Using Case-Mix Financing Methods to Restructure Hospital Payments and Measure Hospital Production: DRGs vs. CCPs Vth National Conference “ICT In healthcare – The Challenge of the 21st Century” Sofia Bulgaria, October 15, 2009 Presented by: Jugna Shah, MPH President of Nimitt Consulting Inc. and Secretary of the Patient Classification Systems International (PCSI) Organization Welcome and Introductions Review of Agenda and Program of the day Few words on why we are here, who we are, and the overall objectives for the day.

Objectives Part I: Financing Mechanisms vs. Financing Tools General principles Understanding case-mix is and how to use it for financing Part II: Bulgaria’s History with case-mix Part III: Review of Case-Mix Around the World Primary uses of case-mix outside the United States Countries using or studying DRG type case-mix systems Part IV: The Road Ahead for Bulgaria Key questions to guide future decision-making Final thoughts and discussion

Financing Methods vs. Financing Tools Methods of Financing Fee for service Capitation Global Budgets Per Case Payment Basis or “Tools” for Financing DRGs, CCPs, bed days, inputs, outputs, point system, etc. Accurate and Complete Clinical and Cost data Ideally at the Patient Level is Necessary to Support Any Method of Financing Selected!

Defining Case-Mix Case-mix is a concept that describes measuring what a hospital produces in terms of the “case” rather than measuring the number of beds, bed-days, discharges, types of procedures, etc. Measuring the “mix of cases” a hospital produces involves looking at both the “number” or volume and the “types” of patients treated This concept was first studied in the United States by researches at Yale University in an attempt to: Use clinically meaningful groups to target “outlier” cases for quality assurance and utilization review activities Hospital management These are all important goals given what we know about the old problems: Historic budgets (as they are often used) neither recognize nor reward improvements in efficiency. A large percentage of the health care budget is allocated to inpatient care, BUT WE DON’T KNOW WHAT IS TRULY PRODUCED/PURCHASED. Allocation of funds among districts, hospitals, and departments within hospitals is arbitrary and inadequate (no consideration for patient type) An objective financing system will create the right incentives for hospitals to be efficient, while providing high quality healthcare services to patients while also allowing the government payor better understand what is being purchased.

Defining Case-Mix (continued) Yale researchers ended up creating categories called, Diagnosis Related Groups…DRGs which aim to catalogue similar types of patients a hospital treats based on their diagnoses and procedures to the costs or treatment resources expended by the hospital. So, are DRGs and Case-Mix the same? Are DRGs and CCPs the same?

Using Case-Mix for Hospital Financing

What will Case-Mix Based Financing Help Achieve? This is a great question and everyone should understand and agree on what case-based financing can achieve. A case-mix based financing system can distribute limited healthcare resources in a fair and equitable manner to providers A case-mix-based financing system if implemented with an appropriate set of rules can create incentives so that: the right amount of care is provided (i.e., appropriate length of stay) in the right setting (i.e., hospital vs. ambulatory), in the most efficient manner (i.e., appropriate length of stay), and in the most quality conscious manner (i.e., data allows us to look at hospitals, departments, and physicians). Case-mix based financing will NOT automatically solve broader system issues such as managing the demand for services or resolving issues between public and private hospitals These are all important goals given what we know about the old problems: Historic budgets (as they are often used) neither recognize nor reward improvements in efficiency. A large percentage of the health care budget is allocated to inpatient care, BUT WE DON’T KNOW WHAT IS TRULY PRODUCED/PURCHASED. Allocation of funds among districts, hospitals, and departments within hospitals is arbitrary and inadequate (no consideration for patient type) An objective financing system will create the right incentives for hospitals to be efficient, while providing high quality healthcare services to patients while also allowing the government payor better understand what is being purchased.

Case-Mix Is… A TOOL that catalogues and aggregates hospital cases based on similar clinical and cost characteristics in order to Understand the types of patients hospitals are treating Measure how “sick” the patients are Understand why one hospital may need more resources based on the cases treated compared to another hospital Finance hospital care Benchmark hospitals and compare to international trends NOT: A method for cutting hospital funding A tool to control doctors A method of removing clinical decision-making control from doctors and nurses

Conceptual Framework - Hospitals Hospital Operations Physician Orders Inputs Intermediate Products Product = DRG group Appendectomy w/o Complication Kidney Transplant G.I. Hemorrhage w/CC AMI w/CV complications Labor Materials Equipment Management -- -- -- Patient Days Meals Laboratory Procedures Surgical Procedures Medications -- -- -- Efficiency Effectiveness

DRG-Based Financing Has Two Main Components Component One: Defining the cases treated by hospitals Coding Data collection Grouping Analysis Component Two: Creating prices based on the costs of cases treated by hospitals in order to create the basis for a financing system Costing Characteristics of DRGs: Patients are clinically homogenous within a DRG, but not the exact same Patients have similar resource consumption within a DRG, but not the exact same Utilize routinely collected diagnosis and procedure code data WHAT ARE DRGS: DRGs are a patient classification method providing a way to relate the services given to patients in a hospital (DRG assignment occurs first) to the costs related or treatment resources used by the hospital by assigning patients to a finite number of categories that have relative weights/points (the relative weights multiplied by a base price leads to a price per DRG). 500 – 1500 groups depending on what version of DRGs is used

