Setting the DRG cost weights Content of DRG

Setting the DRG cost weights. Content of DRG costs/cost weights Prof Ric Marshall OAM The University of Sydney. DRG Workshop Belgrade, 18 -22. November 2013.

Typical Patient Costing System DRG Workshop Belgrade, 18 -22. November 2013.

Typical program for first cost weights and schedule DRG Workshop Belgrade, 18 -22. November 2013.

Ex (U a m NU p II le d GH a t ) a t em pl at e DRG Workshop Belgrade, 18 -22. November 2013.

Ex (U a m NU p II le d GH a t ) a t em pl at e DRG Workshop Belgrade, 18 -22. November 2013.

How ready is your system? • Current readiness for product costing: – – current casemix or other costing methodology. any current specialty costing process. need for product/patient costing – stakeholders views. ability of hospitals/clusters to provide standard inputs: – COA financial data, standard volume statistics, approaches to overhead allocations – capacity to develop a centrally operated product costing service: – Where product costing should fit into the overall reporting structure – Broadmap for the development of product costing over the next several years. International experience appropriate? Main approaches – strengths, weaknesses. Potential risks, problems. Available standards. DRG Workshop Belgrade, 18 -22. November 2013.

USES OF UNIT PRODUCT COST • Standardised units of activity – – Community based – primary/fm, specialist Inpatients – Acute (+-ICU), Rehab, etc Outpatients – booked/sorted Emergency – ambulatory • Cost effectiveness measurement – accrued – National/Regional Health Accounts – Health program statistics - Annual reports – Best practice – Care model development • Budget and payments management DRG Workshop Belgrade, 18 -22. November 2013.

5 major product groups 18 major product subgroups Non-admitted services DRGS DRG Workshop Belgrade, 18 -22. November 2013.

DRG COSTING FUNDAMENTALS • Breakdown of actual total hospital expenditure to the DRG level. • Need hospitals that can provide BOTH – activity utisation (‘cost driver’) data and – accurate, detailed financial data. • Allocating cost data from the hospital general ledger and accounting systems to DRG episodes using ‘cost driver’ resource use data (cost modeling) – Relative DRG resource allocation statistics where actual amounts cannot be obtained. Eg Nursing SWs DRG Workshop Belgrade, 18 -22. November 2013.

WHY LOCAL COST WEIGHTS? • DRG funding to influence efficiency in a particular setting = COST PER UNIT. • same activities required to produce local cost weights ALSO MEASURE EFFICIENCY. • costing is the key to both efficiency and quality gains in a DRG environment. • costing is essential – NOT optional – well recognised in Serbia – plan includes in 2016. DRG Workshop Belgrade, 18 -22. November 2013.

Hospital Information Systems Hospital Financial Data DATA WAREHOUSE Cost Sheet -Allocation Statistics Minimum Basic Data Set. DRG Data Entry Tool - Clinical Data, DRG - Resource Consumption Data (preparecostsheet) (analysis tool) (CASES) Diagnosis and procedures Analysis Reports Data Analysis Reports (volumefile) Eg PICQ Software Coding Analysis Reports DRG Workshop Belgrade, 18 -22. November 2013. (costfile) Costing engine Cost Reports

CASE STUDY - HONG KONG READINESS FOR PRODUCT COSTING with reference to approaches adopted in other countries when first adopting DRGs DRG Workshop Belgrade, 18 -22. November 2013.

