Latest Developments in Activity Based Funding Program 20, 21 July 2011 Prof Ric Marshall Health Reform Transition Of

1. Latest Developments in Activity Based Funding Program 20, 21 July 2011 Prof Ric Marshall Health Reform Transition Office Hospital Financing Reform

2. Success leads to further endeavour • Casemix funding implemented in Australia 1989 -1993 • Varying models in different States • All based on common toolkit AND National Minimum Datasets • Attempts to benchmark – mixed interpretations • Perceived cost-shifting concerns • Health Reform Commission - 2008 • Council of Australian Governments • Partnership/reform agreements 2008 – 2011 – now at v5? • Transparency of reporting and ABF central features • A NATIONAL EFFICIENT PRICE

3. A National Uniform Approach • Classification • Counting • Costing, • Data specification • Data Reporting, and • Activity Based Funding (ABF)

4. Key features of NHFRs • Transparency and accountability • Independent Hospital Pricing Authority • National Funding Body • National Performance Authority • Uniform national measures • Comprehensive coverage of all hospital services • Local Hospital networks – as points of accountability • States as Hospital system managers

5. ABF Developmental Elements

6. NEXT STEPS?? • Greater integration of accountability tools • Across activity areas – Patient focus + episode excellence • Improved ability to monitor quality and safety performance levels • Variation analysis and feedback?? • More timely and meaningful information accessible as extracts from source systems • timely feedback to clinical units and consumers?? • Greater alignment between best practice and clinical protocol support tools and classification development mechanisms??

7. DRG were developed in the early 1970’s by using administrative data held on medical records. Data coded with ICD codes were available for analysis. Some History

8. Four guidelines were established as guiding principles for the DRG system’s formation: The patient characteristics used in the DRG definition should be limited to information routinely collected on the hospital billing form. There should be a manageable number of DRGs that encompass all patients seen on an inpatient basis. Each DRG should contain patients with a similar pattern of resource intensity. Each DRG should contain patients who are similar from a clinical perspective (i.e., each class should be clinically coherent). More History

9. Key Principal was that patient characteristics could be used to group similar conditions to compare practise. Initially to be used to review clinical variation in services provision. As the groups were also homogeneous in resource usage the groups could be used as a funding system. HCFA began using DRGs to fund the Medicare and Medicaid programs in the USA in 1983 More History

10. ABF systems rely on the accurate coding of data to a reproducible standard and having the coding system relevant to current clinical practise. DRG systems rely on this accurate and consistent recording on patient records to build a robust classification. ABF Data

11. Australian Refined DRG (ARDRG) • AN-DRG v1.0 to v3.2 • 1992 updated annually – until ICD-10 and AR-DRGv4 • 23 MDCs, 665 DRGs – Surgical heirarchy, principal diagnosis • ICD-10-AM (Dx, ACHI, ACS) – ”THE AR-DRG SYSTEM” • AR-DRGV4 – 1998 bianually – Increase in groups with CC splits – v6 2008 – • Commonwealth of Australia, Department of Health and Ageing • Clinical Casemix Committee – CCCGs classification refinement • National Casemix and Classification Centre (NCCC), University of Wollongong • http://www.health.gov.au/internet/main/publishing.nsf/content/health-casemix-ardrg1.htm

12. International AR-DRG System Adoption

13. Parallel informatics developments • GP Coding Jury – ?2001 • Medical Director – DOCLE, ICPC2+ codeset development • Don Walker et al and the 2001 study visit to CAP • NEHTA, informatics infrastructure standardisation >> the Personally Controlled Electronic Health Record • SNOMED adopted in Australia • Ideas about automatic mapping of ICD codes from SNOMED – use of SNOMED terms in ED code picklists – also supply chain mangement automation • Informatics standards developments internationally • HL7 – SA/IT14 • CEN TC251 • ISO TC215

14. “NEW” ABF WORKSTREAMS • 1 JULY 2012 • Emergency departments – URGs • Non-Admitted (Outpatient Departments) • Tier 2 Clinics • 1 JULY 2013 • Subacute – AN-SNAP • Mental Health • ?Modified DRGs and ?Subacute

15. Why do we need clinical costing? • Accurately value products – eg DRG’s for funding • Costweights for funding and payment • Activity analysis in weighted activity terms • Benchmark our hospital against others and over time • Properly manage performance – care profiles • Set achievement targets – ‘match the above average performers over the next two years’

16. Australia’s National hospital cost data collection NATIONAL HOSPITAL COST DATA COLLECTION COST WEIGHTS FOR AR-DRG VERSION 5.1, Round 11 (2006-07)

17. NHCDC Reporting Standards http://www.health.gov.au/internet/main/publishing.nsf/Content/0FABA9D6DB24D7E8CA257712000C5D3C/$File/HospitalPatientCostingStandards_v1.1.pdf

18. The importance of hospitals being able to analyse their costs of production • Clinicians are the control locus of expenditure • “Every clinical decision is an expenditure decision” • Hospitals must be able to provide feedback to clinicians on comparative use of resource (cost) with benchmarks • Both normative (peer hospitals) and best practice standards (clinical pathways)

19. Clinical Costing Standards Association

20. Fully absorbed costing • Starts with total expenditure of hospital. • Broken into overhead and direct. • INPATIENT FRACTION IS APPLIED *either here • Overhead costs are attributed to treatment units. Then become part of direct costs of treating patients. *orhere • Unit costs are attributed to patients according to their service utilisation and/OR • Direct patient costs allocated according to utilisation (activity) statistics.

