DRG Workshop Belgrade, November DRGs and per case financing Prof Ric Marshall OAM The University of Sydney.

DRG Workshop Belgrade, November HOSPITAL BUDGET MODELLING IN A DRG ENVIRONMENT

DRG Workshop Belgrade, November u/pfg/pfg2005/pfg0506.pdf

DRG Workshop Belgrade, November Non- admitted T&D including complexit Allaocati &compen sation Excluded Fixed cost (eg Suparann uation) adjustme Specified grants excluding complexi Bonus fundin Quality fund incl materni Electiv surgery DRG Variable paymentsTotal '000s 000s'000s H181, , , , , , , , H245, , , , , , , , , H386, , , , , , , , H , , H572, , , , , , , , , H676, , , , , , , , H736, , , , , , H837, , , , , , , , H934, , , , , , , , H1016, , , , , , etc Etcetc Total890, , , ,463, , , , ,735, ,447, MODELLED BUDGETS EXAMPLE

DRG Workshop Belgrade, November Inpatient budget/expenditure estimates Total hosptial budget for period Multiplied by IFRAC HOSPITAL EXPENDITURES AND IFRACS.xlsx HOSPITAL EXPENDITURES AND IFRACS.xlsx Inpatient budget estimates

DRG Workshop Belgrade, November The modelling process Inpatient budgets by hospital Inpatient volumes by DRG by hospital Cost weights by DRG Price from total inpatient budget – IF COSTWEIGHTS ARE REBASED Allocate modelled budget by weighted DRGs Adjust for redistributions above 5% JUL AUG DRG DATA MODEL IT2.xlsx

DRG Workshop Belgrade, November General Hospitals Admitted patient payment Feb10*2 JULAUG10 UNWTD Cases JULAUG08 WTD Cases Casemix Index (CMI) PRICE MODELED CSMX PAYMENT % REDIST / ADJUST HOSPITAL ,89724,683#DIV/0! HOSPITAL 1 2,6472, ,89731,295,068#DIV/0! HOSPTIAL 2 22,892,2751,6761, ,89721,841, % HOSPITAL 3 6,736, ,8976,738, % HOSPITAL 4 13,366,3711, ,89711,139, % HOSPITAL 5 3,783, ,8975,980, % HOSPITAL 6 9,667,8941, ,89712,855, % HOSPITAL 7 5,122,8431,5261, ,89713,872, % HOSPITAL 8 5,661, ,8978,214, % HOSPITAL 9 22,819,3871,3811, ,89716,158, % HOSPITAL 10 1,4601, ,89717,115,660#DIV/0! HOSPITAL 11 24,219,3191,7261, ,89723,031, % HOSPITAL 12 15,736,0091,3941, ,89713,415, % HOSPITAL 13 17,485,5242,0001, ,89721,657, % HOSPITAL 14 39,213,7432,0651, ,89723,095, % HOSPITAL 15 24,990,8462,4602, ,89733,733, % 275,458,763 15,25317, ,897226,985, % 487,155,11237, ,897487,155, % Initial modelling framework demonstration

DRG Workshop Belgrade, November Alignment of expenditure data and activity data Cleaning up data by deleting test hospitals data Aggregations of clinics to best approximate a major teaching hospital for benchmarking purposes. Rechecking estimated IFRACS. Rechecking grouping patterns of hospitals ◦ Review grouper logic ◦ Compare hospital level casemix patterns with peer hospitals ◦ Check changes in casemix across time periods. GENERAL CHECKS/CORRECTIONS

DRG Workshop Belgrade, November Check for missing data Hosp A Hosp B Check for missing expenditure data Allocate clinics to hospitals?? Or model budgets independently?? Check hosp X for overcounting of cases or underestimate of current revenue. – ??Duplicate data – ??Admitted outpatients – Ifrac Check Hosp Y and Hosp Z For whereabouts of revenue and ??Cases. Specific corrections

DRG Workshop Belgrade, November Managing demand for hospital services Demand is very elastic. What is the right amount? Is more better? Prevention investment? Targets, incentives to substitution or both? Engaging community – self care Referral gatekeeper – copayments (equity) Budgetary restraint a weak signal.

