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10 Questions about activity based funding

10 Questions about activity based funding. The 10 questions could provide the basis for a 3 year post graduate course in Health Management Each question being a semester length subject. 1. Will the world as we know it, end with the introduction of ABF?. No.

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10 Questions about activity based funding

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  1. 10 Questions about activity based funding • The 10 questions could provide the basis for a 3 year post graduate course in Health Management • Each question being a semester length subject

  2. 1. Will the world as we know it, end with the introduction of ABF? No It provides a great opportunity for sound management

  3. The Evidence Base The Alfred Healthcare Group (1988-1995)Relative Cost per Weighted Patient - 1989 to 1994Major Teaching Hospitals Case Mix Ranking 1 2 3 4 5 1990/91 Austin $3,276 Melbourne $3,383 St Vincent's $3,389 Alfred $3,693 Monash $4,471 1991/92 Austin $2,838 Alfred $3,227 St Vincent's $3,242 Monash $3,474 Melbourne $3,483 1992/93 Austin $2,433 Alfred $2,529 Melbourne $2,603 St Vincent's $2,805 Monash $3,037 1993/94 Alfred $2,453 Austin $2,714 Melbourne $2,919 Monash $3,015 St Vincent's $3,419 1889/90 Austin $3,141 St Vincent's $3,217 Melbourne $3,582 Alfred $3,884 Monash $4,431

  4. Activity Based Funding (ABF)=Casemix =Output based funding ≠Historical funding Funding is based on outputs not inputs 2. What is meant by Activity Based Funding ? • Examples :Price per • Bypass Operation • Chest x-ray for outpatients • Registrar in training • Price per normal birth • Laparoscopic Cholecystectomy W/O Closed CDE W/O Cat or Sev CC • Medical Oncology- Initial consultation • Follow up consultations • Chemotherapy course

  5. 3. What is an ABF funding model? • The funder will develop an annual funding model for an organisation • A major component of the funding model will be case mix (DRG) • However the funding model may have many other components • Price for remote hospitals • Price for training ($15,000 per trainee per year) • Inliers and outliers • Maintenance of emergency capacity • What is not covered by the funding model, is as important as what is covered by the model

  6. Costing is not an essential element of ABF systems. Given that all outputs now have a price , with a sound costing system, it is possible to determine profitability (or loss) by clinician DRG Unit Service Division Facility Funding stream This management information enables the organisation to be tuned Output pricing combined with a sound costing system, provides a tool to tune organisational performance A sound costing system should have 80%+direct costing 4. How important is costing ?

  7. 5. What changes will be necessary to accommodate ABF ? • More emphasis on performance / activity • A realisation that the $$$ (Finance ) = Fn (coded transactions) • Daily, Weekly & Monthly Performance reports to Units • Clinical Units check coding • Coding Audits Dept Calculates Cash Payment Allocate Revenue to appropriate GL a/c Dept Calculates Revenue Medical Record Coded Episode Transmit to Department and Hospital Cash to Bank Patient Hospital Calculates Revenue Hospital Calculates Cash Payment Hospital Allocates Revenue to appropriate GL a/c Reconcile Oops!

  8. Medium Impact Activity = Output = Performance. This is a 180 degree shift Payment based on an efficient price . Big facilities are seldom efficient - -initially 1. 2 . Massive Impact 6. What does activity based funding meanfor a hospital? The Commonwealth Government will directly pay Local Hospital Networks for each service (a DRG) they provide, according to a national efficient price . Essential It is absolutely vital, that the unique cost dynamics of a Hospital are understood and acted upon Example: St Elsewhere

  9. St Elsewhere...1

  10. St Elsewhere...2

  11. St Elsewhere...3

  12. A Clinician has 2 roles • Role 1 The Patient Advocate / The Case Manager • Controller of service utilisation • The person who buys, requests, orders all services on the patients behalf • Role 2 Departmental Member • A specific service provider • A member of a department delivering services to a patient NOTE • The price of all services is determined by the Department • The quantity / usage of services is determined by The Patient Advocate • Initially the potential big $ savings are in the Departments

  13. One must understand the cost dynamics of a Hospital

  14. Time Ward Size Period 1 - 2 am 15 beds Weekday 2 - 3 am 25 beds Weekend 3 - 4 am …. 40 beds Public Holiday Example : Cost StructureWard Cost per Patient Day Direct Annualised Nursing Cost to look after a patient in a bed for an hour Minimum 80 cents per patient between 1 - 2 am in a large ward on a Weekday Maximum $23 per patient between 2 - 3 pm in a small ward during a Public Holiday

  15. The Alfred Hospital 500+ beds Very high acuity and gravitas Horsham Base 90 Beds 7. What was The Horsham Insight ? “This is the end of the world if The Alfred is paid the same price as Horsham Base for Fracture of neck of femur” This was close to a universal belief

