* The hospital reform in Germany has officially come into effect at the beginning of 2025. However, how the reform will be operationalized and implemented in practice remains uncertain. This article provides an assessment of the information available as of February 2025. We recommend regularly consulting official sources to stay informed about new developments.
This article is part of a two-part series designed to provide expert insights for medtech companies. Read here for an in-depth look at the reform itself and its implications for hospitals. To discover what these changes mean for your business, don’t miss the second article in our series. With Simon-Kucher’s expertise, we’ll help you navigate these transformations and stay ahead in the industry.
Background: The need to reform the German hospital system
The German hospital landscape has faced increasing financial and structural challenges over the past years. Many hospitals, particularly in rural areas, are struggling with financial stability due to low patient volumes and limited state funding for infrastructure. The current DRG system has been criticized for creating an emphasis on case numbers, which has contributed to imbalances in healthcare distribution. Urban clustering causes hospital closures and rural service gaps, while workforce shortages and high workloads further strain the system, highlighting the need for reform.
To address these issues, the German health ministry, spearheaded by health minister Karl Lauterbach, introduced the Krankenhausversorgungsverbesserungsgesetz (KHVVG), a hospital reform law that came into effect on January 1, 2025. This reform aims to enhance the quality and accessibility of healthcare across Germany while ensuring financial sustainability and reducing bureaucracy across hospitals. The final implementation of all changes is expected by early 2029, supported by a 50-billion-euro transformation fund dedicated to hospital restructuring, infrastructure investments, and digital transformation.
Overview of goals, key changes, and envisioned timeline of the reform
Three key changes introduced by the hospital reform
The reform introduces three major structural changes to the hospital landscape:
- New hospital classification & quality requirements
(Definition of hospital service groups)
Hospitals will be categorized into 65 service groups, each defined by specific quality criteria and requirements, ensuring enhanced specialization and improved quality control1. The classification process will be managed by state authorities, adhering to standardized service group definitions (i.e., quality criteria) that apply uniformly across Germany. Predefined quality criteria should be considered as minimum requirements for infrastructure, personnel, and procedural capacity when providing services within each service group. Hospitals may be assigned to multiple service groups, allowing for multi-specialty institutions. In order to remain in a service group, the respective quality criteria must be upheld, and a mandated minimum case volume per year must be maintained.
1Parameters are defined for each individual service group and detailed in ‘Anlage 1’ of the official KHVVG criteria.
- New hospital type
(Implementation of cross-sector Level 1i hospital facilities)
A new hospital category (cross-sector Level 1i facilities1) is being introduced to bridge the gap between outpatient and inpatient care, particularly in rural and underserved areas. These hospitals will bundle interdisciplinary services, offering a combination of outpatient consultations and surgical services based on the AOP catalogue, inpatient services (limited to the specialties of internal medicine and/or geriatrics), and nursing services based on parts of SGB V and XI. During the transition period, remuneration will follow the system of service group hospitals (see later). However, in the future, a separate system will apply as funding is planned to be freestanding from the DRG system and will comprise a degressive daily as well as more flexible funding component. Daily rates are determined based on a facility’s specific costs, including all personnel, material, accommodation, and infrastructure costs, and are negotiated between the facility and sick funds. Outpatient services are reimbursed on a per-case basis and according to a uniform valuation standard (EBM system). Therefore, the funding source composition varies depending on the facility and its service focus.
1 Cross-sector facilities are planned to primarily evolve from existing hospitals. Bed-managing primary care centers (PVZ), regional health centers (RGZ), integrated health centers or other outpatient centers can also develop into cross-sector care facilities.
- Modified hospital reimbursement structure
(Introduction of a retention lump sum to create a hybrid financing model)
The traditional DRG system will transition to a hybrid financing model, introducing a fixed retention lump sum alongside variable current DRG-based payments. The intention behind this shift is to reduce the hospital’s dependency on case volumes. Each medical treatment case is allocated a retention lump sum according to its DRG assignment, without increasing the absolute remuneration overall1. The lump sum definition per DRG is followed by the definition of a budget per state and service group. Hospitals are then assigned pro rata shares of this budget based on its service groups and case volumes². Budget shares are initially fixed for two years, then three. Additional revenues from assigned service groups are fully compensated, retrospectively, with no budget reductions for lower revenues. To facilitate this transition, hospitals will have a two-year adaptation period before full implementation of the new funding system. The separate funding for nursing remains unchanged.
1Additional funding is provided yearly (and first in 2027) to coordinating tasks (125 million euros), pediatrics (288 million euros), obstetrics (120 million euros), emergency care/stroke units (35 million euros), special traumatology (65 million euros) and intensive care (30 million euros); the financing of the nursing budget remains unchanged.
2 During the reform's ramp-up period, state authorities specify planned case numbers for each hospital based on minimum retention volumes and regional requirements, with future allocations based on actual case volumes.
Resulting implications for hospitals
Overall, the German Hospital Reform will reshape the healthcare landscape by introducing service group hospitals, a new hospital type (Level 1i facilities), and an updated financing system. As a result of these changes, hospitals will become more specialized and heterogeneous, with service group classifications enforcing stricter quality criteria and standardization. The reform promotes a shift toward outpatient care by reducing inpatient cases through the introduction of Level 1i facilities and the retention lump sum. Moreover, integrating a retention lump sum into the current DRG system will enhance financial predictability and thereby the financial autonomy of hospitals.
Implications of the new healthcare structure
Key takeaways
- Increased financial autonomy of hospitals
A fixed funding component enhances financial predictability - Growing specialization of hospitals & heterogeneity
Service groups & quality criteria force hospitals to specialize - Outpatient shift
Retention lump sums cut inpatient cases and the introduction of novel cross-sector facility type (Level 1i) shift services outpatient
The reform brings profound changes to Germany's hospital landscape, reshaping the way hospitals operate and deliver care. Understanding these changes is essential, but staying competitive requires more than just awareness. Medtech companies must take decisive measures.
In our second article, we go beyond the overview and dive into practical, expert-backed recommendations for medtech companies to adapt, thrive, and seize new opportunities in this shifting environment. Read it here.
Thanks to Henrik Ekman for his contributions!