DRG Workshop Belgrade, November Target setting Based on projection or current baseline –Same as last year’s targets –Same as last year’s actuals Adjustment for growth Adjustment for efficiency dividend Planned service implementation – geographical redistribution New services and technology allowance

DRG Workshop Belgrade, November Innovation, research and development Cannot be covered by DRG weights based on previous year’s costings. Must be covered by funding supplementation – then becomes absorbed in DRG costs. Low volume high cost exceptional services OK for DRG funding if accurately costed –Usually high fixed costs relatively low variable.

DRG Workshop Belgrade, November Data sets required for DRG funding of hospital services Activity –Data set specification –Coding rules– counting rules– admission rules Expenditure previous years’ – quarters’ –Standard chart of account - for patient costing –Cost disaggregation standard models. Budget and planning estimates Price lists

DRG Workshop Belgrade, November 2013.

DRG Workshop Belgrade, November REPORTING FEEDBACK The key to –GOOD DATA –EFFICIENCY GAINS –PERFORMANCE IMPROVEMENT The basis for rational planning A primary mechanism to assess innovation and investment priorities.

DRG Workshop Belgrade, November Standard reports may include Productivity Complexity Allocative efficiency ‘doing the right things’ Technical efficiency ‘doing things right’ Coding Completeness And various quality indicators –Outcome – Process Some examples follow …

DRG Workshop Belgrade, November Productivity Performance in total Weighted Episode (WEs) of all hospitals Overall performance in total WEs against target by hospital WEs by Major Diagnostic Categories (MDC) for Medical Diagnosis Related Group (DRGs) by hospital WEs by MDC for Procedural DRGs by hospital Top 10 increment DRG families by hospital Top 10 decrement DRG families by hospital

DRG Workshop Belgrade, November Complexity –Casemix Index of Medical and Procedural DRGs of all hospitals –Casemix Index (CMI) by MDC by hospital –Average WEs per patient by MDC in by hospital –Average number of episodes per patient by MDC by hospital –Casemix – “1 Year On”

DRG Workshop Belgrade, November Allocative Efficiency Percentage same day episodes by MDC of Medical and Procedural DRGs by hospital Change in same day episodes of Ambulatory Medical DRGs Percentage of episodes admitted via A&E Department by MDC by hospital

DRG Workshop Belgrade, November Technical Efficiency Average Length of Stay (ALOS) of Medical & Procedural DRGs of all hospitals Change in ALOS by MDC by hospital Cost per weighted DRG by hospital

DRG Workshop Belgrade, November Coding Completeness –Percentage of total multi-day episodes for Medical and Procedural DRGs by severity level in all hospitals –Percentage of total multi-day episodes with Major Co- morbidities and Complication (MCC) by MDC for Medical DRGs by hospital –Percentage of total multi-day episodes with MCC by MDC for Procedural DRGs in all hospitals –Percentage of total multi-day episodes with MCC by MDC by hospital –WE / CMI by discharged specialty: 4-year trend analysis by hospital

DRG Workshop Belgrade, November DRGs – QUALITY AND SAFETY

DRG Workshop Belgrade, November THE FIRST IDEA OF EFFICIENT PRICE Data and information for fair and accurate costing and pricing (1) – What is efficient in terms of a reasonable price to pay? what is the budget? – realistic quality? – Accuracy in costing – capital costs – sector differences – lumpy costs (eg redundancies)? – What about regional cost/salaries/inputs price variations? – Differences in packaging – eg include workup? – Scale of operation? – Equivalent developing models of care?

