Hospital Patient Costing Conference

Kevin Ratcliffe

Wed 19 march 2014 Sydney

Is the Current Costing Process Appropriate to National Developments?

A Number of Issues will be explored including; l  Complexity of the costing process l  Consistency of financial processes l  Costing Workforce capacity l  Dependence on Service Weights and external RVUs (not your

utilisation) l  Concentration of technical expertise within small number of vendors l  Adequacy of technical support infrastructure and documentation l  Relationships between costing and classification

Australia’s ABF reforms l  Council of Australian Governments agreements: •  2008 National Partnership Agreement – COAG agreed to move to

national activity based funding •  2010 National Health and Hospitals Network Agreement •  February 2011 Heads of Agreement – COAG •  August 2011, National Health Reform Agreement (NHRA) signed by

COAG, which includes the key component of national ABF •  November 2011, National Health Reform Act

•  Formation of IHPA, NHPA ,Administrator by legislation •  July 2014 – growth funding begins

Costing is a critical component of the ABF reforms •  At the jurisdiction level this implies a required commitment to

improve the efficiency and capacity in public hospitals, and the development of a nationally consistent approach to ABF.

•  A key enabler to achieve this will be the role played by the coding, data and costing and auditing workforce in hospitals.

•  Costing now compulsory across all public hospitals •  All products now in scope for costing at patient event level •  Inpatients Outpatients, ED, Teaching & Research, Sub-acute; and soon Mental

Health (as a distinct product class) •  Consumption costing at patient level is preferred method •  Enormous impact on complexity of the costing process

l  A strong clinical costing workforce is and will be critical to the success of ABF

Complexity of the costing process

Process of costing

l  Costing involves several major data sources l  Financial data l  Patient data l  Consumption data

l  The process is complex and involved l  Arrangement of Finance data

l  Cost centre cost Items l  Direct and indirect allocations

l  Patient data l  Classification, identification and counting of episodes

l  Consumption data l  Movement of patients l  Resources used l  Data linkage based on rules

l  Validation l  Reporting of costs

Consistency of financial processes

l  Financial validation and mapping processes are often complex l  Cost centre evaluation

l  Do the cost centers allow costs to be reported against specific entities? l  E.g. Are doctor salaries reported against departments (Surgery, Medicine etc.) or

accumulated in a single cost centre l  Account evaluation

l  does the account structure identify employees by broad grouping Med, Nurse, Allied, Other

l  Sometimes combination of Cost Centre and Account required to provide detail E.g. Salaries in a Allied health cost centre are likely to be Allied Health whereas salaries in Hotel cost centre as likely to be non-clinical salaries

l  Reliability of account attribution l  Tight budget control l  Implants or MS supplies

l  Requires understanding of accounting processes used in hospital/State/LHN l  E.g. is the pharmacy cost gross cost of netted off against commonwealth recoveries

Dependence on Service weights and external RVUs l  Original Service weights in Australia were derived from Maryland

Charges data l  Over years several large costing studies undertaken to develop local

variants l  Now weights are derived from “reliable” patient costing data

l  E.g. Nursing and Medical l  However service weights or external RVUs have major limitations

reliable allocation to individual costs l  In Oz >50% hospitals use service weights

l  Monitor (UK) are in the middle of a large Audit on quality of Specialty Costing in the NHS

l  Majority of NHS costing is being done using service weights which is not considered acceptable

Example - Nursing l  Patient nurse dependency data are regarded as the “gold Standard”

for allocating nursing cost at ward level l  Not universally available l  Choices remaining

l  Straight allocation based on time l  Service weights l  Modelled events

l  Straight allocation may be more reliable than use of service weights l  Model incorporating PNDS factors from available data is possible

but complex to implement l  Very significant clinical interaction required to validate l  Staff skill available is a critical factor in choice made

Costing and Classification l  Cost data are critical to classification development

l  Most of the developing classifications require a costing project to validate initial relative values

l  Current project to review Classification for AR-DRGv8.0 l  Specific project to improve CCL and PCCL

l  Shown to be out of date l  Current schema based on 2003 data at LOS level l  CCL codes based on US list

l  Requires ability to analyze cost impact of additional diagnoses l  Significant care with data will be required as substantial proportion of

episode cost data is based on Service weights or external RVUs and must be identified and removed from impacting the validity of the analysis