  16. Then The Horsham Insight Learning / experience curves

  17. The Alfred was doing 200+ Fractures per annum • Therefore it should be the lowest cost producer • When we went back and refined the costing -we were • This should be the situation for many major hospitals

  18. 8. How does an organisation have to change its thinking from historical budgets? • Totally. Forget historical based budgets ,but not just yet. • The reality is that one will need to transition from Department A receiving $6,000,000 due to power ,influence and history - to now receiving $2,500,000 based on the efficient delivery of intermediate products • Evidence Based Output Financing is required e.g. What is the output and price one should pay for the casemix unit ? • No longer Budgets but Operational Plans • Unbundle first, then develop the operational plan

  19. Acute Inpatients Acute Outpatients Cardiac Surgery Rehabilitation 1 Cost Centre Teaching Training Professional Activities Research Investigational 8. How does an organisation have to change its thinking from historical budgets? Historical Unbundled 1 Unbundled 2 Operational Planning 38 Cost Centre 38 Operational Plans

  20. 9. What clinical performance reports are required to ensure the organisations meets its performance targets ?..1 • Build an accountable organisation with cabinet government • Performance Plan by unit. Episodes and WIES • DRGs are useful but not for reporting monthly at a unit level. • Standard Reports at a standard time ,that can be rolled up • Clinical Unit • Department • Service • Division • Organisation Examples

  21. 9. What performance reports did you provide to clinicians to ensure the organisations was meeting the performance targets ?..2 And What was the required action ?

  22. 10. What would be your suggested stages to implementation or quick fix areas that you found improved readiness for ABF? Recognise that ABF is just a point on a journey . It is not a destination. • Organisation • Link to a coach /advisor / mentor with significant experience • Build an accountable organisation including a Cabinet • Essential Personnel • An experienced ,world class Management Accountant (1 FTE) • Excellent Performance Analysis capability (1FTE) • Excellent Case Mix Modelling capability (1FTE) • Excellent Costing System capability (1+1 FTE) • Tasks • Unbundle financing and expenditure - A big big task • Move to output financing immediately -

  23. Thank you and any Questions ?

  24. The Fundamental Question is What are we trying to do? • Plan the work, work the plan and manage the variances • Clear detailed accountability. Build an Accountable Organisation • Devolution • Minimal Committees (e.g. 52 Board committees 4) Management Fundamentals • No magic bullet • Evolution not revolution • The Performance Plan is the organisational driver • (Performance= Activity, sales, output …) • The annual operational plan is the key management tool • Operational Plan is bottom up for Expenditure and top down for Revenue

  25. OWNER’S GUIDELINES PERFORMANCE PLAN St Elsewhere’s Service 3 Year Plan CAPACITY MASTER PLAN STAFFING PLAN REVENUE PLAN EXPENDITURE PLAN FINANCIAL GAP The Operational Plan Development Process OPERATIONAL PLAN

  26. DRG (V6) – H08B Laparoscopic Cholecystectomy W/O Closed CDE W/O Cat or Sev CC

  27. 7. How did you ensure accountability and performance against casemix efficiency targets ? • Build an accountable organisation including a Cabinet • Unbundling, unbundling, unbundling - finance and expenditure • Visibility, transparency, visibility, transparency… • All cross subsidisation will be visible • Remember the cost structure of Hospitals • Departments control the price • Clinicians control utilisation • All expenditure comes from departments • Benchmarking is the way to go .Benchmarking is usually not complex • Start with internal benchmarking • Wards (Bed days) are priority 1,2,3,4..

  28. Performance: The Evidence Base Return on Total Average Monthly Invested Capital Sales Units ‘000,000 Employees Market Share A.C.H. Limited(1980-1988) 1980 18% 28% 25 900 1988 48% 80% 80 700

  29. The Evidence Base The Alfred Healthcare Group (1988-1995)Relative Cost per Weighted Patient - 1989 to 1994Major Teaching Hospitals Case Mix Ranking 1 2 3 4 5 1990/91 Austin $3,276 Melbourne $3,383 St Vincent's $3,389 Alfred $3,693 Monash $4,471 1991/92 Austin $2,838 Alfred $3,227 St Vincent's $3,242 Monash $3,474 Melbourne $3,483 1992/93 Austin $2,433 Alfred $2,529 Melbourne $2,603 St Vincent's $2,805 Monash $3,037 1993/94 Alfred $2,453 Austin $2,714 Melbourne $2,919 Monash $3,015 St Vincent's $3,419 1889/90 Austin $3,141 St Vincent's $3,217 Melbourne $3,582 Alfred $3,884 Monash $4,431

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