Casemix Funding

James Downie

A/ Project Director, National Reform Projects

National Health Reforms

National Health Reform

i) 2008 NPA – “National ABF System”

ii) 2010 COAG – “Dominant Funder”

iii) 2011 COAG – “Transparency, Transparency and Transparency”

But 1 common theme – National ABF, National Efficient Price, based on nationally consistent costing.

ABF starts 1 July 2012

National Reform Agreement

From 2014, the Commonwealth will contribute 45% of “efficient growth” funding.

From 2016, this increases to 50%.

Overtime, the Commonwealth’s share of funding may increase.

There is a guarantee of a minimum $16.4B in additional Commonwealth funding by 2020.

ABF Proposal

2008 NPA recognises differing degrees of development of various workstreams.

Admitted Acute was completed in June 2010.

Outpatients, ED, Sub Acute and Mental Health was scheduled for June 30 2012.

2010 and 2011 Agreements propose “proxy” classifications for the underdeveloped areas.

What is ABF??

A method of allocating funds

Based on activity or outputs

Funding based on agreed volume & price

Funding that provides equity, transparency & accountability

A platform for driving technical efficiency

So what is this ABF thing…

The Australian Feb 26 2011

Casemix:Misconceptions vs Actual Case

Misconception

Actual Case

Casemix is a health

policy in its own right

Casemix is a funding tool within

a health policy

Casemix is about cutting

hospital budgets

Casemix is about allocating each

hospital’s fair share of a fixed State budget

Casemix fixes the budgets of individual clinical units within hospitals

Casemix only determines

hospital budgets; CEOs allocate resources within organisations

But is it perfect??

NO!

Not everything can be output funded – very high cost, statewide services, specialist hospitals

Measures and rewards outputs – no measure of outcomes

Potential for perverse incentives

General Principles

Every Patient Type Identified (acute, sub acute, mental health)

Every Patient Classified (eg DRG B77Z – Headache)

Patients Costed

Cost weights and prices calculated

Limitations of a basic casemix model

One cost weight applied to each and every patient in a DRG

Not every patient in a DRG needs exactly the same level of care

Creates financial risk to providers & purchasers of health care

Cost versus time in hospital

Patient Cost versus Time in Hospital

Total Cost $

Days in Hospital

Total Cost $

Days in Hospital

Total Cost $

Days in Hospital

Financial risk versus time

Financial risk versus Time in Hospital Total Cost $

Days in Hospital

Fixed Payment

Cost < Payment

Cost > Payment

Financial

Risk

Total Cost $

Days in Hospital

Total Cost $

Days in Hospital

Total Cost $

Days in Hospital

Fixed Payment

Financial

Risk

Victorian casemix model: WIES (Weighted Inlier Equivalent Separations)

Adjusts cost weights for patients with different types of stay

Extended hospital stay (high outlier)Typical hospital stay (inlier)Short hospital stay (low outlier)Same day & overnight care

Allocates additional cost weights for special types of care (co-payments)

Patients requiring ventilation support in ICUsSome specific conditions & treatments

Cost weight adjustments for length of stay (IES)

Low Boundary

High Boundary

Average Cost

Length of stay (days)

1.00

AVG

Setting DRG boundaries

Victorian uses multiplicative boundaries

For most DRGs:

• Low boundary = 1/3 * Ave LOS

• High boundary = 3 * Ave LOS

For a minority of DRGs:

• Low boundary = 2/3 * Ave LOS

• High boundary = 3/2 * Ave LOS

Cost weights are updated every financial year

To ensure funding policy captures

Latest cost data

More activity (hospitals & separations)

Changes in clinical practice

New technologies

New policy initiatives

Updated policy• Refresh boundaries• Refresh same-day DRG status

WIES Targets

DH agrees to fund a set number of WIES (Target)

Variable payment for each HS = WIES Target * WIES price

Hospitals largely decide which DRGs to fund

Target payments are made by instalments through a financial year

Why different WIES prices?

Payment = WIES Value x WIES Price

Prices vary by:

Hospital type• Different economies of scale• Remoteness

Patient type• Different funding mechanisms

How much cost does WIES price cover?

About 70-80% of the average cost of treating a patient

WIES price not set to cover 100% of cost

Other sources of funding (e.g. grants)

Change in WIES price should match change in overall average cost of treating a patient

Grant funding

Types of grants

Teaching and ResearchNew technologySpecified grants for specific reasonsIncentive schemesCompensation grants

Other funds

Donations, research grants, canteen, laundry services, etc.

These additional funding steams mean that WIES on average reimburses ~70-80% of actual cost

Questions?