Funding brings additional Complexity

l  Many risks are involved l  Perverse incentives

l  E.g. Boundary issues §  IP – OPD §  IP – ED §  Subacute care typing §  Teaching and Research §  MH - inclusion and classification

l  Outlier risk l  Mixture of classification, costing and funding model risk elements

l  Classification issues l  3 classifications to consider initially l  2 in early development

l  Clinical pathway analysis is critical for provider hospitals l  Systematic differences in reporting, care typing etc

l  Under the NPA all LHNs are required to produce an estimate of activity in a service agreement to be funded by the administrator in NWAU

Making use of costing information

l  Patient Level Information and Costing Systems (PLICS)

l  Incorporation of cost / tariff / utilisation and provider to reporting at the patient level

l  Provides a huge increase in capacity and allows; l  service-level economics reporting l  an understanding of the variations and their causes within services l  a major improvement in clinical ownership of resource decisions l  provision of information to enable improved HRG classification and l  improved funding policy and evidence-based analysis in

discussions with commissioners.

Use of Cost Information l  Costing to simply produce a NEP is of no great value to

a hospital l  The NEP is only part of the equation as state models differ in

scope and purpose as system managers. l  Has the nomenclature been (vergiftet) by use of “efficient” in an

environment of averaging? l  The equivalents have different terms in different locations l  In UK called reference costs in InEK sample costs, old NHCDC

population and estimated cost – not forced into “efficiency”

l  There needs to be an understanding of the impact of the funding model – at the patient level l  This allows analysis of loss leaders and clinical variance

Workforce capacity

Some Historical Decline In Australian Costing Workforce

l  However three are rapid developments as the NEP becomes ‘live” which has reversed the trend

l  Many years of costing seen as “routine work”

l  No efforts directed to teaching and workforce development l  Focus on Simple solutions for Very Complex environments

l  Some movement of hospital based costing to vendor provided costing services l  Move from end to end process to File preparation and reporting focus l  Reliance on standardised RVU costing in many systems

l  Time taken to undertake complex data matching is very significant l  Lack of career path and training

l  Seen as technical task l  Public Service Career paths are outside the costing area

l  However the time taken to achieve costing competence creates barriers to moving into these paths l  Exit of senior practitioners from workforce

l  Move is to consultancies l  Overseas generally

l  Funding model focus – not on management accounting l  The bottom line l  Rather than insights gained during the process

Previous analyses of workforce l  ‘Health Information Workforce’ - Working Group

setup by DH Vic. in 2010 l  Prior to the implementation of NEP and National ABf

l  – Focus: l  Clinical Coder Workforce l  Clinical Costing Workforce l  Costing Survey undertaken - small number of Health

Services in Vic. (Chris O’Gorman – Health Consultant).

l  A more comprehensive survey was also undertaken by Ernst & Young for DH Vic.

Findings at the time l  Clinical Costing service was in some trouble!

l  Under-resourced l  Underutilised l  Not seen as an organisational priority l  Not a Departmental priority

l  Across 5 sampled (public, mostly tertiary) health services, in-house, clinical costing staff totals less than 3 FTE for 470,000 – 500,000 admitted patients treated annually.

l  Only one health service produced regular costing reports for management. l  The costing function seems disconnected from the financial management

framework within the sample health services. l  Costing was not widely recognized as an effective resource management

tool in health services.

More practitioners required with the NPA and ABF reforms

l  Oops – there aren’t enough of us

l  In moving to ABF a number of improvements have occurred l  National costing Standards have raised the bar significantly

l  Driven by evidence in NHCDC costing rounds l  Costing at the episode level for IP, ED, OPD

l  Previous efforts only required episode costing at Acute IP level l  Increased costing effort – move from external relativities to consumption

costing l  Huge increase in requirements to data matching l  There is a huge requirement to understand the Detail

l  For Tasmania staffing of costing function has risen from about 1.5 FTE to 5 to simply produce the Episode level costing for all Tasmanian Public Hospital patients l  Yet we still have not been able to implement required reporting improvements.

Workforce Objectives l  Key objectives for developing the clinical costing

workforce requires l  a strategy to address current workforce levels in

health services and mitigate future national reform impacts, including: l  maintaining existing Activity Based Costing services l  implementing ABF national reforms l  meeting increasing requirements for high quality cost

data collections l  managing competition from other related industries for

the labour pool.