Component 1: Defining the Case Case = type of discharged patient defined primarily by diagnosis and procedures Cases with similar clinical diagnoses and procedures and resource intensity assigned to similar groups– called Diagnosis Related Groups (DRGs) A minimum basic data set is collected which includes diagnoses, procedures, gender, age, and other factors that help assign the patient into a DRG. Purpose of defining cases using DRGs Understand the volume of services, which is a picture of what the hospital produces Allows a consistent way to begin making comparisons and a basis to discuss quality of care Characteristics of DRGs: Patients are clinically homogenous within a DRG, but not the exact same Patients have similar resource consumption within a DRG, but not the exact same Utilize routinely collected diagnosis and procedure code data WHAT ARE DRGS: DRGs are a patient classification method providing a way to relate the services given to patients in a hospital (DRG assignment occurs first) to the costs related or treatment resources used by the hospital by assigning patients to a finite number of categories that have relative weights/points (the relative weights multiplied by a base price leads to a price per DRG). 500 – 1500 groups depending on what version of DRGs is used

Component 2: Creating DRG Prices Calculating a cost for each case is necessary to generate DRG prices Financing basis = DRG groups (types of patients) Aggregate cost data used to calculate a price for each DRG Develop DRG price list and either make payments per discharged cases or develop budgets for each hospital based on the expected number and types of cases treated Purpose of basing financing using DRGs : Distribute limited resources equitably Promote hospital efficiency Link hospital production or case volume with costs Distribute resources based on types and severity of cases

Bringing it Together… Once cases are assigned to DRGs, we know the number and types of cases each hospital produces Once the average cost is computed for each DRG, prices can be established for each hospital product (DRG) which is used to create a financing system that reimburses hospitals for what they do “on average” Payment system can be created Hospital budgets can be created Other means of distributing the money using this underlying information can be used

Understanding the Link Between Assigning Diagnosis and Procedure Codes to DRGs and the Price Avg. Length of stay = 6 Length of stay = 10 of stay = 2 Assume the average length of stay for a normal delivery DRG is = 6 days and the price associated for this average is 3500 levas For each DRG, a length of stay curve is identified The days under the curve represent the average case which is reimbursed the DRG price This means the hospital will receive the price of 3500 levas for patients that stay anywhere from 2 days to 10 days. The hospital gains some money when the actual length of stay is lower than the average length of stay and loses money on cases where the actual length of stay is higher than the average This model creates efficiency incentives for the hospital, but also could pose some threats to quality of care, so data and hospital reporting must be monitored carefully. Using this model for financing can create a fair and equitable basis for the distribution of resources while creating efficiency incentives for the hospital, but can pose threats to quality of care if there is no monitoring process.

Bulgaria’s Experience with Case-Mix

Bulgaria’s History with Case-Mix Bulgaria has a long history studying DRGs and other tools Bulgaria’s history shares similarities and differences with other countries Study and review began long-ago…early 1990s Many pilot projects have taken place, but DRGs have never been implemented Many trainings have been provided (i.e., coding training, costing training, hospital management etc.) Data collection and analyses efforts have been going on for years Simulations of hospitals budgets have been prepared Numerous infrastructure development activities YET, DRGs HAVE NOT BEEN IMPLEMENTED…WHY? Could it be because of the development of CCPs Could it be because of “imperfect” data Could it be due to technical, political, cultural reasons, etc.

CCPs vs. DRGs Should CCPs be used as the basis for hospital financing rather than DRGs? Great question Depends on how CCPs were developed Are CCP groups clinically meaningful? Can CCPs measure severity? Do prices exist for each CCP? How were they created? Are CCP groups good predictors of the “average” cost of similar cases or an absolute cost of each clinical practice/protocol ? Do CCPs create the same types of efficiency incentives that DRGs do? Are international comparisons important?

CCPs vs. DRGs (continued) Can CCPs and DRGs be used together? Great question and it depends on what the goals of each tool are. Could be possible to use CCPs to guide clinical practice while DRGs are used to finance that clinical practice on average

DRGs and Case-Mix Around the World

What Are DRGs Being Used for Around the World? Primary use is still for financing, but DRGs are being used for much more in the U.S. and around the world As the healthcare industry has evolved there has been a demand for additional patient classification systems and for systems that can be used for applications beyond financing Establishing standard data sets and definitions Measurement of clinical activity and other data indicators Tool for internal hospital management, quality assurance, utilization review, activity measurement, and benchmarking Hospital clinical and financial decision-making Physician comparative statistics and provider profiling Monitoring and measuring quality of care within and across hospitals Report card and other education material development for consumers Support for clinical pathways, protocols and standardizing medical practice Contracting and/or payment Research (epidemiology, economics etc)

