RM11 Classification adjustments/DRG exercises3 - LINDY AND RIC AND PEDJA

1. RM11 Classification adjustments/DRG exercises3 - LINDY AND RIC AND PEDJA RIC AND LINDY

2. DRG classifications around the world

3. Refinement of classes • for resource homogeneity and clinical meaningfulness • To compensate for “classification failure” • The classification may not be able to measure the selection by one hospital of particular types of cases • Alternatively use additional flag for a price adjustment – eg use of ventilation, Dx – OR peer hospital flag.

4. Adjusting for classification limitations

5. Extra categories in Funding model • outliers and exceptional cases. • Many systems use outliers or exceptional case adjustments • Well documented example is Victoria. • Critics call it “tinkering” or interfering with the signals from the payment mechanism. • Others say that it adds precisions and fairness to the payment system. • WHO IS RIGHT?

6. Outpatient and sub-acute caseload and DRGs • Substitution and different models of care • When does the care type change? • What is the optimum? • What is the norm?

7. Admission and discharge policies • IMPORTANT FOR CONSISTENT DATA • ‘APPLES WITH APPLES’

8. Outpatient activity management tools • Particularly important where substitution with inpatient services can occur eg • Work up for a surgical admission • The rehabilitation phase of a joint replacement • Or even complete episodes • Payment neutral incentives • Guidelines and clear definitions of payment rules

9. Simulation of adjustments for funding precision • MODELLING, MODELLING, MODELLING • Impact analysis • Simulations • Feedback and consultation – plan and goal alignment

10. Outlier policies or classification changes • The need to keep classes to manageable numbers • Approaches to specifying outliers.

11. Clear Description of Costs • Different health systems fund different activities eg • private providers usually include capital costs through depreciation, while public providers often have a separate funding mechanism • some systems exclude (or “unbundle”) some highly variable/high cost components of care, like intensive care or prostheses • The contracted prices should match the appropriate costs • This might not happen if you adopt other countries’ costs (eg no blood costs in Australian data).

12. Specifying Contract Prices Usually: • Relative Value Score (Cost Weight) × Unit Price • Cost weights are derived empirically from hospital Data • The unit price is negotiated - ideally all hospitals would have same unit price. - the unit price can be modified to reflect:- - differences in cost between groups of hospitals - efficiencies of scale (eg Victoria) - transition arrangements ie “blend” the desired unit price with the hospital’s average cost (as in the Irish Model and the private sector in Australia).

13. Other Hospital Products • DRGs are only designed to describe acute admitted hospital episodes • Different classifications are needed for other hospital services: • Outpatients • Long stay care • Health promotion activities • etc

14. How good are DRGs • Typically DRGs explain about 25%-40% of the variation in the costs of treating patients. • Hospitals don’t get a random sample of patients. Referral patterns and role delineation means that some hospitals treat sicker patients. • Most systems have rules that provide extra payments so hospitals aren’t disadvantaged (ie share financial risk). • With appropriate risk mitigation, funding models can explain over 80% of the variation in cost.

15. Rules to moderate financial risk • Financial risk moderation for individual patients through outlier policy • Same day policy • Severity co-payments for specific subgroups within DRGs • Grants • High cost patient “adjustment funding pools”

16. High Outliers Low Outliers Outlier Policy Adjustments are made to the “average” rate for patients that stay in hospital for fewer days than or more days than the pre-defined times for each DRG Paid below the standard rate Frequency Paid the standard rate Paid above the standard rate Low Boundary High Boundary Average LOS Length of stay (days)

17. General Casemix Model

18. Same Day Policy • Differences between the costs of DRGs in different hospitals can be due to differences in the proportions of same day cases. This can be due to:- • Different types of cases in the DRG (COMPLEXITY) • Differences in admission/discharge policy (eg admitting rather than treating on an outpatient basis. • Hospital clinical practice • Efficiency • Setting separate same day payment rate within a DRG can be used to prevent hospitals with mostly overnight patients being inappropriately disadvantaged. • Same day payment rates are not always a good idea because they can discourage hospitals from moving to same day care where appropriate – CLINICAL JUDGEMENT IS REQUIRED.

19. Co-payments for specific subgroups within DRGs • Sometimes it is possible to identify subgroups within a DRG that cost more than the average. In these cases additional payments can be made. • Co-payments are best used where groups of patients have higher than average cost in many DRGs. eg in Victoria • Mechanical ventilated patients • Native Australians • Using too many copayments reverts back to input based funding.

