Funding incentives resulting from the
formulation of acute admitted funding models
ABF 2013 Conference
Amy McDowell
Hospital and Health Service Performance Division
Introduction
• The principle of developing an activity-based funding model to
be purely reflective of costs is a sound one.
• A number of lower level pricing principles also need to be
developed to address specific issues.
• In practice there are a range of possible statistical and
parametric treatments of the data that produce different funding
incentives, allocations and risks.
Today’s Presentation
Presentation focuses on three significant pricing model features:
• Outlier cost weight calculation methodology
• Rebasing
• Private patients adjustment
For each of the funding model features considered
• What is it?
• Why is it important?
• Compare IHPA approach with approach taken in Victoria
• Worked examples.
Outlier Cost Weight Calculation Methodology
Outlier Cost Weight Calculation Methodology
What is it?
• The outlier per diem weights are used to allocate WIES/NWAU
for all days of stay outside the inlier boundary points that define
the episodic payment.
• In the case of high outliers, this is in addition to the inlier
payment
Why is it important?
• The rate at which the outlier weights are set has important
implications for the incentives contained within the pricing
model.
• There is a risk that delayed discharge could be inadvertently
incentivised.
Victoria’s Outlier Cost Weight Calculation Methodology
Principle: Low outliers should not be priced too low so as to make it
attractive to achieve inlier payment. High outliers should reflect
marginal cost of additional day of treatment.
• Low Outliers: Usually derived from the average cost of multiday
inliers divided by the low boundary.
• High Outliers: Usually based upon the avg cost of inliers (excluding
all prosthesis and theatre costs for non-medical DRGs only).
Attempt (though imprecise) at reflecting marginal cost.
IHPA’s Outlier Cost Weight Calculation Methodology
Principle: Ensure cost model application results in the equalisation of
predicted cost with actual reported cost for each DRG. Ensuring the
funding model ‘returns all costs’.
• Low outliers Set on the average cost per bed day for low-outlier
cases. So, in contrast to WIES, cost weights are set independently
from inlier cases.
• High outliers: Set by a combination of measures:
–Inlier variable cost per bed day (similar to Victoria).
–Regression of total cost on LOS.
Worked example: Low Outlier Payments
% Additional WIES or NWAU gained in crossing
the low-outlier threshold
No DRGs
Low Boundary (days)
WIES19
NWAU13
WIES19
NWAU13
2
129
119
112%
341%
3
53
73
66%
213%
4
38
43
48%
195%
5
10
33
40%
158%
6
6
7
31%
137%
7
7
11
25%
151%
8
4
12
24%
189%
9
6
4
22%
173%
10
2
7
18%
154%
11
0
3
12
3
0
18%
13
3
1
16%
100%
14
2
1
14%
117%
17
9
9%
144%
280
323
75%
242%
15 or more days
Total (2 or more days)
81%
Significant benefit in extending length of stay
Rebasing
Rebasing
What is it?
• A mathematical phase in the cost-weight formulation aimed at
avoiding an inadvertent increase or decrease in the overall
pool of weighted activity.
Why is it important?
• According to the formula outlined in the NHRA, growth funding
from the Commonwealth will be based partially on year on
year shifts in activity levels.
• In the absence of rebasing, NWAU increases or decreases
may occur for reasons unrelated to casemix and volume
changes, e.g. changing classifications, improved cost data.
• As there is real money attached to NWAU growth, it is
important that these effects are well understood and
appropriately compensated for.
Rebasing methodology applied in Victoria
Principle: Apply rebasing to all ABF funded services. Recency of
underlying data is paramount for the effectiveness of rebasing.
•
Using latest available 12 months of WIES-funded activity data,
apply the current and newly formulated WIES versions to the
activity dataset
•
(e.g. WIES18 was rebased using 2010 calendar year activity data and
employed to fund 2011-12 activity, i.e. ~1 year time lag).
