Setting the DRG cost weights. Content of DRG costs/cost weights

1. Setting the DRG cost weights. Content of DRG costs/cost weights Prof Ric Marshall OAM The University of Sydney.

2. Typical Patient Costing System

3. Typical program for first cost weights and schedule

4. Example data template (UNU IIGH)

5. Example data template (UNU IIGH)

6. How ready is your system? • Current readiness for product costing: • current casemix or other costing methodology. • any current specialty costing process. • need for product/patient costing – stakeholders views. • ability of hospitals/clusters to provide standard inputs: • COA financial data, standard volume statistics, approaches to overhead allocations • capacity to develop a centrally operated product costing service: • Where product costing should fit into the overall reporting structure • Broad roadmap for the development of product costing over the next several years. • International experience appropriate? • Main approaches – strengths, weaknesses. • Potential risks, problems. • Available standards.

7. USES OF UNIT PRODUCT COST • Standardised units of activity • Community based – primary/fm, specialist • Inpatients – Acute (+-ICU), Rehab, etc • Outpatients – booked/sorted • Emergency – ambulatory • Cost effectiveness measurement – accrued • National/Regional Health Accounts • Health program statistics - Annual reports • Best practice – Care model development • Budget and payments management

8. 5 major product groups 18 major product subgroups Non-admitted services DRGS

9. DRG COSTING FUNDAMENTALS • Breakdown of actual total hospital expenditure to the DRG level. • Need hospitals that can provide BOTH • activity utisation (‘cost driver’) data and • accurate, detailed financial data. • Allocating cost data from the hospital general ledger and accounting systems to DRG episodes using ‘cost driver’ resource use data (cost modeling) • Relative DRG resource allocation statistics where actual amounts cannot be obtained. Eg Nursing SWs

10. WHY LOCAL COST WEIGHTS? • DRG funding to influence efficiency in a particular setting = COST PER UNIT. • same activities required to produce local cost weights ALSO MEASURE EFFICIENCY. • costing is the key to both efficiency and quality gains in a DRG environment. • costing is essential – NOT optional – well recognised in Serbia – plan includes in 2016.

11. Hospital Information Systems Hospital Financial Data DATA WAREHOUSE Cost Sheet -Allocation Statistics • Minimum Basic Data Set-DRG Data Entry Tool • Clinical Data, DRG • Resource Consumption Data (preparecostsheet) (analysistool) (volumefile) (costfile) (CASES) Diagnosis and procedures Analysis Reports Eg PICQ Software Costing engine Cost Reports Data Analysis Reports Coding Analysis Reports

12. with reference to approaches adopted in other countries when first adopting DRGs case study - hongkongreadiness for product costing

13. Cost components: Ward medical Ward nursing Non clinical salaries Pathology Imaging Allied Health Pharmacy Clinical Care Operating rooms Emergency departments Supplies Special Procedure Suites Prostheses On-costs Hotel Depreciation DRGs DRG Statistics: Cost Weights Standard Error Number of Cases Number of Days Average Length of Stay Average DRG Cost

14. Current specialty costing process • Built 10 years ago – established processes. • Some concerns about:- • performance of the software functions and processes. • accuracy of the data – universal issue – • needs iterative improvement feedback – USE THE DATA!! • stakeholder acceptance of the data transformations. • Category totals reconcile to expenditure totals. • Reporting well established and used for overall performance assessment and reporting.

15. HA Costing System – Data Flow System Interfaces Manual Data Input Other Clinical/Non Clinical Systems (e.g. OPAS, IPAS) Pharmaceutical Supplies System (PHS) Manual Records Relevant Statistics EIS Activity Volume and Allocation Statistics Notional charges / allocation statistics Costing System Drug cost GL Cost (by cost centre aligned with Specialties) PE cost workload statistics workload statistics Human Resources Payroll System (HRPS) Laboratory Information System (LIS) Radiology Information System (RIS)

16. HA Specialty costing - output

17. HA Service Resource Utilization Profile Community Care 1.8% 2.1% Day Hospitals 2.4% 5.4% SOPD 18.8% Ambulatory 26.0% 19.2% Ambulatory 29.4% A&E 4.8% 4.8% Extended Care 14.1% 12.3% Inpatient 72.2% Inpatient 68.5% Acute Care 58.1% 56.2%

18. Current HA casemix costing methodology HA Costing System – Data Flow

19. Current casemix costing method • The key strategy is to use local data to the maximum extent practical. • Use specialty costing results and disaggregate at the patient level using length of stay.