DRG Workshop Belgrade, November THE SECOND IDEA OF EFFICIENT PRICE The Payment System – what are you actually paying for? NHIF MoH INSURERS PATIENT HEALTH SYSTEM OPERATORS, REGIONS, HMOs EMPLOYED PRACTITIONERS Drug, MD SUPPLIERS SUPPORT SERVICES MANUFACTURERS HOSPITALS, HEALTH CLINCS, PRACTITIONERS

DRG Workshop Belgrade, November Coding activity to DRGs DRG grouper software online in PAS systems in hospitals –Immediate feedback on DRG effect of coding Code finder functions for DRG –optimisation Batch or individual record grouping –Patterns of activity by DRG DRG pattern reporting and feedback loops

DRG Workshop Belgrade, November 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  Allows analysis of resource use by individual patient episode 26

DRG Workshop Belgrade, November Types of Costing (2/2) Cost Modelling  Top down approach  Relies on the use of ‘service weights’ and/or other generalised utilisation statistics 27

DRG Workshop Belgrade, November  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 Why patient costing? 28

DRG Workshop Belgrade, November Jan - Jun 2012 Strategic Options for Costing November 2012 Costing Patient Care February 2012 Approved Costing Guidance 12 June – 13 September 2013 Pilot PLICS Collection End September 2013 onwards Further costing development and exploration work to support pricing development Monitor has been working on costing development for some time 29

DRG Workshop Belgrade, November Issues with Reference costs  Poor data quality and lack of credibility (e.g. 1 in 8 submissions contained materially incorrect costs, significant unexplained variations in unit costs)  Lack of clinical validity (e.g. cost relativity do not match with clinical input)  Lack of granularity  Poor input data Issues with Reference costs  Poor data quality and lack of credibility (e.g. 1 in 8 submissions contained materially incorrect costs, significant unexplained variations in unit costs)  Lack of clinical validity (e.g. cost relativity do not match with clinical input)  Lack of granularity  Poor input data Reference costs are not considered to be fit for purpose in the long run 30

DRG Workshop Belgrade, November  We opened a pilot 2012/13 collection on 12 June 2013 and closed on 27 September  Focused on Admitted Patient Care  66 acute trusts took part in the collection and provided data  Cost data provided are at cost pool level  Trusts also provided coding information  We also collected information to aid our understanding of trusts’ approach to costing For participating trusts  A trust pack (high level benchmarking)  Further engagement events to help us develop future guidance and assessing the regulatory burden For Monitor  Assessing the data quality  Data exploration (e.g. PLICS vs. Ref Costs, sampling)  Benchmarking potentials  Evaluating the potential of using PLICS for pricing / currency development PLICS data – currently collecting to see how it can be used (1) 31

DRG Workshop Belgrade, November Example of Pilot PLICS Collection Note: This is a partial snapshot only (it is not a full data sheet) 32

DRG Workshop Belgrade, November Total Trusts Implemented121 Implementing33 Planning53 Not Planning37 TOTAL PLICS are now widely implemented across the NHS, especially among acute providers

DRG Workshop Belgrade, November PLICS data – currently collecting to see how they can be used (2) Nearly 70% of acute trusts have now implemented PLICS. Previous studies also showed that it could bring the following benefits:  Improved accuracy and consistency  Greater granularity  Greater transparency on cost drivers and what drives cost variations  Greater potential for benchmarking, currency design and pricing development Nearly 70% of acute trusts have now implemented PLICS. Previous studies also showed that it could bring the following benefits:  Improved accuracy and consistency  Greater granularity  Greater transparency on cost drivers and what drives cost variations  Greater potential for benchmarking, currency design and pricing development 34

DRG Workshop Belgrade, November  Understanding the real cost of NHS services will enable the right prices to be set  Costing services accurately has the potential to deliver higher quality care to patients and better value for tax payers in the long term - through better prices and improved information for decision makers and providers  Having accurate patient level data is key to identifying the drivers of costs - and also the potential opportunities for improved quality of service for patients through innovation In Summary 35

