1. THE UNIVERSITY OF WESTERN AUSTRALIA Setting the Scene: What are provider payment reforms? Professor Stephen Duckett Adjunct Professor ACERH/University of Queensland Presentation to Regional Health Financing Seminar: Strategic Choices for Better Outcomes February 4 – 5, 2008 Bangkok, Thailand

2. Key issues in provider payment reform:  What problem trying to solve?  How is risk to be distributed?  What instruments/policy levers do you have available?

3. What problem are you trying to solve?  Health systems have multiple objectives Access  Distribution of access also important (i.e. equity) Quality Efficiency  Vs Constrain total expenditure Maximise patient assessed value  Reform to provider payment may attempt to Optimise all Maximise/minimise one, satisfice on others

4. How is risk (cost broadly defined) to be distributed? Cost here includes: Money costs to consumers  including travel costs  Out of pocket costs Non-monetary costs to consumers including  Quality costs  Travel time Profit/surplus of providers Total program costs  Service provision offset by consumer copayments

5. Risk will fall differently on those with different roles in health system  Oversight  Funder Treasury Patient in fully privatised system What is in scope (medical, dental) Nature of mutualisation pool  Purchaser May not exist Meso-level organisation What is in scope (more refined), under what conditions  Provider  Owner

6. How is risk (cost broadly defined) to be distributed?  Can fall on any or all of: Funder/Taxpayer/Contributor Purchaser Provider Consumer  Design should reflect Goals (see previous slide) Who is best placed to manage the risk Inevitability of gaming

7. What policy instruments/levers do you have available (NB: different equity effects)  Culture  Price  Regulation Preferably in alignment Different instruments can be used for different purposes  Demand  Supply

8. What price-based instruments/policy levers do you have available to distribute risk?  Demand side:  Patient contributions  Supply side: Payment methods  How describe product Payment amount

9. What regulatory instruments/policy levers do you have available to distribute risk?  Constraints on consumer choices (aka demand) What providers for what services Gate keeping (absolute, higher co-payment)  Constraints on provider choices (aka supply) What treatments What co-payments can be charged (autonomy) Prioritisation of patients Services in scope Protocols etc, Second opinions

10. What policy instruments/levers do you have available (NB: different equity effects) SupplyDemand PriceFee ScheduleCo payments RegulationLicensing rulesGate keeping rules

11. Instrument – Objective matrix Casemix funding (supply side) example EfficiencyAccessMitigate risks (gaming, quality) Price  Benchmark payment per separation  Activity cap at full price  Bonus/Penalty scheme for elective surgery and emergency access failure  Coding audit  Accreditation mandatory Regulation  Coding rules  Patient Satisfaction Survey  Reporting of quality indicators

12. Services have to be funded - 1  Less (economically) rational History, politics aka “need”  Inputs Salaries + other inputs  Outputs, volume Casemix, Fee for service Incentive payments including ‘adjunct incentives’  Population, Capitation Area vs consumer choice  Mix for different levels of system

13. Services have to be funded - 2  Hierarchies Can use market-like instruments  Increasing tendency to do so  Markets Demand driven or not  “Soft vs hard caps” vs no cap (within budget cycle)  Incentives on providers –Tapering –‘Volume performance standards’/ Agreements  ‘Professional payment model’ vs ‘business model’ including tenders

14. Williamson’s Transaction Cost Economics suggests market s uperiority affected by:  Frequency of transactions  Asset specificity  Uncertainty (? reduced by hierarchy)  Product description

15. Ouchi Culture Analysis Ability to describe product Knowledge of transformation process Perfect Imperfect High Low Markets/hierarchies Hierarchies Markets Clan

16. Services have to be funded - 3  All systems require risk adjustment (or fee schedule) of some kind Fee schedules have tended to over compensate procedural work and correspondingly under compensate cognitive work  Risk adjustment for hospitals is called case mix Requires ‘grouper’, updating  Risk adjustment for population Requires population weights etc  Each liable to gaming  Requires technically skilled policy/purchasers

17. Services have to be funded - 4  Each funding option has strengths and weaknesses Including moral hazard of providers  Salary  Fee-for-service Including moral hazard of consumers  Most research/experience suggest mix of methods is required to balance relative strengths and weaknesses  Who is best placed to manage which risk

18. Risk Assessment and Skill Assignment Casemix funding HospitalFunder Population funding Hospital Funder Purchaser + Residual (perverse incentive risk) Population expenditure = Size of (weighted, needs adjusted) population x Utilisation rate x Casemix x Cost/service (eg days, tests) x Services/ separation

19. Casemix issues  Prerequisites  Distribution of efficiency risks Purchaser vs provider  Gaming moral hazard  Casemix policy doesn’t determine efficiency  P4P along side casemix

20. CASEMIX FUNDING: The prerequisites  Identification of products  Identification of output measures for each product  Pay the price for each unit of output measure

21. $ Same day Low Boundary Costs Payments and costs by length of stay Length of stay High Boundary Payments

22. Provider at risk of loss Purchaser risk of over payment Length of stay Risk Theoretical funding risk as a function of length of stay Payment amount

23. Provider at risk of loss Purchaser risk of over payment Length of stay Risk Theoretical funding risk as a function of length of stay Payment amount This is all an inexact science because provider costs not necessarily clear (to either providers or purchaser!) so the curves are in fact quite broad zones

24. Assignment of risks in casemix funding

25. Public hospital separations/000 population, NSW and Victoria

26. Same day separations as proportion of all separations from public hospitals

27. Average cost per weighted public hospital separation, NSW vs Victoria

28. INDICATORPOSSIBLE INCENTIVE DESIGN  Clinical indicators e.g. % adherence to specific treatment for specific disease  Adherence to (any) endorsed care path  Achievement of hospital accreditation  Complications of care  Appropriateness of care: Propensity to admit conditions which exhibit high geographic variation.  Incremental payment where evidence of specific intervention  Increment for adherence to care path  Bonus for accreditation  Remove from DRG calculation  Discounted payment for admission of high variability conditions

29. DOMAININDICATORPOSSIBLE INCENTIVE DESIGN ACCESS  Elective surgery waiting times  Hospital emergency service times to treatment (by triage category)  Long stays in hospital emergency service  Discount/penalties for high percent or number of patients waiting in excess of threshold time  Penalties for failure to achieve threshold t treatment time goals  Penalties for number of patients staying in excess of threshold times

30. PREVENTION  Avoidable hospital admissions  Avoidable mortality  Discounted payment for avoidable admissions  Penalty in area funding formula for excess avoidable mortality CODING QUALITY AND TIMELINESS  Timeliness  Incidence of “ error ” DRGs  Coding error as measured by audit  Zero payment for submission outside specific timeframes  Discounted payment for ‘ error ’ DRG codes.  Penalty for upcoding (eg. double deduction where overcoding found).

31. Summary  Instrument objective matrix Price and regulation Mix of instruments better Instrument choice needs to be aligned to what objectives are  Different payment methods have different behavioural consequences  All systems have skill set issues