•
Apply a single scaling factor to all new cost weights to ensure that
the latest-available state-wide pool of weighted activity is
equivalent under the two consecutive versions of WIES.
•
For VACS (non-admitted), methodology is essentially the same,
but performed separately as cost weights for these streams are
different and are not interchangeable.
Rebasing methodology applied by IHPA
Principle: Under development?
• Acute Admitted approach in the 2013-14 NEP is broadly similar to
Victoria. However, there is a 3 year time lag between the year in
which the funding model will apply (e.g. 2013-14), and the activity
data used in the development of the model (e.g. 2010-11)
– This is potentially of material significance.
• It is not clear that the IHPA cost-weight models for emergency and
non-admitted activity were rebased (possibly due to incompleteness
of datasets).
• As the Mental Health and Subacute models are new for 2013-14,
this will only become relevant for them in the following years.
Rebasing methodology – worked example
•
Home and in-centre dialysis currently attract the same NWAU
price weight (0.1118). Over time this may change as the cost data
improves.
•
Victorian and Kidney Health Australia cost data suggests that
home based dialysis is around 33% cheaper per annum than InCentre dialysis.
•
So, if home based peritoneal dialysis is a daily activity then
NWAU weight could drop to 0.0307
•
•
In centre funding per annum assumed at $87,082 = 3 times per week x 52
weeks x NEP($4993) x price weight (0.1118)
Assuming home dialysis costs 33% less than in-centre dialysis, and is a
daily treatment, equivalent price weight is .0307 = ($87,082 x 64%)/(7 x
52)/$4993
Rebasing methodology – worked example
•
In Victoria there are around 430 patients on home based
peritoneal dialysis.
•
At current NWAU value of 0.1118 this will generate around 17,500
NWAU or $87m
Outlier Cost Weight Calculation
Methodology
•
If weight was reset to 0.0307 then only around 4,800 NWAU
worth $284m would be generated.
•
In this example, 12,700 NWAU, or $63m has disappeared if
rebasing does not occur!
Private Patent Adjustment Methodology
Private patient adjustment
What is it?
• As defined in the National Health Reform Agreement, it is an
adjustment to take into account patient charges for private patients
including:
• prostheses; and
• accommodation and nursing related components/charge
equivalent to the private health insurance default bed day rate
(or other equivalent payment).
Why is it important?
• As hospitals receive additional revenues in respect of private
patients, it is appropriate that adjustments are made to take this into
account to avoid windfall gains.
Private patient adjustment
IHPA Methodology
• Principle: Maintain current incentives to treat private patients.
• Methodology: DRG-specific cost weight adjustments using revenue
estimates derived from other data sources (enhanced methodology
in 2013-14 NEP).
Victorian Methodology
• Principle: There is public interest for public hospitals to treat private
patients. This is codified in the National Healthcare Agreement.
• As private health insurance is publicly subsidised and given not all services are
provided in the private sector, and not all privately insured patients have
access to private hospitals.
• Methodology: Uniform price discount of 24 per cent across all
DRGs.
Private patient adjustment – worked example
• abc
Analysis from a Health Service in Victoria
using actual patient revenue
Analysis from a Health Service in Victoria
using actual patient revenue
Private patient adjustment approach in Victoria
• abc
Analysis from a Health Service in Victoria
using actual patient revenue
Private patient adjustment approach taken by IHPA
• abc
Removes incentive to seek out private patient election
Analysis from a Health Service in Victoria
using actual patient revenue
Conclusion
• Choice of approaches used in formulating an ABF model can have
an impact on the incentives and stability of the model, intentional or
not.
• Sound clinical practice is a dominant business driver for hospitals,
but…
As ABF becomes more ingrained in the way hospitals conduct their
business, and given increasing scarcity of funding, pricing signals will
take on an increased significance in decision-making.
• It is therefore important that these pricing signals are carefully
designed, and that technical funding model decisions appropriately
take into account their policy implications.
The line between ‘policy’ and ‘technical’ is not fixed.