20. Grants or ‘Block funding’ • Higher costs for some hospitals can be: • difficult to quantify (eg teaching hospital costs) or • not directly related to activity (eg running an emergency department; the department must be kept open regardless of the level of activity) • In such cases cash grants are often paid to hospitals in addition to activity based funding. • Such grants are often easier to use in a public system than in a private system.

21. Adjustment Funding Pools • A set budget is put aside for allocating additional funding for specific patients based upon applications from hospitals • Example 1: New Technology in Victoria • AU$3million is set aside and hospitals apply for funding specific technologies in small numbers of patients • Example 2: High Cost Patient Pool in Western Australia • Approximately 20% of total hospital costs are required to treat the most expensive 5% of patients. These patients are difficult to fund under the casemix “averaging” approach. In WA hospitals are able to apply for additional funding for individual patients, but patients’ records are independently clinically reviewed and payment approved by an industry committee.

22. Risk Moderation While in Transition • When new activity based funding models are introduced not all hospitals are equally affected- some win and others lose. • It is important to protect hospitals from extreme budgetary changes until they have time to adjust to the new funding model (ie find efficiencies). • This is usually done by introducing “transition” grants or differential unit prices in the first few years.

23. Types of Casemix Models • Casemix was initially developed as a prospective payment mechanism (ie this year’s activity determines this year’s funding). • This approach is still widely used (eg USA Medicare, Victoria public hospitals and within the Private sector). • Prospective payment increases the incentives to achieve technical efficiency but reduces budgetary certainty for hospitals. • Casemix can also be used as a retrospective payment mechanism (ie last year’s activity determines this year’s funding). • This form of model is used in Ireland and New South Wales. • Typically, in retrospective casemix models this year’s budget is set based upon last year’s budget plus growth.

24. Limiting the total amount of activity • Experience suggests that health expenditure is extremely elastic and the potential to spend money on health care almost certainly exceeds any system’s capacity to pay for that care. • Most systems attempt to limit the amount of activity funded by: • setting activity caps (ie only funding activity to a certain level) or • excluding funding for some health care intervention (eg cosmetic surgery) or • introducing patient contributions

25. Variations around activity Targets • Hospitals cannot exactly identify how many people will be admitted • Funding models can be designed to accommodate this uncertainty by funding activity above target activity at a marginal rate and reducing funding at a marginal rate for hospitals failing to achieve target.

26. Other Components of a successful casemix policy • In the previous slides we have described the technical and process building blocks in developing a successful casemix policy. • Non-technical issues are equally important:- • Openness and transparency • Fairness • Stakeholders involved • Formal channels of review • Willingness to listen and change

27. TOPICS • USE CASES FOR DRGS AND DESIRED CRITERIA • THE GROUPING PROCESS • DESIGN OF THE DRG ALGORITHM • OVERVIEW OF NATIONAL DRG SYSTEMS • PATTERNS OF ADOPTION OF DRGs • WHERE/HOW WOULD AN I-DRG FIT IN?

28. MEASURING ACTIVITY LEVELS AND PAYING FOR THEM • PbR, • ABF, • PfP, • Prospective payment, • Casemix funding, • Episode payment

29. GRANULARITY OF CATEGORIES • Terms – concepts • +/- 600,000 Snomed CT terms • +/- 300,000 Snomed RT concepts • Classification categories • +/- 15,000 Diagnoses • +/- 5,000 Procedures • 500<->1000 DRGs • 300<->400 ADRGs • [+/- 200 SRGs - +/- 100 Clinical service types] • 23 MDCs

30. Other - • Care types • Rehabilitation, aged care, specialised nursing • Chronic care, Mental health. • Service Related Groups – SRGs • Specialty utilisation measures – DRG aggeregation • Risk adjusted capitation groupings • DCGs • Care-staging-associated unbundled groupings – eg DBCs

31. DRG Design Goals • Clinical and cost homogeneity, • Exhaustive and mutually exclusive ?????? • Materiality, Transparency, • Data burden – routine clinical/admin data • Quality inputs – required precision • clinical, • policy, and • cost

32. Principles of Design Groups of healthcare activities which are: • Iso-resource • similar resource consumption • Derived using readily available data • Clinically meaningful • Manageable number of groups • Describe actual/typical care patterns • An eye to incentives for efficiency/quality • ?? Mappable from other systems • Benchmarking – time series

33. Data • Primary data sources • Underlying classifications • ICD/Morbidity, Procedures, Patient function • Dependent variable • E.g. EPISODE: • Cost, length of Stay, price, charges • Quality indicators • Available design and test data sets

34. Design process • Formal timetable of representations, Design and response • Germany, USA/Medicare (annual) • Semi formal, biannual/annual processes • Australia, UK, Nordic • Engagement with stakeholders • Hospitals, Clinicians, Policy, Commissioners • Education