Facilitators for costing improvement l  Costing Information has become part of the Performance Management

Framework of a Health Department. l  Patient costing capability to be a condition of funding. l  Cost data from hospitals now mandated for annual cost weights studies. l  Health Departments provide regular, comparative cost reports back to

Health Services to promote efficiency improvements. (Still a work in progress)

l  Health Departments to incorporate clinical services cost and quality indicators into the Performance Framework of each Health Service.

l  State and Commonwealth purchasing to be based on “Efficient” and/or “Fair” Price.

Concentration of technical expertise

l  Significant costing is undertaken as consultant work l  This can create problems in skill development in the methodology of

costing l  Can create difficulties in understanding the origins of costs being

reported l  Creates a standardised view – but can this capture the variations

adequately?

l  Focus in Australia is currently in developing a NEP l  This focus with tight timeframes reduces the ability to develop

Business intelligence from the actual cost data l  Often undertaken as later work l  Or by separate groups l  PLICS in the UK considers this “Information use” to be part of the

initial task to make analysis immediately useful

Recent efforts to define costing l  The AIHW undertook a coding workforce study in 2010

and produced the ‘coding workforce shortfall’ report l  The report seeks to quantify the scope of the coding

workforce and makes recommendations for the future l  Although the recommendations focus on clinical

coders, there is some relevancy to the clinical costing workforce

l  But …. No specific assistance in defining clinical costing l  Which is now mostly a corporate finance activity

Classification of Workforce

l  IHPA reviewed the 996 Australian and New Zealand Standard Classification of Occupations (ANZSCO) codes

l  The following codes may include skills that relate to the hospital costing workforce: Ø  Accountant (221111) Ø  Clinical Coder (599915) Ø  Cost Clerk (551112) Ø  Economist (224311) Ø  Finance Manager (132211) Ø  Health Information Manager (223213) Ø  Statistician (224113)

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What are the Knowledge Domains in Costing? l  Where does the skills to understand clinical costing come from?

l  Accounting l  Understanding hospital Finances (G/L) and cost accounting principals.

l  How hospitals run l  The patient journey l  Hospital management

l  Ability to engage and communicate with clinicians l  Classification

l  All types including IP, ED, OPD, Sub acute and Mental health l  Clinical processes

l  Diseases l  Clinical activities l  Treatments l  The language of health

l  Teaching l  Research l  Economic evaluation l  Statistics

Where do Costing staff come from? l  Practitioners generally bring a solid competency into the

profession l  Accounting, Database/IT, less commonly Clinical

l  But quickly go on to accumulate additional skills l  Clinical terminology, etc.

l  Costing unit(s) need to cover many of the skill domains l  Single person costing groups cannot succeed l  Clinical interaction capacity is critical

l  A hierarchy exists l  Higher level competencies will be required to undertake

development and implementation roles l  However maintenance still requires good coverage l  Units need to be actively engaged in training new staff as an

ongoing task

But

l  What is the clinical costing workforce anyhow???......

l  There is

l  no formal credentialing process l  No purposeful curriculum l  No peak body or association l  No forum for a colloquium

l  CCSAA may have been some of this but has ceased due to lack of support

An Early Draft Definition

l  Clinical costing specialists are responsible for the design, implementation, operation and analysis of health services' patient level costing information systems.

l  Their key role is matching financial information with patients' demographic, morbidity, utilisation and consumption data at the episode level for all episode types.

l  Resulting in communication of patient level cost and utilization data to major stakeholders, clinical and corporate

So are we placed to succeed? l  Perhaps…….

l  There has been a definite increase in workforce numbers l  The complexity of the costing apparently is being met l  Results are improving each round l  BI aspects are slower to develop but tools are improving e.g. Qlikview

l  Improvement is still required l  Still use of Service weights and external RVUs at an high level l  Provides a sense of security in the result that may be misplaced l  No real private sector costing consistent with the Public process l  A body to represent the costing “profession”

l  The costing task is very complex and getting more so l  Tools to evaluate the result are also improving, which will drive improvement

l  Workforce still not adequately defined l  Technical methodology not published in comprehensive form

l  Although this is definitely on the workplan