DRG Workshop Belgrade, November TRACKING EXPENDITURE TO DRGS

DRG Workshop Belgrade, November The fundamental of costing

DRG Workshop Belgrade, November Cost per case – bottom up

DRG Workshop Belgrade, November DRG based – top down

DRG Workshop Belgrade, November Australia National hospital cost data collection DRG DescriptionCostStandardNumber ALOSAverage Cost per DRG ($)Average Component Cost per DRG ($) WeightErrorof Sepsof Days(Days)TotalDirectOheadWard MedicalWard Nursing Non Clinical Salaries Pathology DRG DirectOheadDirectOheadDirectOhead W01Z Ventiln/Cranio Mult Sig Trauma ,15735, ,98868,27714,7113, ,2771,3331,5723, I69B Bne Dis&Sp Arth A>74/+Cscc ,67525, ,3362, C63A Other Disorders Of The Eye +Cc , ,9742,9491, I68A Non-Surg Spinal Disorders +Cc ,46665, ,2806,0752, , C01Z Proc For Penetratng Eye Injury , ,0845,4931,5921, F21B Oth Circ Sys O.R. Pr -Ccc ,0375, ,1865,5411, , E70A Whoopng Cgh &Acte Brnchio+Cc ,7227, ,1864,5501, , B60B Estab Para/Quad+/-Or Pr-Ccc ,31928, ,9635,9791, , U60Z Mental Health Treat+Samedy-Ect ,57111, J12C L Lmb Pr+Ulcr/Cels-Ccc-Graft , ,4517,0262,4251, , P66D Neo,Admwt G-Sg Op-Prb ,51013, ,7462,7311, , X04A Other Pr Inj Lwr Lmb A>59/+Cc , ,8907,6752,2151, , M04A Testes Procedures + Cc , ,7204,4501, G10Z Hernia Procedures A< ,2241, ,2012, G67B Oesphs,Gastr&Mis Dg D A>9-Cscc ,401122, ,5511, I19Z Other Elbow, Forearm Procs ,57627, ,3865,0651, N60B Malignancy Fem Reprod Sys-Cscc ,1112, ,7922, F40Z Circ Sys Dx+Ventilator Support , ,20417,1234,0811, , , I75A Inj Sh,Arm,Elb,Kn,Leg A>64+Cc ,30233, ,0075,7832, , A09A Renal Transplant+Pancreas/+Ccc , ,54040,9357,6043, ,7601,0241,4962, I13C Humer,Tib,Fib,Ank Pr A<60-Cscc ,09043, ,4485,8631, B67B Degnrtv Nerv Sys Dis A>59-Cscc ,90716, ,3233,1941, , P06B Neo,Admwt >2499G+Sig Or Pr-Mmp , ,26415,6033, G70B Other Digestive System Diag-Cc ,87322, ,4601, E70B Whoopng Cgh &Acte Brnchio-Cc ,19325, ,9472, F41B Crc Dsrd+Ami+Inva Inve Pr-Cscc ,78614, ,8004,6521, C15B Glaucoma/Cx Cataract Procs,Sd ,957 12,4691, B74Z Nontraumatic Stupor & Coma ,1833, ,1572, H01B Pancreas, Liver &Shunt Pr-Ccc ,1299, ,84411,8702,9741, , P61Z Neonate, Admission Wt <750G , ,380116,92133,4594, , ,0493, Z62Z Follow Up -Endoscopy ,64715, , G05B Mnr Small & Large Bowel Pr -Cc , ,4054,9381, , H01A Pancreas, Liver & Shunt Pr+Ccc , ,45825,2286,2313, ,4971,1771,1661, F09B Oth Cardiothor Pr-Pmp -Ccc , ,47711,8472,6301, , X06A Other Pr Other Injuries + Cscc ,75616, ,96110,1352,8261, , NATIONAL HOSPITAL COST DATA COLLECTION COST WEIGHTS FOR AR-DRG VERSION 5.1, Round 11 ( )

DRG Workshop Belgrade, November NHCDC Reporting Standards v.au/internet/ihpa/ publishing.nsf/Co ntent/EC A19EBB1CA257B 9B A/$Fil e/HospitalPatient CostingStandards _v2_Final_June% pdf

DRG Workshop Belgrade, November In summary - 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’

DRG Workshop Belgrade, November ANY QUESTIONS?