1. DRG Workshop Belgrade, 18-22.November 2013. Setting the DRG cost weights. Content of DRG costs/cost weights Prof Ric Marshall OAM The University of Sydney.

2. DRG Workshop Belgrade, 18-22.November 2013. Typical Patient Costing System

3. DRG Workshop Belgrade, 18-22.November 2013. Typical program for first cost weights and schedule

4. DRG Workshop Belgrade, 18-22.November 2013.

5. DRG Workshop Belgrade, 18-22.November 2013.

6. DRG Workshop Belgrade, 18-22.November 2013. Current readiness for product costing: – current casemix or other costing methodology. – any current specialty costing process. – need for product/patient costing – stakeholders views. – ability of hospitals/clusters to provide standard inputs: – COA financial data, standard volume statistics, approaches to overhead allocations – capacity to develop a centrally operated product costing service: – Where product costing should fit into the overall reporting structure – Broad roadmap for the development of product costing over the next several years. International experience appropriate? Main approaches – strengths, weaknesses. Potential risks, problems. Available standards. How ready is your system?

7. DRG Workshop Belgrade, 18-22.November 2013. Standardised units of activity – Community based – primary/fm, specialist – Inpatients – Acute (+-ICU), Rehab, etc – Outpatients – booked/sorted – Emergency – ambulatory Cost effectiveness measurement – accrued – National/Regional Health Accounts – Health program statistics - Annual reports – Best practice – Care model development Budget and payments management USES OF UNIT PRODUCT COST

8. DRG Workshop Belgrade, 18-22.November 2013. 5 major product groups 18 major product subgroups Non-admitted services DRGS

9. DRG Workshop Belgrade, 18-22.November 2013. Breakdown of actual total hospital expenditure to the DRG level. Need hospitals that can provide BOTH – activity utisation (‘cost driver’) data and – accurate, detailed financial data. Allocating cost data from the hospital general ledger and accounting systems to DRG episodes using ‘cost driver’ resource use data (cost modeling) – Relative DRG resource allocation statistics where actual amounts cannot be obtained. Eg Nursing SWs DRG COSTING FUNDAMENTALS

10. DRG Workshop Belgrade, 18-22.November 2013. DRG funding to influence efficiency in a particular setting = COST PER UNIT. same activities required to produce local cost weights ALSO MEASURE EFFICIENCY. costing is the key to both efficiency and quality gains in a DRG environment. costing is essential – NOT optional – well recognised in Serbia – plan includes in 2016. WHY LOCAL COST WEIGHTS?

11. DRG Workshop Belgrade, 18-22.November 2013. Hospital Information Systems Hospital Financial Data Minimum Basic Data Set- DRG Data Entry Tool - Clinical Data, DRG - Resource Consumption Data (analysis tool) Costing engine Coding Analysis Reports Eg PICQ Software Cost Reports Cost Sheet -Allocation Statistics (costfile)(volumefile) (CASES) Data Analysis Reports (preparecostsheet) Diagnosis and procedures Analysis Reports DATA WAREHOUSE

12. DRG Workshop Belgrade, 18-22.November 2013. CASE STUDY - HONG KONG READINESS FOR PRODUCT COSTING with reference to approaches adopted in other countries when first adopting DRGs

