Australian Patient Costing Standards Major Developments

1. Australian Patient Costing StandardsMajor Developments Thursday 8 Mar 2012 Sydney

2. Australian History: DRGs and Costing • First national Cost Study Australia 1991-2 • AN-DRGv2 later published as AN-DRGv3 • KPMG: 71 Public - 29 Private hospitals • Annual from 1996-07 (Public) current Round 14 • National Hospital Cost data Collection (NHCDC)Rapidly moving from Cost modelled collection to Patient level costed • Private Sector hospitals – continue to be dominated by DRG level studies • However • Standards increasingly applied inconsistently • Seen as routine work and not closely examined • Larger variation in results being observed over past years • Recent large analysis by Productivity Commission • Pubic and private sectors are about the same efficiency • once all costs are considered • National ABF reforms require substantial costing improvements

3. NHCDC Cost Collections over the years Important to recognise that while there is more patient costing , much is based on service weights

4. NHCDC cost over time

5. Costing Standards National consistent set of Costing Standards were required to: provide a set of rules to users i.e. inclusions/exclusion to ensure consistency of cost data provided by hospitals The NHCDC Technical Working Group were tasked to develop the standards A number of jurisdictions had existing standards Version 1.0 of the Australian Hospital Patient Costing Standards (‘the Standards’) were developed and agreed for implementation in Round 14 ( 2009-10) The Standards are applicable to all Workstreams Currently 34 Standards in Version 2.0 – Several relating to depreciation – developed by an accounting firm Version 3.0 will be required for 2011-12

6. Previous improvements • CCSAA • Set of standards and quality framework over many years • Has worked to facilitate consistent approaches and results • NHCDC • Initially by basic measures • Hierarchy • Are “A” DRGs of higher cost than “B” DRGs and so on • Variation on costs over time • Current year vs prior year at the DRG level • Later more sophisticated • Reporting template • Normal target values • Patient costing template • Standard cost prosthesis by procedure • Automated production of National cost database items from source tables

7. Need for Costing Reform for ABF Boundary Issues Reliance on Product fractioning techniques – imprecise Incomplete reconciliation of hospital total costs Substantial elements of cost not reported consistently Variable boundary between hospital and corporate overhead allocations ED patients being reported as admitted where no transfer to bed has occurred or Inclusion of ED cases within admitted is inconsistent boundary between ED and admitted is blurred – leads to decreased Admitted costs being reported Variable boundary between ambulatory and admitted care – cases being excluded from costing Variable representation of Mental Health cases – Exclusion of Acute care MH cases Variable teaching cost allocation Variable bundling of episodes IP and OPD

8. Need for reform – cont. • Confusion of funding issues in the costing process • Treatment of funded programs outside the costing process • E.g. Bundling of events weeks before and after an episode • Accounting Issues • Variations in reporting and accounting for Depreciation and capital. • Variations in Accrual processes • Failure to move costs such as medical to specific areas such as OR, ED, ICU • Failure to inclde all costs (e.g. private patients) • Costing Issues • Very high reliance on Service Weights in some jurisdictions • Variable consumption/episode matching in data – loss of intermediate costs in some instances. • Variable costing approaches in bucket allocation • Use of generic cost centres rather than specific • Not all products are being reported • Creates enormous opportunities to make global cost allocation errors • Reporting Issues • Insufficient reporting resolution • Reporting of cost at Component level rather than Cost centre/Item

9. Development of National Costing Standards Required basic work to cost all product streams Based On NHCDC Hospital Reference Manual Available since early rounds of the National Cost Collection Format from CCSAA used to have standards in a separate group Defines costing approach to all items with rationale Establishes formal data processes and data consistency across sites and rounds Provides a means of validation of cost quality Allows selection of appropriate studies for detailed investigation e.g. National service weight development Separate volume to Australian Patient Costing Methodology More detailed explanation of Costing methods and principles Intended to be the reference work To be redeveloped Quality Framework manual Technical Manual Submission processes and details

10. Costing Standards Principles Where possible actual costs of patient care should collected and calculated through inputs from feeder systems. Costing based on utilisation or consumption patterns should be supported and replace cost modelling processes. Processes should be in place that support nationally standardised methodologies to ensure national consistency and maintain user confidence in the outputs of activity based costing. Focus on improving costing methods should be given to areas with highest explanatory power for cost variations. This is likely to occur in improved intermediate cost allocation processes rather than overhead distributions. Product costing should be undertaken as a by-product of available information. Any costing that requires ongoing secondary data collection should require a cost benefit analysis to be undertaken prior to committing to ongoing data collections. Costing should be comprehensive and transparent, aiming to be as close to full absorption costing as possible. Capital and depreciation standards should be adopted and incorporated into any activity based costing processes.

11. Format of Standards

12. The Major Improvements Arrangement of the National Standards in a single volume with appropriate version controls. Boundary Issues Definition and setting of boundaries between corporate costs, and product streams such as Teaching, Research, Emergency Departments Full product costing (as opposed to product class fractioning approaches used previously). Accounting Issues Instructions on Cost allocation to departments. Improved cost centres and items – e.g. cost of blood products Costing Issues Use of actual consumption to allocate final costs as a preferred method Introduction of standards for matching of resource consumption at the episode level (data matching). Universal adoption of patient level costing, as the normal level of disaggregation Definitions that regulate the boundaries between the product streams and cost components for attribution of intermediate costs. Definition of the boundaries between streams and specialist areas such as ED/IP, Ward/Crit care, SPS / OR, Acute / Sub-Acute Episodes Reporting Issues Creation of a vastly improved data quality regime to report costing quality

13. Standards Version 1 • Agreed 2010 • Applicable for 2009-10 NHCDC collection • Agreed by all jurisdictions but compliance is an issue • V1 has addressed many issues • Scope • Boundaries between broad classes • Admitted, ED, OPD • Hierarchy of costing decision • Matching rules • Reiteration of YCM

14. Standards Version 2 • Applicable from 2010-11 year • Currently in draft form and awaiting national agreement • Addresses several additional issues • Depreciation and capital • KPMG provided standards from consultancy • Improved costing for all product streams • Admitted ED and OPD • Preserves the integrity of costing components (buckets) • Even across the various streams • Specifies the structure of ED and Non-Admitted data • Improved matching rules • Concept of full product costing • Improved cost/activity data matching hierarchy

16. Standards

17. Standards

18. Reporting Reporting of costs at level of Morbidity record Inpatient, ED, outpatient 3 separate templates that can combine to create a single reported cost study for national reporting Cost record Episode ID Cost centre – detailed CDC Cost centre Cost Item – account item Direct cost Overhead cost Point of service delivery at level of ED, Clinical, ICU, Etc Date

19. Impact of the standards • Significant increase in effort • A major problem is availability of staff resource • Skills and numbers • Biggest improvements are relatively easy to implement technically • Boundary issues will be the most material and the most difficult to get agreement • Assessment in the Quality Framework is the critical • bundling rules will be important • Consumption costing will require more effort • Consumption costing will be more important to more complex care • Cost averaging systematically disadvantages more complex care provision • Full product costing is critical to permit funding • Total cost of product classes is as important as variation between DRGs

20. Performance Measures • The National Partnership Agreement, Schedule A, ABF included the following performance measure: • From the beginning of 2009-10 (baseline 1 July 2010, annual reporting): • (a) uptake of nationally consistent admitted patient costing methodology (percentage of public hospitals by state); and • Issue – how to measure uptake of the standards?

21. Quality Framework The NHCDC agreed a tool was required to • measure compliance/or uptake of the Standards as a means of validating the costing output of the contributing hospitals • The NHCDC TWG worked closely with a consultant to develop a draft tool • A pilot of the Quality Framework was undertaken in late 2010 with 10 hospitals • External consultant engaged to assist with the process including acting as the ‘independent assessor’ and worked closely with the NHCDC Coordinators • HRIG agreement in June 2011 to undertake broader trial of the Quality Framework Tool, on Round 14 data • The process requires additional refinement to reduce processing overheads • New processing template that deals with some of he issues being developed for R15 • This will be ongoing

22. Quality Framework Principles there should be complete alignment between the categories used to classify the Australian Hospital Patient Costing Standards and the categories used to derive the quality score; compliance with every standard should be assessed in the Quality Framework and contribute to the quality score; wherever possible the quality score for each standard should be derived from the data submitted to NHCDC; requests for additional data from contributing hospitals and/or jurisdictions for the purposes of assessing compliance with the standards should be minimised.

23. NHCDC Round 14 • NHCDC Round 14 (2009-10) is being used to assist the IPHA develop the efficient price. • The TWG had oversight this process including support of the following principles: • Compliance with the Australian Hospital Patient Cost Standards • Completion of the Quality Framework • Accrual accounting processes in places • A hospital must include all costs for all Workstreams • reconciliation purposes; • allocation of overheads across all products; and • to ensure any fractioning of direct costs between products is defensible • Application of the all product costing methodology • Follow up Review by KPMG

24. Feedback from Industry • In 2012 feedback was sought from industry on the Version 2 Standards • Several responses • DoHA • Jurisdictions • Private Hosp Providers • Most responses are clarifications rather than changes • Cost centre mappings • Negative costs • Changes required to deal with LHNs • Differences between Public and Private sectors

25. Ongoing development of the Costing Standards • Basic standards are in place • Appear suitable for the ABF agenda • Gradual improvement and clarification • Try and reduce some of the workload • The all product methodology • This is the key to gaining reliability across the entire system • Work In Progress • Clarification required • Clarification of the Cost allocation statistics • Some debate around service weights • Changes to B2 (Cost) file • Removal of Date field for initial submission • Generates enormous files (size) risk to data provision • May be provided in later submissions • Teaching? • Initial standard is possibly not the best solution

26. What do we mean by All-product costing? • Not simply costing all activity • Previous Costing was focussed on Acute product • Other products were isolated by Product Fractioning at the GL • Requires updating of the splits each costing round (not always done) • Reliability of estimates of product split can be problematic • All Product costing refers to the avoidance of fractioning • All activity associated with final cost centre are costed as episodes • Product streams are defined at reporting • i.e. Acute patients – Acute • Subacute episodes – Subacute • OPD encounters – OPD • The intent is not to prevent fractioning but rather to encourage an all product approach • More work is required to explain method

27. How will we know if the all product methodology is working? Review of R14/15 for component costing national consistency (co-relation rather than causation…. i.e. not service weights) Analysis of components, to identify costs of inputs across major products for consistency of RVU/Hourly rates etc. In summary We have done well but there is a way to go