Setting the Scene: What are provider payment reforms?

1. Setting the Scene: What are provider payment reforms? Professor Stephen Duckett Adjunct Professor ACERH/University of Queensland Presentation to Regional Health Financing Seminar: Strategic Choices for Better Outcomes February 4 – 5, 2008 Bangkok, Thailand

2. Key issues in provider payment reform: • What problem trying to solve? • How is risk to be distributed? • What instruments/policy levers do you have available?

3. What problem are you trying to solve? • Health systems have multiple objectives • Access • Distribution of access also important (i.e. equity) • Quality • Efficiency • Vs Constrain total expenditure • Maximise patient assessed value • Reform to provider payment may attempt to • Optimise all • Maximise/minimise one, satisfice on others

4. How is risk (cost broadly defined) to be distributed? Cost here includes: • Money costs to consumers • including travel costs • Out of pocket costs • Non-monetary costs to consumers including • Quality costs • Travel time • Profit/surplus of providers • Total program costs • Service provision offset by consumer copayments

5. Risk will fall differently on those with different roles in health system • Oversight • Funder • Treasury • Patient in fully privatised system • What is in scope (medical, dental) • Nature of mutualisation pool • Purchaser • May not exist • Meso-level organisation • What is in scope (more refined), under what conditions • Provider • Owner

6. How is risk (cost broadly defined) to be distributed? • Can fall on any or all of: • Funder/Taxpayer/Contributor • Purchaser • Provider • Consumer • Design should reflect • Goals (see previous slide) • Who is best placed to manage the risk • Inevitability of gaming

7. What policy instruments/levers do you have available (NB: different equity effects) • Culture • Price • Regulation • Preferably in alignment • Different instruments can be used for different purposes • Demand • Supply

8. What price-based instruments/policy levers do you have available to distribute risk? • Demand side: • Patient contributions • Supply side: • Payment methods • How describe product • Payment amount

9. What regulatory instruments/policy levers do you have available to distribute risk? • Constraints on consumer choices (aka demand) • What providers for what services • Gate keeping (absolute, higher co-payment) • Constraints on provider choices (aka supply) • What treatments • What co-payments can be charged (autonomy) • Prioritisation of patients • Services in scope • Protocolsetc, • Second opinions

10. What policy instruments/levers do you have available (NB: different equity effects)

11. Instrument – Objective matrix Casemix funding (supply side) example

12. Services have to be funded - 1 • Less (economically) rational • History, politics aka “need” • Inputs • Salaries + other inputs • Outputs, volume • Casemix, Fee for service • Incentive payments including ‘adjunct incentives’ • Population, Capitation • Area vs consumer choice • Mix for different levels of system

13. Services have to be funded - 2 • Hierarchies • Can use market-like instruments • Increasing tendency to do so • Markets • Demand driven or not • “Soft vs hard caps” vs no cap (within budget cycle) • Incentives on providers • Tapering • ‘Volume performance standards’/ Agreements • ‘Professional payment model’ vs ‘business model’ including tenders

14. Williamson’s Transaction Cost Economicssuggests market superiority affected by: • Frequency of transactions • Asset specificity • Uncertainty (? reduced by hierarchy) • Product description

15. Ouchi Culture Analysis

16. Services have to be funded - 3 • All systems require risk adjustment (or fee schedule) of some kind • Fee schedules have tended to over compensate procedural work and correspondingly under compensate cognitive work • Risk adjustment for hospitals is called case mix • Requires ‘grouper’, updating • Risk adjustment for population • Requires population weights etc • Each liable to gaming • Requires technically skilled policy/purchasers

17. Services have to be funded - 4 • Each funding option has strengths and weaknesses • Including moral hazard of providers • Salary • Fee-for-service • Including moral hazard of consumers • Most research/experience suggest mix of methods is required to balance relative strengths and weaknesses • Who is best placed to manage which risk

18. Size of (weighted, needsadjusted) population Cost/service(eg days, tests) Services/ separation Population expenditure Utilisation rate x x x Casemix = x Risk Assessment and Skill Assignment Casemix funding Funder Hospital Population funding Purchaser Hospital Funder + Residual (perverse incentive risk)

19. Casemix issues • Prerequisites • Distribution of efficiency risks • Purchaser vs provider • Gaming moral hazard • Casemix policy doesn’t determine efficiency • P4P along side casemix

20. CASEMIX FUNDING: The prerequisites • Identification of products • Identification of output measures • for each product • Pay the price for each unit of • output measure

21. Payments and costs by length of stay Costs Payments $ High Boundary Low Boundary Sameday Length of stay

22. Theoretical funding risk as a function of length of stay Provider at risk of loss Purchaser risk of over payment Payment amount Risk Length of stay

23. Theoretical funding risk as a function of length of stay Provider at risk of loss Purchaser risk of over payment Payment amount Risk This is all an inexact science because provider costs not necessarily clear (to either providers or purchaser!) so the curves are in fact quite broad zones Length of stay

24. Assignment of risks in casemix funding

25. Public hospital separations/000 population, NSW and Victoria

26. Same day separations as proportion of all separations from public hospitals

27. Average cost per weighted public hospital separation, NSW vs Victoria

31. Summary • Instrument objective matrix • Price and regulation • Mix of instruments better • Instrument choice needs to be aligned to what objectives are • Different payment methods have different behavioural consequences • All systems have skill set issues