Department of Health
National ABF Implementation Reference Group
Meeting 2, 23 March 2012
Bruce Prosser
Director – Funding and Information Policy
Overview of topics
Update since previous meeting
Key milestones and timelines
Structure of new funding arrangements
Options for the State funding contribution
Payments system
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Timelines
IHPA National Efficient Price (NEP) Determination
(establishes Commonwealth funding distribution)
Includes NEP, cost weights, details of funding model, block funding
criteria, scope of services, indexation
•
30 March – IHPA publishes draft NEP determination
•
12 April – ABF implementation reference group
•
30 April – Draft Victorian Government response due with Minister
•
14 May – Due date for response to IHPA (45 calendar days after
release)
•
Late May – IHPA publishes final NEP determination
3
Timelines
Finalisation of State Government funding distribution
•
30 March – IHPA publishes draft NEP determination
•
April – Commence discussions on Health Service budgets
•
1 May - Victorian State budget outcome known
•
End May - IHPA publishes final NEP determination
•
Late June – Provide Health Services with modelled budgets
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Timelines
Discussion - Timelines
• Health Services will need to come to terms with changes to cost weights
and implied budgets due to :
 adoption of new ABF models for acute admitted, emergency and
specialist outpatients (new under NHRA)
 use of national cost data rather than Victorian (new under NHRA)
 newer cost data (as usual)
 Victorian budget outcomes (as usual)
• The combined impact of these changes will only be able to be
understood once the NEP determination and Victorian state budget are
finalised.
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Structure of new funding arrangements
Key issues at interface of NEP Determination and
Victorian Government funding distribution
•
Level at which the NEP is set
•
New ABF models
•
A single NEP for multiple service streams
•
A new approach to pricing private patients in public hospitals
These issues are discussed in turn in the following slides
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Structure of new funding arrangements
Level at which NEP is set
•
The IHPA appears likely to set a NEP that is significantly higher
than the price implied by the average Victorian cost data, due to
the inclusion of national data in the calculation. While this could
be interpreted as a funding increase to the Victorian system,
in practice:
Commonwealth price paid + State price paid < 100% NEP
as there is a capped Commonwealth funding envelope for 201213 and 2013-14 and the NEP is tied to average cost, not current
funding levels.
•
This will manifest in an apparent ‘reduced’ percentage of the
NEP paid by the State and Commonwealth to hospitals.
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Structure of new funding arrangements – New ABF
models
Service
Stream
Current Victorian model
National ABF model
(from 2012-13)
Acute
Admitted
WIES – based on Diagnosis Related
Groups (DRG) classification system.
Features include
•copayments (e.g. ICU)
•HITH adjustment
•renal capitation
DRG-based model, simplified
•diluted ICU copayment
•no HITH adjustment
•no capitation payment
Emergency
Department
Non-Admitted Emergency Services
Grant (NAESG) – covers approved 24
hour emergency departments. Admitted
emergency paid using WIES.
Urgency Related Groups (URG)
classification system
•covers admitted and non-admitted.
Specialist
Outpatients
VACS – classification for medical
outpatient clinics only. Allied health
clinics funded using a flat rate.
Tier 2 clinic classification system
•classification for both medical and allied
health clinics (includes Radiotherapy)
•Commonwealth will not fund services
(bundled encounters) already funded in part
or in full through MBS, PBS
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Structure of new funding arrangements
Discussion - new funding models
•
The new funding models appear likely to generate significant
implied funding redistribution across health services.
•
The preferred option for Victoria in managing these distortions is to
pay the NEP at a reduced level. This will enable the payment of
transitional block grants to maintain continuity in Health Service
Budgets.
•
Given that some of the new ABF models are more robust than
others, the price reduction would need to be greater in some
service streams (i.e. Outpatients and Emergency Departments)
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Structure of new funding arrangements
Single NEP for multiple service streams
•
The IHPA appears likely to propose a single price for all service
streams. This price would be anchored to the average acute admitted
price to maintain the stability of the price over time.
•
Under this approach, the new ABF models appear likely to result in an
implied funding redistribution across service streams (i.e. more
funding to flow to Emergency Departments and Outpatients at expense
of Acute Admitted).
•
This is due to ED funding for admitted patients being removed from the
admitted price and paid instead through an ED activity payment for both
admitted and non-admitted patients
•
Also newer and less comprehensive datasets underpinning ED and
outpatient cost weights is likely to overstate their relative weight.
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Structure of new funding arrangements
Discussion - single NEP for multiple service streams
•
The preferred option for Victoria in maintaining continuity in
service stream funding is to apply adjustments to the
percentage of the ‘single’ price paid by the state.
•
The level of these adjustments would need to vary
according to service stream (i.e., greater reduction in the
price paid for Emergency Departments and Outpatients).
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Structure of new funding arrangements
Private patients
•
The IHPA appears likely to propose a set of separate private
patient weights. They advise that this is due to observed variation
between DRGs in the level of private patient costs/revenue.
•
This is in contrast to a single private patients price as is currently
in place in Victoria.
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Structure of new funding arrangements
Discussion – private patients
•
In its response to the IHPA’s draft NEP determination, Victoria
intends to oppose the creation of separate private patient
weights, in favour of a single private patient price.
•
In the event that separate private patient weights are established,
what do you think the impact will be on:

Health Services;

private insurers;

Doctors undertaking private work?
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Options for the State funding contribution
The need to maintain stability in Health Service Budgets
•
The previous slides highlight that new funding arrangements imply a
significant redistribution of funding between health services and
service streams.
•
Implementing these implied funding shifts is not justified based on
these new and untested ABF models. States as system managers
must minimise risk of disruption to Health Services through a
combination of:
 transitional funding (block grants); and
 adjustment to the State price component, to ‘afford’ the
transitional funding in a constrained budget environment.
•
Options for the structuring the State funding contribution are outlined
in the following slides.
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Specified Grants
•
The intention of ABF reform is to wherever possible remove
specified grants and roll into price.
•
IHPA draft pricing framework included two broad criteria for block
funding being:
•
–
The technical requirement for ABF are not met
–
The absence of economies of scale.
It is proposed in 12/13 to continue the following specified grants:
–
National Funded Centres
–
Statewide Services
–
New Technology
–
Program Initiatives
–
Contractual arrangements
–
ICT
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Options for the State funding contribution – Block
component
Options
Pros
Cons
Single large transitional block grant for each
health service.
Increased
simplicity.
Reduced transparency.
Earmarking of transitional contribution for
specific program areas.
Relatively simple,
transparent.
Earmarking will not be able to
cover all program areas, which
may lead to confusion.
For services provided by a third party but
included in price, cost could be attributed to
individual health service and paid for through
‘negative grant’ to Health Service, e.g. for
Chaplaincy.
Consistent with
practice in other
jurisdictions (e.g.
centralised
payroll).
In Victoria, a limited number of
third party payments are included
in price, adjustments may be
administratively burdensome
given their size.
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Options for the State funding contribution – Price
component
Options
Pros
Cons
Preferred Option:
Reduced % of NEP
paid to health services
to ‘afford’ transitional
block funding.
-
Management of volatility to
Health Services’ budget will
occur centrally.
-
Price paid to the Health
Services will be far lower than
the NEP.
Greater % NEP with
negative grants to
‘afford’ transitional
block funding.
-
Health Services will be
notionally paid at a level that is
closer to the NEP.
-
Some health services
(‘winners’) will have funding
retracted to compensate other
health services (‘losers’).
Separate price for each
health service
-
Increased ability to target
Health Service ABF
component.
-
Inequity in price setting which
is model, rather than cost
driven.
Decreased ability to compare
funding between health
services.
-
Not adopt the national
ED and OP ABF model
for the State price
component, pay state
contribution through
block grant.
-
Mitigate the risk of amplifying
perverse pricing (cost weight)
signals through insufficiently
robust ABF models.
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-
Increased administrative
burden
Reduced clarity of objectives
and activity targets for Health
Services.
Payments system
National Funding Body
• The National Funding Body will make payments out of the
National Funding Pool (for ABF activities) directly to health
services. This will encompass both State and Commonwealth
funding. Administered by a single National Administrator.
• State managed fund will be created to manage teaching, training,
research and block (specified) grants.
• Direct DH funding to Health Services will continue for the
provision of capital and services provided in a community setting
(for example dental services, primary care, Home and Community
Care (HACC), Residential Aged).
• Funding from third parties such as the Commonwealth for
specific functions (pharmaceuticals, TAC and WorkCover for
compensable payments) to continue.
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Payments system
Payment Flows
• States will control the timing and amount that flows out of
the National Funding Pool to LHNs
• Commonwealth contribution to the Pool occur once a
month. Depending on timing, States may be required to
cashflow Commonwealth component.
• Victoria is reviewing the payment arrangements to health
services (or LHNs) to ensure there is no unintended
cashflow or liquidity issues.
• Health services will continue receive aggregate payment
information from the State, encompassing all payment
sources.
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Payments system
Principles and key issues
Victoria is continuing to work with the Commonwealth and our jurisdictional
colleagues to develop and agree to a practical operating model for the Pool,
including addressing the following key principles:
1.
The State will continue to be responsible for determining funding levels to
hospitals in accordance with service agreements.
2.
The State continues current system and performance management
arrangements, without interference in funding flexibility or additional reporting
burdens.
3.
There will be clear, accountable, and efficient funding and acquittal
arrangements in place.
4.
The arrangements maintain simplicity and minimal bureaucracy (we’ll try).
5.
Payment integrity and reliability of payments from the Pool to LHNs continue
to occur successfully and uninterrupted.
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Next Steps
Proposed meeting dates
•
12 April 2012 (scheduled)
•
23 April 2012 (out of session feedback on draft response)
•
15 May 2012 (TBC)
•
13 June 2012 (TBC)
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