7. 3 1. 4 0. 4 1. 7 2. 4 0. 1 0. 3 2. 1 3. 1 5. 2 0. 3 3. 9 1. 1 2. 4 2. 2 3. 3 4. 3 1. 8 0. 4 2. 7 0. 7 7. 5 1. 2 1. 4 1. 3 3. 7 2. 2 0. 8 2. 0 1. 0 0. 9 23. 8 1. 3 0. 1 2. 0 2. 9 0. 1 0. 5 1. 8 4. 5 6. 7 0. 4 4. 3 1. 0 2. 4 2. 7 3. 8 4. 5 1. 5 0. 4 2. 9 1. 2 18. 8 1. 7 1. 2 1. 3 4. 9 2. 3 1. 7 1. 0 9. 4 0. 8 0. 1 1. 2 1. 9 0. 0 0. 4 1. 3 2. 1 4. 0 0. 2 3. 0 0. 7 1. 8 2. 7 3. 2 1. 1 0. 3 1. 6 0. 7 8. 2 0. 9 0. 8 2. 6 1. 5 0. 8 1. 1 1. 0 0. 6 11. 0 0. 5 0. 1 0. 8 1. 6 0. 0 0. 3 0. 7 2. 9 0. 2 1. 9 0. 4 0. 9 1. 4 1. 7 1. 8 0. 6 0. 2 0. 7 8. 4 1. 2 0. 5 2. 8 0. 9 0. 6 0. 8 0. 5 0. 9 0. 6 0. 4 Ward medical Ward nursing Non clinical salaries Pathology Imaging DRG Statistics: Allied Health Cost Weights Pharmacy Standard Error Clinical Care Number of Cases Operating rooms Number of Days Emergency departments Average Length of Stay Supplies Average DRG Cost Special Procedure Suites Prostheses On-costs 18 -22. November 2013. 0. 00 4, 42213, 213 3. 0 19 2. 3 Hotel 4. 5 Belgrade, 0. 9 0. 7 0. 6 0. 4 0. 9 1. 5 2. 4 0. 9 0. 2 0. 6 Depreciation DRGs Depreciation 5. 3 0. 0 0. 2 31. 8 0. 0 1. 5 0. 1 0. 0 2. 5 0. 0 6. 6 0. 0 0. 1 26. 6 20. 5 0. 1 0. 0 0. 6 15. 4 7. 9 0. 0 2. 5 0. 2 0. 0 3. 9 0. 5 Hotel Spec Proc Suites 1. 9 0. 0 0. 3 0. 1 0. 0 0. 1 0. 2 0. 1 0. 0 2. 3 9. 5 0. 1 0. 0 0. 6 0. 0 0. 3 On-Costs 2. 0 0. 1 0. 0 2. 4 1. 6 1. 5 2. 4 2. 1 1. 9 2. 8 0. 5 1. 3 2. 7 2. 4 2. 0 2. 1 0. 4 3. 6 1. 2 2. 1 0. 3 0. 1 1. 8 0. 1 1. 3 1. 1 Supplies 24. 0 0. 5 0. 1 7. 6 17. 2 0. 0 5. 1 0. 2 0. 4 23. 7 0. 0 14. 8 0. 9 0. 3 16. 3 17. 1 0. 5 0. 2 0. 1 0. 6 11. 6 50. 4 2. 2 0. 1 0. 2 37. 3 8. 1 8. 7 1. 4 12. 6 2. 8 Pros-theses Cost components: 226 0. 1 0. 0 0. 1 1. 0 0. 0 1. 5 0. 1 18. 5 0. 4 2. 6 0. 1 2. 6 0. 5 2. 5 0. 8 0. 0 0. 1 152 10. 3 1. 4 0. 1 25. 1 0. 5 0. 1 0. 4 0. 1 1. 3 Emerg Depts 22. 9 14. 5 14. 0 20. 0 0. 3 0. 1 0. 0 0. 3 0. 5 0. 1 0. 4 0. 6 0. 8 0. 7 2. 2 1. 1 0. 0 3. 2 0. 0 0. 1 0. 2 1. 4 0. 9 1. 5 1. 7 0. 8 0. 2 2. 5 3. 0 6. 1 5. 0 3. 9 6. 3 0. 4 0. 7 0. 1 0. 2 2. 9 3. 7 2. 7 0. 5 0. 4 0. 3 0. 7 2. 4 1. 8 2. 3 2. 5 0. 8 1. 0 1. 9 1. 0 2. 4 2. 3 3. 2 2. 0 2. 5 3. 8 10. 4 2. 7 1. 3 1. 0 1. 1 1. 3 0. 4 0. 1 0. 2 0. 6 0. 2 1. 4 0. 6 0. 1 0. 4 18. 3 24. 5 16. 3 14. 2 1. 4 0. 8 0. 5 2. 9 1. 0 0. 7 0. 6 0. 8 0. 1 0. 0 0. 2 0. 3 5. 0 2. 7 2. 2 3. 1 1. 1 0. 2 0. 5 0. 9 0. 8 0. 4 0. 2 0. 5 1. 0 0. 2 0. 5 0. 6 0. 3 1. 5 0. 8 0. 6 DRG 0. 8 Workshop 0. 7 0. 5 0. 9 Oper Rooms 10. 2 1. 6 0. 2 1. 9 2. 5 0. 1 0. 3 2. 0 5. 5 5. 7 0. 3 4. 4 1. 0 2. 7 2. 1 3. 4 5. 1 1. 7 0. 4 3. 6 0. 8 7. 9 1. 3 1. 6 5. 1 2. 3 1. 0 2. 0 1. 3 0. 9 Pharmacy 33. 9 10. 8 1. 0 12. 8 12. 6 0. 9 0. 6 10. 8 42. 0 30. 7 0. 9 25. 8 5. 0 16. 3 12. 0 20. 8 30. 7 8. 9 1. 7 22. 9 3. 5 43. 1 3. 2 6. 2 8. 4 14. 5 16. 6 4. 6 14. 4 6. 2 4. 7 Allied Health 29. 1 2. 9 0. 2 5. 5 8. 0 0. 6 2. 1 4. 8 11. 9 17. 4 0. 7 11. 1 2. 4 6. 1 7. 1 10. 3 10. 6 3. 7 0. 9 7. 6 3. 7 23. 8 2. 3 18. 4 6. 6 3. 5 4. 1 2. 6 Critical Care 455 21 3 35 87 5 12 33 79 140 7 94 16 47 78 97 86 27 8 49 26 415 51 21 17 131 44 25 30 37 20 Imaging Av DRG Cost Number of Days Number of Cases ALOS (days) 30. 1 2. 8 1 4. 2 7. 3 1 1 7. 5 22. 5 17. 8 1. 4 14. 6 3. 8 10. 0 6. 9 11. 9 16. 9 5. 9 12. 3 1. 9 30. 7 4. 1 5. 1 2. 1 9. 8 6 2. 8 4. 4 3. 6 3. 3 Pathology 1. 00 8 253 105 303 769 771 43 183 11 85 138 59 59 21 156 8 190 5 83 82 121 7 96 36 139 12 123 7 50 6 69 6 108 19 112 64 122 10 127 19 36 1 35 9 39 23 115 27 57 3 34 10 62 18 50 15 66 12 44 2, 867 9, 385 Non Clinical Sals TOTAL 0. 09 0. 01 0. 00 0. 01 0. 02 0. 01 0. 07 0. 04 0. 00 0. 02 0. 01 0. 02 0. 06 0. 01 0. 00 0. 05 0. 01 0. 08 0. 05 0. 01 0. 02 0. 01 '000 HKD Ward Nursing 24. 4 1. 13 0. 14 1. 90 4. 66 0. 29 0. 63 1. 78 4. 22 7. 54 0. 40 5. 04 0. 87 2. 54 4. 19 5. 23 4. 60 1. 48 0. 42 2. 61 1. 38 22. 3 2. 72 1. 13 0. 93 7. 03 2. 37 1. 36 1. 61 2. 00 1. 09 Ward Medical DRG 1 DRG 2 DRG 3 DRG 4 DRG 5 DRG 6 DRG 7 DRG 8 DRG 9 DRG 10 DRG 11 DRG 12 DRG 13 DRG 14 DRG 15 DRG 16 DRG 17 DRG 18 DRG 19 DRG 20 DRG 21 DRG 22 DRG 23 DRG 24 DRG 25 DRG 26 DRG 27 DRG 28 DRG 29 DRG 30 OTHER ('000) Std Error Cost Weight DRG

Current specialty costing process • Built 10 years ago – established processes. • Some concerns about: – performance of the software functions and processes. – accuracy of the data – universal issue – • needs iterative improvement feedback – USE THE DATA!! – stakeholder acceptance of the data transformations. • Category totals reconcile to expenditure totals. • Reporting well established and used for overall performance assessment and reporting. DRG Workshop Belgrade, 18 -22. November 2013.

HA Costing System – Data Flow System Interfaces Pharmaceutical Supplies System (PHS) Manual Data Input Other Clinical/Non Clinical Systems (e. g. OPAS, IPAS) Relevant Statistics EIS Manual Records Notional charges / allocation statistics Activity Volume and Allocation Statistics Drug cost GL PE cost Human Resources Payroll System (HRPS) Costing System Cost (by cost centre aligned with Specialties) workload statistics Laboratory Information System (LIS) workload statistics Radiology Information System (RIS) DRG Workshop Belgrade, 18 -22. November 2013. 15

HA Specialty costing - output DRG Workshop Belgrade, 18 -22. November 2013. 16

HA Service Resource Utilization Profile 1. 8%Community 2. 1% Day Hospitals 5. 4% 18. 8% SOPD 19. 2% 4. 8% A&E 4. 8% Extended Care Ambulatory 29. 4% Ambulatory 26. 0% 2. 4% Care 14. 1% 12. 3% 58. 1% 56. 2% DRG Workshop Belgrade, 18 -22. November 2013. Inpatient 68. 5% Inpatient 72. 2% Acute Care

HA Costing System – Data Flow Current HA casemix costing methodology DRG Workshop Belgrade, 18 -22. November 2013.

Current casemix costing method • The key strategy is to use local data to the maximum extent practical. • Use specialty costing results and disaggregate at the patient level using length of stay. The average cost per patient day (using specialty costing related to a DRG) X The HA average length of stay (LOS) for that DRG (average for HA) DRG Workshop Belgrade, 18 -22. November 2013. = An average cost relativity for each DRG for all of HA

Development of Cost Weights International experience • Should use as much local data as practical as cost structure of each DRG varies between countries HA’s approach Use specialty costing results and HA length of stay (LOS) DRG Workshop Belgrade, 18 -22. November 2013.

Clusters’ Average Cost per Patient Day by Specialty 06/07 DRG Workshop Belgrade, 18 -22. November 2013.

Development of Cost Weight for HA (using 06/07 data) - AMI as an Illustration DRG Med CCU 054101 AMI $2, 581 x 8, 142 BDO $7, 657 x 2, 424 BDO 054102 AMI w/CC $2, 581 x 6, 527 BDO $7, 657 x 1, 016 BDO 233 BDO 054103 AMI w/MCC $2, 581 x 3, 474 BDO $7, 657 x 683 BDO 434 BDO Others 318 BDO All DRGs Total No of Cost per Cost of AMI DRG Episode $48. 1 M 1, 764 $27, 289 $31. 0 M 961 $32, 250 $19. 5 M 543 $35, 834 $16 B DRG Workshop Belgrade, 18 -22. November 2013. Note: AMI - Acute Myocardial Infarction 1, 075, 401 $13, 753

Development of Cost Weight for HA (using 06/07 data) - AMI as an Illustration Cost per Weight for Episode each DRG 054101 AMI $27, 289 2. 0 054102 AMI w/CC $32, 250 2. 3 054103 AMI w/MCC $35, 834 2. 6 Average for All DRGs $13, 753 1. 0 Note: AMI - Acute Myocardial Infarction DRG Workshop Belgrade, 18 -22. November 2013.

Stakeholder views on HA’s need for product costing • Need for accurate cost weights ++ • Value for efficiency benchmarking + – Some interest in high level exception analysis. • Relationship to quality and performance monitoring – – – not realised – or too hard for now. – quality program indicator focused rather than protocol based – patient level service patterns therefore not of interest at this stage. DRG Workshop Belgrade, 18 -22. November 2013.

AVAILABILITY OF INPUT DATA Hospitals and clusters reporting capability DRG Workshop Belgrade, 18 -22. November 2013.

Standardised financial reports • Standard Chart of Accounts. • Standardised use of cost centres – accrual. • Degree of customisation – posting accuracy – management centre structure – cross subsidy - accountability for inconsistency. • Relevance to internal hospital management processes, performance goals and issues. DRG Workshop Belgrade, 18 -22. November 2013.

Standardised activity data VOLUME STATISTIC WARD, UNIT DRG PATIENT MEDICAL SERVICES +- - + NURSING CARE + - - PATHOLOGY - - + IMAGING - - + ALLIED HEALTH + - - PHARMACY ? - + CRITICAL CARE + - (days+? ) ORs, PROCEDURE SUITES + - +? EMERGENCY DEPTS + - + PROSTHESES, SUPPLIES + - +- HOTEL SERVICES + - - ? ? ON COSTS, DEPRECIATION DRG Workshop Belgrade, 18 -22. November 2013. ?

Allocation Basis – Clinical Patient Support Type of Services Recommended Basis Anaesthetic No. of sessions/ No. of anae procedure Operating Theatre No. of sessions Pharmacy (Drugs) Value of pharmaceutical items issued Pharmacy (PE & OC) No. of items dispensed/ No. of beds Pathology Weighted Workload Diagnostic Radiology Weighted Workload Medical Physics Weighted Workload Allied Health Services No. of attendance Private / Mixed Ward BDO/ No. of beds/ No. of admission DRG Workshop Belgrade, 18 -22. November 2013. 28

Allocation Basis – Non Clinical Patient Support Type of Services Recommended Basis Portering & Domestic Services Average portering strength by service Catering No. of meals/ BDO Laundry & Linen BDO/ No. of Patient Treated Medical Record Supporting Service No. of Patient Treated/ No. of attendance CSSD Value/ No. of CSSD items issued DRG Workshop Belgrade, 18 -22. November 2013. 29

Overhead allocations • INFORMATION AVAILABLE ++ Administration, Electricity, Gas, Water, Depreciation, EMSD, Building Maintenance & Depreciation for notional costs • DATA QUALITY ? ? • STANDARD DEFINITIONS + • STANDARD PROCESSES + • TECHNICAL CAPABILITY ++ DRG Workshop Belgrade, 18 -22. November 2013.

Allocation Basis – Hospital Overhead Type of Services Recommended Basis Administration Direct cost of specialty Electricity, Gas, Water Floor Area Depreciation Actual Depreciation by Department EMSD Facility maintenance – Floor Area Equipment maintenance – Asset Value Building Maintenance & Depreciation for notional costs Floor Area DRG Workshop Belgrade, 18 -22. November 2013. 31

UNDERSTANDING CAPACITY TO DEVELOP A CENTRALLY OPERATED PRODUCT COSTING SERVICE Data warehouse capability, capacity and use by clusters and hospitals Costing skills and capacity to develop. DRG Workshop Belgrade, 18 -22. November 2013.

Useful Data Warehouse Components • Patient demographics • Inpatient episodes • Outpatient attendances • A&E attendances • Diagnosis, procedures • Laboratory results • Drug dispensing records • Radiology examinations • OT Records • Obstetrics information • Psychiatric information • Rehabilitation outcome • Head counts • Payroll details • Drug expenditure DRG Workshop Belgrade, 18 -22. November 2013.

Data Warehouse Statistics • Data volume and size – 8. 6 m patient records – 69 m inpatient, outpatient, A&E episodes – 860 m laboratory results – 48 m radiology examination reports – 340 m dispensed drug items – 3. 5 TB x 2 (Primary and Secondary • Transaction Volume – 1. 8 m update transactions per day DRG Workshop Belgrade, 18 -22. November 2013.

Information architecture vision Demographic • DOB, • age, • sex, • address, • family status, • income Clinical • Diagnosis • Operations • Laboratory • Radiology • Problem list • Care plans Activities Financial • Fees, • deposit, • payment, • subsidy/assistance. • IP • SOPC • A&E • GOPC • Day Hospital • Community • Cost: PE, OC, SFI, etc DRG Workshop Belgrade, 18 -22. November 2013.

Difficulties and risks • Cost data not used by hospitals – only for cost weights – – thus process not cost effective or accurate. • Activity data problems – completeness and accuracy – (quickly resolves if used for benchmarking). – Staging rules – where the intermediate products are charged - ? Patient – department allocation rules. • Financial data problems – IFRAC, other product fractions – well developed in HA – GL posting idiosyncrasies – SCA use variations – Definitions of ‘in scope’ • Confrontational and defensive response to variations. DRG Workshop Belgrade, 18 -22. November 2013.

International clinical costing standards • England http: //www. hfma. org. uk/NR/rdonlyres/03048 E 3 E 16 BE-4 D 9 E-BC 54 A 16 FAA 61 ADC 2/0/Acute. Health. CCS 20132014. pdf • Australia – – http: //www. ihpa. gov. au/internet/ihpa/publishing. nsf/Conte nt/Australia-Hospital-Patient-Costing-Standards. htm • User groups guidelines and health insurer standards. – Eg German approach DRG Workshop Belgrade, 18 -22. November 2013.