13. DRG Workshop Belgrade, 18-22.November 2013. ('000) '000HKD DRG Cost Weight Std Error Number of Cases Number of Days ALOS (days) Av DRG Cost Ward Medical Ward Nursing Non Clinical Sals Pathology Imaging Allied Health Pharmacy Critical Care Oper Rooms Emerg Depts Supplies Spec Proc Suites Pros-theses On-Costs Hotel Depreciation DRG124.40.09825330.145529.133.910.222.914.514.020.022624.02.07.31.95.323.89.411.0 DRG21.130.011053032.8212.910.81.60.30.10.3 0.10.50.11.40.0 1.30.80.5 DRG30.140.00769771130.21.00.20.10.0 0.30.00.10.00.40.0 0.1 DRG41.900.01431834.2355.512.81.90.50.10.40.60.17.60.11.70.00.22.01.20.8 DRG54.660.0211857.3878.012.62.50.80.72.21.11.017.20.12.40.031.82.91.91.6 DRG60.290.01138 150.60.90.1 0.03.20.0 0.10.0 0.10.0 DRG70.630.0159 1122.10.60.30.0 0.10.20.05.10.00.3 1.50.50.40.3 DRG81.780.01211567.5334.810.82.01.40.91.51.71.50.22.42.10.1 1.81.30.7 DRG94.220.07819022.57911.942.05.50.80.22.53.00.10.41.63.10.0 4.52.10.7 DRG107.540.0458317.814017.430.75.76.15.03.96.318.523.71.55.20.32.56.74.02.9 DRG110.400.00821211.470.70.90.30.40.70.10.20.40.02.40.30.10.00.40.2 DRG125.040.0279614.69411.125.84.42.93.93.72.72.614.82.13.90.16.64.33.01.9 DRG130.870.01361393.8162.45.01.00.50.40.30.70.10.91.91.10.0 1.00.70.4 DRG142.540.011212310.0476.116.32.72.41.82.32.52.60.32.82.40.1 2.41.70.9 DRG154.190.027506.9787.112.02.10.81.01.91.00.516.30.52.20.026.62.71.81.4 DRG165.230.0266911.99710.320.83.42.42.33.22.02.517.11.33.30.120.53.82.71.7 DRG174.600.06610816.98610.630.75.12.53.810.42.72.50.52.74.30.20.14.53.21.8 DRG181.480.01191125.9273.78.91.71.31.01.11.30.80.22.41.80.10.01.51.10.6 DRG190.420.00641221.980.91.70.4 0.10.20.00.12.00.40.10.00.40.30.2 DRG202.610.051012712.3497.622.93.60.60.21.4 0.10.62.12.70.0 2.91.60.7 DRG211.380.0119361.9263.73.50.80.6 0.10.40.111.60.40.70.00.61.20.7 DRG2222.30.0813530.741523.843.17.918.324.516.314.215250.43.67.52.315.418.88.28.4 DRG232.720.059394.1513.83.21.91.40.80.52.910.32.21.2 9.57.91.70.91.2 DRG241.130.01231155.1212.86.21.31.00.70.60.81.40.12.11.40.10.01.20.90.5 DRG250.930.0127572.1172.38.41.60.10.00.20.30.10.20.11.30.0 1.30.80.5 DRG267.030.023349.813118.414.55.15.02.72.23.125.137.30.33.70.62.54.92.62.8 DRG272.370.0210626446.616.62.31.10.20.50.90.58.10.12.20.00.22.31.50.9 DRG281.360.0118502.8253.54.61.00.80.40.20.50.18.71.80.80.00.21.30.80.6 DRG291.610.0215664.4304.114.42.01.00.20.50.60.41.40.12.00.0 1.71.10.6 DRG302.000.0112443.6374.16.21.30.31.50.80.60.112.61.31.00.03.91.71.00.8 OTHER1.09 2,8679,3853.3202.64.70.90.80.70.50.91.32.81.10.90.30.51.00.60.5 TOTAL1.000.004,42213,2133.0192.34.50.90.70.60.40.91.52.40.9 0.20.60.90.60.4 DRGs Cost components: Ward medical Ward nursing Non clinical salaries Pathology Imaging Allied Health Pharmacy Clinical Care Operating rooms Emergency departments Supplies Special Procedure Suites Prostheses On-costs Hotel Depreciation DRG Statistics: Cost Weights Standard Error Number of Cases Number of Days Average Length of Stay Average DRG Cost

14. DRG Workshop Belgrade, 18-22.November 2013. Built 10 years ago – established processes. Some concerns about:- – performance of the software functions and processes. – accuracy of the data – universal issue – needs iterative improvement feedback – USE THE DATA!! – stakeholder acceptance of the data transformations. Category totals reconcile to expenditure totals. Reporting well established and used for overall performance assessment and reporting. Current specialty costing process

15. DRG Workshop Belgrade, 18-22.November 2013. 15 GL Pharmaceutical Supplies System (PHS) EIS Laboratory Information System (LIS) Radiology Information System (RIS) Manual Records Human Resources Payroll System (HRPS) CostingSystem PE cost workload statistics Notional charges / allocation statistics Drug cost Activity Volume and Allocation Statistics Cost (by cost centre aligned with Specialties) System Interfaces Manual Data Input workload statistics Other Clinical/Non Clinical Systems (e.g. OPAS, IPAS) Relevant Statistics HA Costing System – Data Flow