20. Development of Cost Weights International experience • Should use as much local data as practical as cost structure of each DRG varies between countries HA’s approach  Use specialty costing results and HA length of stay (LOS)

21. Clusters’ Average Cost per Patient Day by Specialty 06/07

22. Development of Cost Weight for HA (using 06/07 data) - AMI as an Illustration Total Cost of AMI DRG No of Episode Cost per Episode DRG Med CCU Others 054101 AMI $2,581 x 8,142 BDO $7,657 x 2,424 BDO $48.1M 1,764 $27,289 318 BDO 233 BDO 054102 AMI w/CC $2,581 x 6,527 BDO $7,657 x 1,016 BDO $31.0M 961 $32,250 054103 AMI w/MCC $2,581 x 3,474 BDO $7,657 x 683 BDO 434 BDO $19.5M 543 $35,834 All DRGs $16B 1,075,401 $13,753 Note: AMI - Acute Myocardial Infarction

23. Development of Cost Weight for HA (using 06/07 data) - AMI as an Illustration Cost Weight for each DRG Cost per Episode 054101 AMI $27,289 2.0 054102 AMI w/CC $32,250 2.3 054103 AMI w/MCC $35,834 2.6 Average for All DRGs $13,753 1.0 Note: AMI - Acute Myocardial Infarction

24. Stakeholder views on HA’s need for product costing • Need for accurate cost weights ++ • Value for efficiency benchmarking + • Some interest in high level exception analysis. • Relationship to quality and performance monitoring – – • not realised – or too hard for now. • quality program indicator focused rather than protocol based – patient level service patterns therefore not of interest at this stage.

25. Hospitals and clusters reporting capability Availability of input data

26. Standardised financial reports • Standard Chart of Accounts. • Standardised use of cost centres – accrual. • Degree of customisation – posting accuracy – management centre structure – cross subsidy - accountability for inconsistency. • Relevance to internal hospital management processes, performance goals and issues.

27. Standardised activity data

28. Allocation Basis – Clinical Patient Support

29. Allocation Basis – Non Clinical Patient Support

30. Overhead allocations • INFORMATION AVAILABLE ++ • Administration, Electricity, Gas, Water, Depreciation, EMSD, Building Maintenance & Depreciation for notional costs • DATA QUALITY ?? • STANDARD DEFINITIONS +- • STANDARD PROCESSES +- • TECHNICAL CAPABILITY ++

31. Allocation Basis – Hospital Overhead

32. Data warehouse capability, capacity and use by clusters and hospitals Costing skills and capacity to develop. Understanding capacity to develop a centrally operated product costing service

33. Useful Data Warehouse Components

34. Data Warehouse Statistics • Data volume and size • 8.6m patient records • 69m inpatient, outpatient, A&E episodes • 860m laboratory results • 48m radiology examination reports • 340m dispensed drug items • 3.5 TB x 2 (Primary and Secondary • Transaction Volume • 1.8m update transactions per day

35. Information architecture vision

36. Difficulties and risks • Cost data not used by hospitals – only for cost weights – • thus process not cost effective or accurate. • Activity data problems – completeness and accuracy • (quickly resolves if used for benchmarking). • Staging rules – where the intermediate products are charged - ? Patient – department allocation rules. • Financial data problems • IFRAC, other product fractions – well developed in HA • GL posting idiosyncrasies – SCA use variations • Definitions of ‘in scope’ • Confrontational and defensive response to variations.

37. International clinical costing standards • England - http://www.hfma.org.uk/NR/rdonlyres/03048E3E-16BE-4D9E-BC54-A16FAA61ADC2/0/AcuteHealthCCS20132014.pdf • Australia – • http://www.ihpa.gov.au/internet/ihpa/publishing.nsf/Content/Australia-Hospital-Patient-Costing-Standards.htm • User groups guidelines and health insurer standards. • Eg German approach