DRG Workshop Belgrade, 18-22.November 2013. 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.

Setting the DRG cost weights. Content of DRG costs/cost

weights

Prof Ric Marshall OAMThe University of Sydney.


Typical Patient Costing System


Typical program for first cost weights and schedule




• 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– Broad roadmap for the development of product costing over the next

several years.

International experience appropriate? Main approaches – strengths, weaknesses. Potential risks, problems. Available standards.

How ready is your system?


• 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

USES OF UNIT PRODUCT COST


Health sector

outputs

Hospital services

Personal health

services

1: public health

services

5: tertiary hospital services

4: hospital inpatient services

3: hospital-based

ambulatory services

2: non-hospital services

2-1: home care

5-1: tertiary severity

5-3: teaching

5-2: research

4-5: nursing maintenance

4-4: palliation

4-3: rehabilitation

4-2: acute inpatient care

4-1: intensive care

3-2: emergency department

1-1: food and drugs safety

1-2: environmental

1-3: health protection

3-1: outpatient clinics

2-6 dental

2-5: other non-hospital services

2-4: nursing home services

2-3: specialist medical care

2-2: primary medical care

Subacute inpatient

care

5 major 5 major productproduct groupsgroups

18 major 18 major product product

subgroupssubgroups

Non-admittedservices

DRGS


• 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 COSTING FUNDAMENTALS


• 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.

WHY LOCAL COST WEIGHTS?


Hospital Information SystemsHospital Information SystemsHospital Financial DataHospital Financial Data

Minimum Basic Data Set-DRG Data Entry Tool- Clinical Data, DRG- Resource Consumption Data

(analysis tool)

Costing engine

Coding Analysis Reports

Eg PICQ Software

Cost Reports

Cost Sheet-Allocation Statistics

(costfile)(volumefile)(CASES)

Data Analysis Reports

(preparecostsheet)

Diagnosis and procedures Analysis Reports

DATA WAREHOUSE


case study - hong kong

readiness for product costing

with reference to approaches adopted in other countries when first adopting DRGs


DRGs

Cost components:Ward medicalWard nursing

Non clinical salariesPathologyImaging

Allied HealthPharmacy

Clinical CareOperating rooms

Emergency departmentsSupplies

Special Procedure SuitesProsthesesOn-costs

HotelDepreciation

DRG Statistics:Cost Weights

Standard ErrorNumber of CasesNumber of Days

Average Length of StayAverage DRG Cost


• 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.

Current specialty costing process


15

GL

PharmaceuticalSupplies System(PHS)

EIS

LaboratoryInformationSystem(LIS)

RadiologyInformationSystem(RIS)

ManualRecords

HumanResourcesPayroll System(HRPS)

CostingCostingSystemSystem

PE cost workload statistics

Notional charges /allocation statistics

Drug cost

Activity Volume and Allocation Statistics

Cost (by cost centre aligned with Specialties)

System InterfacesSystem Interfaces Manual Data InputManual Data Input

workload statistics

Other Clinical/Non ClinicalSystems (e.g. OPAS, IPAS)

Relevant Statistics

HA Costing System – Data Flow HA Costing System – Data Flow

DRG Workshop Belgrade, 18-22.November 2013. 16

Average Cost per Patient Treated for 2006/2007 by Specialty by Cluster

Overall

Inpatient Specialties HKWC HKEC KCC KEC KWC NTEC NTWC Average$ $ $ $ $ $ $ $

Acute Care

Surgery 17,915 14,004 16,090 13,748 13,977 15,400 13,388 15,057

Medicine 12,930 9,943 13,771 11,582 10,395 10,481 9,794 11,102

Obstetrics & Gynaecology 10,247 10,935 10,441 12,489 10,029 10,501 11,998 10,745

Nursery 1,111 1,879 1,712 1,543 1,670 1,131 2,374 1,645

Orthopaedic & Traumatology 25,336 21,310 23,657 21,986 19,604 22,424 22,644 21,975

Paediatrics 24,994 14,577 16,593 11,534 11,914 15,481 16,061 15,077

Neurosurgery 37,005 26,257 43,091 - 33,435 19,894 35,742 31,956

Ear, Nose & Throat (ENT) 15,159 20,777 23,602 25,919 18,509 16,380 18,512 18,567

Ophthalmology 13,060 10,526 11,875 15,180 10,114 13,790 18,087 12,257

Psychiatry 68,914 52,866 72,966 113,499 68,970 50,706 90,641 66,137

Intensive Care Unit (ICU) 48,736 55,857 97,349 74,596 70,955 68,116 89,288 67,821

Clinical Oncology (ONC) 22,781 14,956 30,328 12,295 31,830 19,503 21,523

Total Acute Care (excl. ONC) 18,633 15,418 17,492 15,322 14,433 15,562 16,109 15,894

HA Specialty costing - output

DRG Workshop Belgrade, 18-22.November 2013. 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07

58.1%

Extended Care

A&E

SOPD

Day Hospitals

Community Care

14.1%

4.8%

18.8%

2.4%

1.8%

Inpa

tient

72.2

%

Acute Care

Am

bula

tory

26.

0%

56.2%

12.3%

4.8%

19.2%

5.4%

2.1%

Inpa

tient

68.5

% A

mbu

lato

ry 2

9.4%

HA Service Resource Utilization HA Service Resource Utilization ProfileProfile


Current HA casemix Current HA casemix costing methodologycosting methodology

HA Costing System – Data Flow HA Costing System – Data Flow


• 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)

=An average cost

relativity for each DRG for all of HA

Current casemix costing method


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)

Development of Cost WeightsDevelopment of Cost Weights


Clusters’ Average Cost per Patient Day by Specialty 06/07Clusters’ Average Cost per Patient Day by Specialty 06/07


318 BDO054101

AMI$2,581 x

8,142 BDO$7,657 x

2,424 BDO $48.1M $27,289

$32,250

434 BDO 054103

AMI w/MCC$2,581 x

3,474 BDO$7,657

x 683 BDO $19.5M $35,834

All DRGs $16B $13,753

Total Cost of

AMI DRGCost per Episode

233 BDO 054102

AMI w/CC$2,581 x

6,527 BDO$7,657 x

1,016 BDO $31.0M

1,764

961

543

1,075,401

No of Episode

Note: AMI - Acute Myocardial Infarction

DRG Med CCU Others

Development of Cost Weight for HA (using 06/07 data) - AMI as an IllustrationDevelopment of Cost Weight for HA (using 06/07 data) - AMI as an Illustration


Cost per Episode

Note: AMI - Acute Myocardial Infarction

054103AMI w/MCC

Average for All DRGs

Cost Weight for each DRG

Development of Cost Weight for HA (using 06/07 data) - AMI as an IllustrationDevelopment of Cost Weight for HA (using 06/07 data) - AMI as an Illustration

054102AMI w/CC

054101AMI

$35,834

$32,250

$27,289

2.6

2.3

2.0

$13,753 1.0


• 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.

Stakeholder views on HA’s need for product costing


Availability of input data

Hospitals and clusters reporting capability


• 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.

Standardised financial reports


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

? ? ?

Standardised activity data


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

Allocation Basis – Clinical Patient Support



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

Allocation Basis – Non Clinical Patient Support


• INFORMATION AVAILABLE ++ Administration, Electricity, Gas, Water,

Depreciation, EMSD, Building Maintenance & Depreciation for notional costs

• DATA QUALITY ??

• STANDARD DEFINITIONS +-

• STANDARD PROCESSES +-

• TECHNICAL CAPABILITY ++

Overhead allocations



Administration Direct cost of specialty

Electricity, Gas, Water Floor Area

Depreciation Actual Depreciation by Department

EMSD Facility maintenance – Floor AreaEquipment maintenance – Asset Value

Building Maintenance & Depreciation for notional costs

Floor Area

Allocation Basis – Hospital Overhead


Understanding capacity to develop a centrally

operated product costing service

Data warehouse capability, capacity and use by clusters and hospitalsCosting skills and capacity to develop.


•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

Useful Data Warehouse Components


• Data volume and size– 8.6m patient records– 69m inpatient, outpatient, A&E episodes– 860m laboratory results– 48m radiology examination reports– 340m dispensed drug items– 3.5 TB x 2 (Primary and Secondary

• Transaction Volume– 1.8m update transactions per day

Data Warehouse Statistics


Demographic•DOB, •age, •sex, •address, •family status, •income

Clinical•Diagnosis•Operations•Laboratory•Radiology•Problem list•Care plans

Activities•IP•SOPC•A&E•GOPC•Day Hospital•Community

Financial•Fees, •deposit, •payment,•subsidy/assistance.

•Cost: PE, OC, SFI, etc

Information architecture vision


• 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.

Difficulties and risks


• England - http://www.hfma.org.uk/NR/rdonlyres/03048E3E-16BE-4D9E-BC54-A16FAA61ADC2/0/AcuteHealthCCS20132014.pdf

• Australia – – http://www.ihpa.gov.au/internet/ihpa/publishing.nsf/Content

/Australia-Hospital-Patient-Costing-Standards.htm• User groups guidelines and health insurer standards.

– Eg German approach

International clinical costing standards

Documents

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