16. DRG Workshop Belgrade, 18-22.November 2013. 16 HA Specialty costing - output

17. DRG Workshop Belgrade, 18-22.November 2013. 58.1% Extended Care A&E SOPD Day Hospitals Community Care 14.1% 4.8% 18.8% 2.4% 1.8% Inpatient 72.2% Acute Care Ambulatory 26.0% 56.2% 12.3% 4.8% 19.2% 5.4% 2.1% Inpatient 68.5% Ambulatory 29.4% HA Service Resource Utilization Profile

18. DRG Workshop Belgrade, 18-22.November 2013. Current HA casemix costing methodology HA Costing System – Data Flow

19. DRG Workshop Belgrade, 18-22.November 2013. The key strategy is to use local data to the maximum extent practical. Use specialty costing results and disaggregate at the patient level using length of stay. The average cost per patient day (using specialty costing related to a DRG) X The HA average length of stay (LOS) for that DRG (average for HA) = An average cost relativity for each DRG for all of HA Current casemix costing method

20. DRG Workshop Belgrade, 18-22.November 2013. International experience Should use as much local data as practical as cost structure of each DRG varies between countries HA’s approach  Use specialty costing results and HA length of stay (LOS) Development of Cost Weights

21. DRG Workshop Belgrade, 18-22.November 2013. Clusters’ Average Cost per Patient Day by Specialty 06/07

22. DRG Workshop Belgrade, 18-22.November 2013. 318 BDO 054101 AMI $2,581 x 8,142 BDO $7,657 x 2,424 BDO $48.1M$27,289 $32,250 434 BDO 054103 AMI w/MCC $2,581 x 3,474 BDO $7,657 x 683 BDO $19.5M $35,834 All DRGs $16B $13,753 Total Cost of AMI DRG Cost per Episode 233 BDO 054102 AMI w/CC $2,581 x 6,527 BDO $7,657 x 1,016 BDO $31.0M 1,764 961 543 1,075,401 No of Episode Note: AMI - Acute Myocardial Infarction DRG MedCCUOthers Development of Cost Weight for HA (using 06/07 data) - AMI as an Illustration

23. DRG Workshop Belgrade, 18-22.November 2013. Cost per Episode Note: AMI - Acute Myocardial Infarction 054103 AMI w/MCC Average for All DRGs Cost Weight for each DRG Development of Cost Weight for HA (using 06/07 data) - AMI as an Illustration 054102 AMI w/CC 054101 AMI $35,834 $32,250 $27,289 2.6 2.3 2.0 $13,7531.0

24. DRG Workshop Belgrade, 18-22.November 2013. Need for accurate cost weights ++ Value for efficiency benchmarking + – Some interest in high level exception analysis. Relationship to quality and performance monitoring – – – not realised – or too hard for now. – quality program indicator focused rather than protocol based – patient level service patterns therefore not of interest at this stage. Stakeholder views on HA’s need for product costing

25. DRG Workshop Belgrade, 18-22.November 2013. AVAILABILITY OF INPUT DATA Hospitals and clusters reporting capability

26. DRG Workshop Belgrade, 18-22.November 2013. Standard Chart of Accounts. Standardised use of cost centres – accrual. Degree of customisation – posting accuracy – management centre structure – cross subsidy - accountability for inconsistency. Relevance to internal hospital management processes, performance goals and issues. Standardised financial reports

27. DRG Workshop Belgrade, 18-22.November 2013. VOLUME STATISTICWARD, UNITDRGPATIENT MEDICAL SERVICES +--+ NURSING CARE +-- PATHOLOGY --+ IMAGING --+ ALLIED HEALTH +-- PHARMACY ?-+ CRITICAL CARE +-(days+?) ORs, PROCEDURE SUITES +-+? EMERGENCY DEPTS +-+ PROSTHESES, SUPPLIES +-+- HOTEL SERVICES +-- ON COSTS, DEPRECIATION ??? Standardised activity data