35. Statistical/classification tools • Discriminant analysis (DA) • Uses least squares methods • Regression models (multiple and logistic) • relationship between multiple variables • Artificial Neural Networks • interconnected simple processors • Tree-based algorithms (CART) • Classification and Regression Trees (CART), CHAID, AUTOGRP (Yale) • Rules for new groups • Size, homogeneity

36. Clinical input and design • Clinical Panels, representatives of medical associations • Australia, UK • Formal representation from hospitals, medical associations • USA, Germany • Direct clinical design input and evaluation • Practicing clinicians, full time design

37. Purpose Responsibilities Design principles Review and Revising process Currency, DRG unit of activity for payment Setting Independence Unbundling Iso-Resource Groupings Clinically meaningful Comprehensive coverage Readily available data Quantitative rules Statistical Criteria Improving the Explanation of Variance Design Issues USE CASE ISSUES TECHNICAL APPROACH

38. Standardise data Fixed file format One or multiple files Single patient (interactive) or Multiple patients (Batch) Data cleaning and input Face validity Consistency Warnings or failures Apply algorithm (s) – Table driven Ungroupables Data Edits Grouping Predictive models Concurrent models Observed v Expected Aggregate statistics Grouping variables Modelling Reporting Output Input file & grouping variables Expected values File format(s) Grouping Process

40. Nord DRG – Respiratory grouping Logic

41. The full version of the manual is found at www.nordclass.uu.se

43. Major CC, Severity Scale* Major CC, Severity Scale* Design Structure *APDRG, APRDRG

44. Check list • CC levels, multiple levels • Minor, Intermediate, Major + multiple • Multiple procedures • Procedure escalators, effect of ITCs • Treatment packages • E.g. renal dialysis, chemotherapy • Chronic care • Stable, non-stable, catastrophic events • Generic design • Primary care • Cross over with outpatients

45. Options • Build your own DRG system • Adapting another country’s system • (no adaptation) • International examples • Adopt a grouper (e.g. Ireland) • Adapt a grouper (e.g. Germany) • Develop new grouper (e.g. UK, Australia)

46. Options (2) • Adoption of a procedure classification • Separate decision to Casemix classification • E.g. Germany • Joint decision • e.g. Ireland, Portugal • International Standard Grouper • Countries need to make decisions on grouper for domestic use (support national policies) • Can make a separate decision for international comparisons • Advantage in having the two related.

47. Clinician and other stakeholder input • Clinical Panels, representatives of medical associations • Australia, UK • Formal representation from hospitals, medical associations • USA, Germany • Direct clinical design input and evaluation • Practicing clinicians, full time design

48. Overview of country specific variants • Overview of country specific variants • USA Medicare’s DRGs: evolution to MS-DRGs (Contributor: Julian Pettengill) • Australia ARDRG • Canada CMG • Germany G-DRG • England HRG • Nordic DRGs • AND OTHERS

49. HRG v4 2006 Inc Non-Acute G-DRGs v1-2 2003-2005 AR-DRGs v5 2002 IR-DRGs v1-2 1998-2003 CMS DRGs v19-23 2000-2006 AP-DRGs v16-23 1999-2006 HRG v3.5 2003 AR-DRGs v4 1998-2001 HCFA v6-18 1989-2000 AP-DRGs v8-15 1991-98 AN-DRGs v1-3 1992-98 HRG v3 1997 Japan DPC APR-DRGs v8-15 1991-98 HRG v1-2 1991-1994 NACRI CHAMPUS/DoD 1988-98 NY-DRGs v5-7 1988-90 Netherlands DBC Yale RDRGs 1989 English Casemix Groups 1989 HCFA v5 (4th Revision) 1988 (CC )exclusions England Portugal France Nord DRG 1983-2006 HCFA Version 1-4 1983- 1987 Canada CMG 1983-2006 International Evolution of DRGs Adapted from Fetter R (1999) Casemix Classification Systems, Australian Health Review vol 22 no 2

50. Medicare’s evolution to MS-DRGs • In 2008 Medicare adopted Medicare-severity DRGs • From 1989 to 2007 differences in severity of illness were captured by presence or absence of a CC • Early in the 2000s, many hospitals were beginning to take strategic advantage of opportunities for selection: • Specialization in cardiac care and orthopedic surgery • Development of physician-owned specialty hospitals • CMS contracted with 3M to develop MS-DRGs, which: • Expanded the number of DRGs from 500 to 750 • Completely revised the CC and CC-exclusion lists • Many base DRGs are split 3 ways, with MCC, CC, no/CC