21. Inpatient, OP, ED etc expenditure fractions • Cost centres in general ledger and/or • Inpatient ratio of staff utilisation • Inpatient ratio of floor space, utilty access points, service times, • Inpatient ratio of diagnostics orders • Weighted units of service provided (eg beddays, consultations,

22. Direct costs and overhead costs • Almost anything can be a direct cost if individual patient utilisation is recorded. • Many cost centres provide services to other cost centres. • It is important to have a standard sequence of distributing the costs of overhead cost centres to other cost centres.

23. The Yale cost model • A standard method of cost disaggregation from total hospital expenditure to patient episode or DRG. • Follows a set sequence of disaggregation from overhead cost centres to ‘intermediate product’ cost centres. • Allocates from intermediate products to patients according to utilisation or service weights.

24. Intermediate products of interest to hospital managers – examples • Cost per meal per patient per day for ward x compared to hospital average • Cost of Xray A compared to other providers • Cost per hour of nursing service in ICU (b) • Surgeon cost for operation x compared to other ORs

25. The Purpose of Costing • To determine the costs of services provided • In order to better manage the hospital. • Resource Management / Performance Monitoring • Development of cost weights • Episode Funding • Paying for contracted work – eg referred patients • External Reporting requirements

26. Types of Costing 1/2 • Clinical (Patient) Costing • bottom up costing approach • each patient episode is a product • requires data of all goods and services consumed in the treatment of individual patients • Data are then converted into cost estimates for each patient by reference to measures of the relative costs of providing these services • Allows analysis of resource use by individual patient episode

27. Types of Costing 2/2 • Cost Modelling • top down approach • Expenditure is allocated to groups of patients in each DRG based on measures of average consumption for the patients in each DRG • Relies on the use of service weights • and/or other generalised utilisation statistics.

28. Available costing systems • Most systems, available currently use both methods of costing • More precision is obtained by increasing clinical costing elements • Pure patient costing is not (always) feasible • Feeders can be expensive • Skills are not always available • A hybrid of clinical costing (preferred) and cost modelling (default) is usually the answer.

29. PLICS UK 2010 hospital survey • Over 95 acute organisations have either implemented a PLICS system, or are in the process of implementing a PLICS system. • Almost a further 20 acute organisations are planning to implement PLICS in the next few years. • Of the 51 organisations who have implemented PLICS,45 report that they have used PLICS data to inform their 2009/10 reference cost return • Nearly 90% of those organisations who have implemented a PLICS system, or are in the process of implementing a PLICS system report that they are using the Acute Clinical Costing Standards. • Of those planning not to implement PLICS, 31 are acute providers, with the remainder being PCT, Community, Ambulance and other • Take up or planned takeupof PLICS in the non-acute sector is primarily by Mental Health organisations

30. Cost allocation process GL costs, FTEs, Floor space Overhead Allocation Statistics Recurrent Expenditure Allocation Overhead Costs to Patient Care Cost Centres Program Fractions Inpatient Fractions Outpatients, Teaching and Research Remove non-Inpatient Costs Weights/Utilisation Patient Data Allocate Final Costs to products

31. KEY USES OF PATIENT COST DATA • PRICING AND CASE WEIGHTING • MANAGING EFFICIENCY AND QUALITY OF HOSPITAL SERVICES • BY COMPLETE OUTPUT UNITS • BY INTERMEDIATE PRODUCTS • CLAIMS OPTIMISATION -

32. The relationship between costs and price • Cost is ONE input into price considerations • Average cost, median cost, marginal cost can all be considered. • Variable, fixed and variable or full economic cost may be relevant for different purposes. • “Surely - In a public system, the BASIC PRICE IS BUDGET/ACTIVITY” ??

33. A NATIONAL EFFICIENT PRICE • THE FIRST IDEA • Standard data and information for fair costing and pricing (1) • What is efficient in terms of a reasonable price to pay? – benchmark? – less than last year? • Accuracy in costing – capital costs – sector differences – lumpy costs (eg redundancies)? • What about regional cost/salaries/inputs price variations? • Differences in packaging? Scale of operation? • Equivalent new/improving models of care?

34. Accurate expenditure identification • Standard cost components/buckets • Overhead allocation standards • Central administration/system support costs • Major capital items – original build – ownership – maintenance – replacement • Cost of capital – interest – lease costs – administration – • Economic costs – free contributions – opportunity costs

35. Are National Health Expenditure Statistics reliable? Estimates of average price for Admitted Acute Care by component across sector and jurisdiction Productivity Commission 2009, Public and Private Hospitals, Research Report, Canberra

36. NHCDC V5.1 2007-08 by hospital type

37. AIHW and DoHA Estimates Excluding Depreciation and Private Medical Costs Source: Prof Kathy Eagar; http://chsd.uow.edu.au/documents/abf_information_series_number_4.pdf.

38. Reliability Estimation Errors in Average Cost per Casemix Adjusted Separation Andrew Dalton – Personal communication – May 2010

39. 2. Clearly specifying what is included in the price

40. THE SECOND IDEA OF A NATIONAL EFFICIENT PRICE • Who pays for what???? HEALTH SYSTEM OPERATORS, REGIONS, HMOs NHIF MoH INSURERS PATIENT EMPLOYED PRACTITIONERS Drug, MD SUPPLIERS SUPPORT SERVICES MANUFACTURERS HOSPITALS, HEALTH CLINCS, PRACTITIONERS

41. ATS Data Structure (OR SPELL)

42. Accurate units of activity ‘REHABILITATION SERVICES’ % INPUTS BY CARE TYPE ‘ACUTE SERVICES’ DAY OF EPISODE OF CARE OR SPELL

43. Episode components • Change of care type • Supplementary payments – eg expensive drugs – implanted devices • Outlier – supplementary weightings – special service grants – eg aboriginality, chronic care ongoing program • Private patients – with ‘own doctor’ – own catering – room co-payments – etc