Who is Using or Studying DRGs? Bulgaria USA Australia France Portugal Canada Ireland Italy Spain Germany Hungary Czech Republic Romania Slovenia Switzerland England Costa Rica Turkey Iceland Norway Sweden Denmark Finland Belgium The Netherlands Japan Singapore Malaysia Thailand Korea Taiwan China New Zealand Many others… 14

The Latest DRG Classification Systems Primary DRG Systems in the U.S. Medicare or HCFA DRGs All Patient DRGs (AP-DRGs) All Patient Refined DRGs (APR-DRGs) Medicare Severity Adjusted (MS-DRGs) Others Primary DRG Systems Outside of the U.S. Australian DRGs NORD DRGs HBCs German DRGs French DRGs International Refined DRGs Many other variations, but most stem from HCFA DRGs or the Australian DRGs

Classification Systems Being Used Around the World COUNTRY SYSTEM Austria LKF Belgium APR DRG Bulgaria IR DRG, AR DRG Czech Rep. AP DRG, IR DRG Denmark NordDRG-Dm Estonia NordDRG Finland France GHM Germany G DRG Greece HCFA Hungary HBCs From PCSI Summer School June 2009

Classification Systems Being Used Around the World (continued) COUNTRY SYSTEM Iceland NordDRG Ireland AR DRG Italy HCFA, APR DRG Lithuania Netherlands DBCs Norway Portugal HCFA Romania Slovenia Spain AP DRG, ACG Sweden NordDRG,ACG Switzerland AP DRG, G-DRG Turkey From PCSI Summer School June 2009

Classification Systems Being Used Around the World (continued) COUNTRY SYSTEM USA HCFA, APR DRG UK HRG Australia AR DRG Singapore AN DRG Netherlands DBCs Canada CMG Thailand IR DRG,HCFA Malaysia HCFA Indonesia Taiwan IR DRG, HCFA China IR DRG, ARDRG Japan DPC PCSI Summer School June 2008

Some Benefits of Using DRG-based Case-Mix Financing Government/Central Institutions/Research Institutions Understand the types of patients treated, where, how many etc. Allocate resources equitably using production/output data based on DRGs by hospital Monitor performance using data, reports, and various indicators Efficient resource use/less waste can result in more funding for other care settings and health initiatives Service/care migration to most appropriate settings over time Hospitals and Physicians Understand types of patients treated, by whom, how many, etc. Management tool for hospital, department, physician etc. level Efficiency incentives/control of internal costs Knowledge that funding is directly tied to type and volume of patients treated Creation of a common language between management and medical staff Provision of services in the most appropriate care settings Characteristics of DRGs: Patients are clinically homogenous within a DRG, but not the exact same Patients have similar resource consumption within a DRG, but not the exact same Utilize routinely collected diagnosis and procedure code data WHAT ARE DRGS: DRGs are a patient classification method providing a way to relate the services given to patients in a hospital (DRG assignment occurs first) to the costs related or treatment resources used by the hospital by assigning patients to a finite number of categories that have relative weights/points (the relative weights multiplied by a base price leads to a price per DRG). 500 – 1500 groups depending on what version of DRGs is used

Some Measurable Outcomes That Can Be Seen with DRG Implementation Transparency of what services are being provided, where, and for how much - - measurable Reduction in Length of Stay - measurable Movement of health care services across settings - measurable Central level and hospital level decision-makers using data to manage their environments – somewhat measurable Improved health care outcomes/quality of care – somewhat measurable Increased collaboration among all the players in the health care policy arena – measurable Others…

Possible Next Steps for Bulgaria with Respect to Case-Mix Based Financing Are more projects needed? Why? Be clear about: “Why case-mix?” “Which case-mix system?” CCPs, DRGs, neither, or both Ask some tough questions: What is driving the interest in using DRGs for financing? Has a S.W.O.T. analysis been conducted for CCPs and DRGs? Can DRGs and CCPs be used at the same time, to achieve different, yet complimentary objectives, in Bulgaria? What are the current inpatient financing reform initiatives and can a case-mix tool help achieve them? What data, infrastructure, and support is available both from a technical and political perspective?

Final Thoughts REMEMBER… Remember, case-mix does NOT have to be used for financing, but if it is, then the classification and payment system must be developed and implemented carefully Classification and payment systems continue to evolve so each country must determine where it is on its case-mix journey and implement appropriate mechanisms to achieve its goals REMEMBER… Case-mix is only a tool, and not a magic solution that can solve all healthcare problems Matching your needs with potential tools and then adapting to your country’s needs or requirements is critical

Thank You and Discussion Jugna Shah, MPH President, Nimitt Consulting Inc. and Secretary of Patient Classification Systems International 2038 18th Street NW #403 Washington DC 20009 www.nimitt.com Telephone: 1-215-888-6037 Fax: 1-208-460-6613