DESPITE sitting on hundreds of billions in reserve funds and pledging universal health coverage, the Philippine Health Insurance Corporation (PhilHealth) continues to pay hospitals with obsolete rates set more than a decade ago, leaving them undercompensated and forcing patients to pay more.
A new study by the Philippine Institute for Development Studies (PIDS), reveals that the national insurer’s “All Case Rates” (ACR) system—introduced in 2013 to standardize hospital reimbursements—has failed to keep pace with the true cost of health care.
Instead of merely increasing rates, the study titled “Kabayarang Sapat, Serbisyong Tapat, DRG Dapat: Transitioning from PhilHealth All Case Rates to a Fairer, Responsive, and Transparent Provider Payment System (A Retrospective Policy Analysis of the All Case Rates from 2018 to 2023)” calls for PhilHealth to transition to the Diagnosis-Related Groups (DRG) payment model. This proposed reform is designed to ensure that hospitals receive fair compensation, and patients are protected from excessive out-of-pocket expenses.
Case rates stuck in time
Under the ACR system, PhilHealth pays hospitals a fixed amount per illness or procedure, regardless of the severity of a patient’s condition. Yet, of the 8,869 existing case rates, 99.9% have never been updated since 2013.
Between 2014 and 2023, the cost of hospital inpatient services rose by an average of 3.4% each year. Because PhilHealth’s case rates have not kept pace with these increases, their real value has dropped by about 40% over the past decade.
“While PhilHealth’s nominal reimbursement has remained the same, its real peso value has declined, and hospital charges have continued to rise,” the authors wrote.
For example, the case rate for a normal childbirth has remained at P6,500 for years. However, due to inflation, this amount was worth only P3,900 in 2023 — much less than what hospitals actually spend to provide care.
Consequently, hospitals are struggling to cover rising costs while trying to maintain service quality, particularly in public and provincial facilities where most low-income Filipinos seek care.
Hospitals lose, patients pay
Between 2018 and 2023, average hospital charges increased by 51 percent — from P23,852 to P36,130 — while PhilHealth reimbursements remained around P11,000.
According to the study, 98.8% of hospital claims now exceed the case rate. Hospitals often operate at a loss for covered services, and patients are left to shoulder the remaining balance. Out-of-pocket payments continue to comprise about 44% of total health spending, highlighting how Filipinos remain financially vulnerable even with insurance coverage.
The authors noted that the ACR’s flat, one-rate design does not account for differences in case severity or comorbidities. They pointed out that PhilHealth’s bundled payment system under the ACR policy fails to adequately reflect the wide range of patient conditions and costs.
“Bundling must be fair and appropriate so that it accounts for the costs of a wide range of complexities in health care: patients with more severe presentations or comorbidities may require more resources, even with the same disease,” the authors explained.
“When case rates do not consider clinical complexity, healthcare providers may face financial risk and incur losses while delivering the full range of services needed to treat complicated patient cases,” the authors added.
Under the current setup, PhilHealth pays for only up to two case rates per patient, with the second diagnosis or procedure reimbursed at just 50% of the case rate.
This structure, the authors warned, penalizes hospitals that care for more complex or multiple-condition patients, effectively passing the financial burden onto those already struggling with illness.
Payment delays add pressure
Aside from insufficient payments, hospitals also contend with slow reimbursement processes.
In 2023, even the best-performing claims — those processed smoothly without requiring corrections — took a median of 87 days to process, while those returned for corrections averaged 221 days — more than seven months.
On average, hospitals spend about 49 days preparing and filing claims after a patient’s discharge. Once submitted, it takes PhilHealth another 31 days to process and pay the hospital.
These delays strain hospital cash flow and threaten the financial stability of smaller facilities.
A way forward: Diagnosis-Related Groups (DRG)
To address these issues, the researchers recommend that PhilHealth adopt a DRG payment model—an evidence-based system that classifies patients by diagnosis, severity, and resource use, ensuring that reimbursements match the actual complexity of care.
“Payments based on DRGs are more realistic, offering better financial coverage for both providers and patients,” the authors emphasized.
Under the proposed shift, hospitals would receive prospective payments based on expected service volume and performance through a Global Budget arrangement, as mandated by the Universal Health Care (UHC) Law. Instead of waiting months for reimbursements, hospitals would receive frontloaded funds — their share of the total health budget—at the start of the fiscal period.
“Rather than being paid after every individual claim is submitted, hospitals can use the prospective payment to budget for the period and smooth the purchase of inputs,” the authors explained.
If properly implemented, the DRG and Global Budget setup could better align incentives, reward efficiency, and promote transparency, especially when supported by routine cost reviews and stronger data reporting.
Rebuilding public trust
“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 stressed.
They cautioned that one-off rate increases will not solve deeper design flaws. Even with a P600 billion reserve fund in 2024 and recent announcements of a 30 percent across-the-board hike, PhilHealth has yet to undertake systematic updates of its payment structure. PR