28. DRG Workshop Belgrade, 18-22.November 2013. 28 Type of ServicesRecommended Basis AnaestheticNo. of sessions/ No. of anae procedure Operating TheatreNo. of sessions Pharmacy (Drugs)Value of pharmaceutical items issued Pharmacy (PE & OC)No. of items dispensed/ No. of beds PathologyWeighted Workload Diagnostic RadiologyWeighted Workload Medical PhysicsWeighted Workload Allied Health ServicesNo. of attendance Private / Mixed WardBDO/ No. of beds/ No. of admission Allocation Basis – Clinical Patient Support

29. DRG Workshop Belgrade, 18-22.November 2013. 29 Type of ServicesRecommended Basis Portering & Domestic ServicesAverage portering strength by service CateringNo. of meals/ BDO Laundry & LinenBDO/ No. of Patient Treated Medical Record Supporting Service No. of Patient Treated/ No. of attendance CSSDValue/ No. of CSSD items issued Allocation Basis – Non Clinical Patient Support

30. DRG Workshop Belgrade, 18-22.November 2013. INFORMATION AVAILABLE ++ Administration, Electricity, Gas, Water, Depreciation, EMSD, Building Maintenance & Depreciation for notional costs DATA QUALITY ?? STANDARD DEFINITIONS +- STANDARD PROCESSES +- TECHNICAL CAPABILITY ++ Overhead allocations

31. DRG Workshop Belgrade, 18-22.November 2013. 31 Type of ServicesRecommended Basis AdministrationDirect cost of specialty Electricity, Gas, WaterFloor Area DepreciationActual Depreciation by Department EMSDFacility maintenance – Floor Area Equipment maintenance – Asset Value Building Maintenance & Depreciation for notional costs Floor Area Allocation Basis – Hospital Overhead

32. DRG Workshop Belgrade, 18-22.November 2013. UNDERSTANDING CAPACITY TO DEVELOP A CENTRALLY OPERATED PRODUCT COSTING SERVICE Data warehouse capability, capacity and use by clusters and hospitals Costing skills and capacity to develop.

33. DRG Workshop Belgrade, 18-22.November 2013. Patient demographics Inpatient episodes Outpatient attendances A&E attendances Diagnosis, procedures Laboratory results Drug dispensing records Radiology examinations OT Records Obstetrics information Psychiatric information Rehabilitation outcome Head counts Payroll details Drug expenditure Useful Data Warehouse Components

34. DRG Workshop Belgrade, 18-22.November 2013. Data volume and size – 8.6m patient records – 69m inpatient, outpatient, A&E episodes – 860m laboratory results – 48m radiology examination reports – 340m dispensed drug items – 3.5 TB x 2 (Primary and Secondary Transaction Volume – 1.8m update transactions per day Data Warehouse Statistics

35. DRG Workshop Belgrade, 18-22.November 2013. Demographic DOB, age, sex, address, family status, income Clinical Diagnosis Operations Laboratory Radiology Problem list Care plans Activities IP SOPC A&E GOPC Day Hospital Community Financial Fees, deposit, payment, subsidy/assistance. Cost: PE, OC, SFI, etc Information architecture vision

36. DRG Workshop Belgrade, 18-22.November 2013. Cost data not used by hospitals – only for cost weights – – thus process not cost effective or accurate. Activity data problems – completeness and accuracy – (quickly resolves if used for benchmarking). – Staging rules – where the intermediate products are charged - ? Patient – department allocation rules. Financial data problems – IFRAC, other product fractions – well developed in HA – GL posting idiosyncrasies – SCA use variations – Definitions of ‘in scope’ Confrontational and defensive response to variations. Difficulties and risks

37. DRG Workshop Belgrade, 18-22.November 2013. England - http://www.hfma.org.uk/NR/rdonlyres/03048E3E- 16BE-4D9E-BC54- A16FAA61ADC2/0/AcuteHealthCCS20132014.pdf http://www.hfma.org.uk/NR/rdonlyres/03048E3E- 16BE-4D9E-BC54- A16FAA61ADC2/0/AcuteHealthCCS20132014.pdf Australia – – http://www.ihpa.gov.au/internet/ihpa/publishing.nsf/Conte nt/Australia-Hospital-Patient-Costing-Standards.htm http://www.ihpa.gov.au/internet/ihpa/publishing.nsf/Conte nt/Australia-Hospital-Patient-Costing-Standards.htm User groups guidelines and health insurer standards. – Eg German approach International clinical costing standards