Funding policy based on DRGs. Casemix. Methodology of DRG costing.

1. Funding policy based on DRGs. Casemix. Methodology of DRG costing. RIC

2. ABF COMPONENTS

3. Dataset and Classification Development

4. Data Flow for funding models Hospital Information Systems Hospital Financial Data Cost data - GL mappings -Allocation Statistics • Minimum Basic Data Set-DRG Data Entry Tool • Clinical Data, DRG • Resource Consumption Data (prepare costsheet) (analysis tool) (volumefile) (costfile) (separations tbl) Diagnosis and Procedures Analysis Reports Costing Engine PICQ Software Cost Reports Coding Analysis Reports Data Analysis Reports

5. Data principles and privacy • The National Health Reform Agreement includes principles to underpin data collection to: • ensure patient privacy • minimise administrative burden • improve the evidence base of hospital funding • The Commonwealth and the States will enter into a National Health Information Agreement by that reflects the objectives of the National Health Reform Agreement

6. Towards a national pricing model for hospitals • What is a hospital? • Normative pricing >>> best practice pricing • Indexation rules • Private patients • http://www.ihpa.gov.au/internet/ihpa/publishing.nsf/Content/EB8EFD07DF85BC70CA25798300033BE1/$File/IHPA%20Draft%20Pricing%20Framework_long%20version.pdf

7. Health Policy Solutions (in association with Casemix Consulting and Aspex Consulting) Page 58

8. Where does quality come in? • NHPA • ACSQH • Sentinel events loops • Clinical pathways • Complaints • Pricing signals • Epidemiology • Clinical trials • R&D new technology marketing

9. Health Policy Solutions (in association with Casemix Consulting and Aspex Consulting) Page 59

10. How to measure quality • Process indicators • Protocol compliance • Outcome indicators • Effort • Inputs • Failures and risks • Value for money

11. THE FIRST IDEA OF A NATIONAL EFFICIENT PRICE • COMPLETE DATA • ACCURATE DATA • CONSISTENT COUNTING • Activity ~Financial • NORMATIVE PRICING • STANDARD PRICING • REFERENCE PRICING • THE MARKET

12. THE SECOND IDEA OF A NATIONAL EFFICIENT PRICE • Whose costs? Whose quality? • 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

13. INFORMATION SYSTEMS SCHEMA eg. COGNOS,BRIO, EXCELL eg. BUSINESS OBJECTS eg. SAS ,SPSS, STATA, ACCESS CUBES PIVOT REPORT REPOSITORY REPORTING LAYER (MIS) STATISTICAL ANALYSIS DATA WAREHOUSE AED EMD ESIS Aggregate MH DW MH ODS MDSs MH CMI MPI eg. Oracle, SAP, etc SUPPLY HR FMIS PAS EHR BUSINESS LAYER

14. The basic components Patient costing fundamentals Costing standards and methods The Idea of Patient Level Information and Costing Allocating expenditure from accounts to activity Key uses of patient cost data The relation between costing and pricing

15. The fundamental of costing

16. Australia 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_v2_Final_June%202011.pdf

18. 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’

19. Clinical Costing Standards Association

20. 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)

21. The idea of 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.

22. Inpatient 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,

23. 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.

24. 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.

25. 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 surgeons

26. Types of Costing 1/2 • Clinical 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. Cost per case – bottom up

28. 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.

29. DRG based – top down

30. Why Patient Costing? • Patient costing provides detail at the individual patient episode • Easier to apply patient costing to other patient types • Patient costing systems are a good data repository • Choice between the methodologies is dependent on information capture

31. 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.

32. 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 take of PLICS in the non-acute sector is primarily by Mental Health organisations

33. 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

34. Recurrent Expenditure • General Ledger information • Expenses eg • nursing salaries • medical/surgical supplies • cleaning • drugs • Group these into overhead and patient care cost centres

35. Overhead Allocation Statistics • Measures or estimates the cost of the services provided by one cost centre to the others • Cleaning costs are often distributed by cleaning staff rosters or floor space • Human Resources – staff headcount

36. Reciprocal Allocation Method Cleaning Finance Administration Cardiology

37. Program Fractions / Inpatient Fractions • Remove cost data that doesn’t have patient information eg • Non-inpatient costs • Teaching and research

38. Allocate Final Costs • Use service weights or utilisation data • Measure of the relative resource utilisation by DRG for patient services where data on actual resource use is not known • Estimated or actual cost and utilisation of service

39. Results • Average cost by DRG • Estimated cost by patient • Detailed service utilisation data by patient • Reports give average utilisation of major service type • Average nurse costs • Average medical costs • Average theatre costs • Average drug/imaging/pathology costs

40. COSTING SOFTWARE • VISASYS – COMBO PRODUCTS • http://www.visasys.com.au/products.htm • POWER HEALTH SOLUTIONS – PCM • http://www.powerhealthsolutions.com/products/PPM/CostManager/ • TRENDSTAR • http://www.yardleyconsulting.com/hospital-cost-accounting/90-hosptial-activity-based-coting-abc • ECLYPSYS – SUNRISE PRODUCTS • www.eclipsys.com/cb6d5ab4-2a9b-4117-86f8.../download.htm • HOME MADE SOLUTIONS – eg SAS based

41. Let’s look at a costweight report NHCDC PUBLIC COSTWEIGHTS TABLE R13 PubCWest60.xls http://www.health.gov.au/internet/main/publishing.nsf/Content/Round_13-cost-reports

42. 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 -

43. 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. • BASIC PRICE IS • BUDGET/ACTIVITY – for public hospitals • MARKET QUOTE – for private sector providers purchasers • PRODUCT DEMAND vs SUPPLY – if scarce unregulated..eg..

44. THANKS QUESTIONS?