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Funding incentives resulting from the formulation of acute admitted funding models ABF 2013 Conference PowerPoint Presentation
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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.

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Funding incentives resulting from the formulation of acute admitted funding modelsABF 2013 Conference

Amy McDowell

Hospital and Health Service Performance Division

slide2

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.
slide3

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.
slide5

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.
slide6

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.
slide7

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.
slide8

Worked example: Low Outlier Payments

  • Significant benefit in extending length of stay
slide10

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.
slide11

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.
slide12

Rebasing methodology applied byIHPA

  • 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.  
slide13

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 In-Centre 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
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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
  • 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!

Outlier Cost Weight Calculation Methodology

slide16

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.
slide17

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.
slide18

Private patient adjustment – worked example

  • abc

Analysis from a Health Service in Victoria

using actual patient revenue

slide19

Analysis from a Health Service in Victoria

using actual patient revenue

slide20

Private patient adjustment approach in Victoria

  • abc

Analysis from a Health Service in Victoria

using actual patient revenue

slide21

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

slide22

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.