedicated unit to monitor and evaluate DRG implementation outcomes is critical for ongoing improvement.
- Applying the system to all funds. The very early phase of DRG development and implementation was essential for building capacity and understanding, but the effects were minimal until general revenue funds were pooled in the MHIF, and the payment system was applied to all cases and not solely the previously insured population. This is consistent with global evidence on the gains arising from a coherent “single payer” health financing system.
Looking ahead: challenges and opportunities
Despite progress, Kyrgyzstan still faces several challenges, including the need to strengthen primary care further, enhance facility autonomy and management and ensure that the efficiency gained is fully passed on to patients through high-quality service delivery.
However, the DRG-based hospital payment system remains central to Kyrgyzstan’s health financing system. It will play a crucial role in driving further improvements in service delivery, health system strengthening and Kyrgyzstan’s progress towards universal health coverage.
About the report
This document was prepared as part of the technical support of the WHO Country Office in Kyrgyzstan to the Ministry of Health and MHIF as part of the implementation of the state health programme “Healthy person – prosperous country” for 2019–2030. It was funded by WHO’s Universal Health Coverage Partnership. Explore more data and analysis on “UHC watch”, a digital platform tracking progress on affordable access to health care in Europe and central Asia.