1. 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, 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.

2. 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

3. 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!

4. 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.

5. 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?

6. Using Case-Mix for Hospital Financing

7. 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.

8. 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

9. 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

10. 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

11. 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

12. 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

13. 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

14. 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.

15. Bulgaria’s Experience with Case-Mix

16. 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.

17. 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?

18. 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

19. DRGs and Case-Mix Around the World

20. 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)

21. 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

22. 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

23. 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

24. 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

25. 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

26. 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

27. 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…

28. 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?

29. 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

30. Thank You and Discussion
Jugna Shah, MPH
President, Nimitt Consulting Inc. and
Secretary of Patient Classification Systems International
th Street NW #403
Washington DC 20009
Telephone:
Fax: