Performance management using ABF (or managing performance under ABF)

Performance management using ABF (or managing performance under ABF)
Stephen Duckett @stephenjduckett ABF Workshop Sydney October 2017

Why did you come to this workshop?
What are the three things you want to know more about as a result of attending this workshop?

Background and context Introduction to policy (theory) in healthcare
Agenda Background and context Introduction to policy (theory) in healthcare Introduction to reimbursement policy in particular, and activity based funding Reimbursement design choices Add-ons and refinements Managing groups of hospitals aka states, but might also be area Managing performance of a single hospital The quality/safety agenda

How did DRGs arise? (two competing stories)
Bob Fetter and the quest for quality aka utilisation review John Thompson studying cost variation approaches Fetter

How did DRGs arise? Aim: to identify the abnormal for utilisation review Bob Fetter (engineer, married to Audrey Fetter, hospital manager) Reframed: to identify the abnormal, one first needs to identify the normal, then the abnormal is something which is different (statistically) from that What is the normal? Answer: groups of patients which are similar to each other What do you mean by ‘groups of patients’? Answer: groups of patients who have a similar pattern of care

National timeline <1993 Victoria 1993 Victoria
Preparatory work Policy on-the-shelf 1993 Victoria 1994 SA and lots of talk ……….. 2009 NHHRC 2011+ IHPA 2014 Budget 2016+ Reconciliation

Appendicectomy without complications
Casemix creates a common language between clinicians and managers (both resource and clinical homogeneity) DRG G07B Inflamed appendix $3,409 Appendicectomy without complications

Clinical meaning requires distinguishing what is done and complexity
Australian payment weight Source: Independent Hospital Pricing Authority (2016), 'The Pricing Framework for Australian Public Hospital Services ', (Sydney: IHPA).

Clinical meaning requires distinguishing what is done and complexity
Australian payment weight Need to call out clinical difference within broad groups 3.5 fold difference Fetter principle # 4: Similar types of patients in a given class from a clinical perspective (clinical homogeneity) Source: Independent Hospital Pricing Authority (2016), 'The Pricing Framework for Australian Public Hospital Services ', (Sydney: IHPA).

Access Efficiency Quality The object(s) of policy Quality improvement
Financial barriers Geographic barriers Cultural barriers Temporal barriers Access Efficiency Quality Quality improvement Quality assurance Allocative (social) Technical Dynamic

Measurement is crucial
In physical science a first essential step in the direction of learning any subject is to find principles of numerical reckoning and practicable methods for measuring some quality connected with it. I often say that when you can measure what you are speaking about and express it in numbers you know something about it; but when you cannot measure it, when you cannot express it in numbers, your knowledge is of a meagre and unsatisfactory kind: it may be the beginning of knowledge, but you have scarcely, in your thoughts, advanced to the stage of science, whatever the matter may be William Thomson Lord Kelvin Thomson, W. (1891). ”Electrical Units Of Measurement - A Lecture delivered at the Institution of Civil Engineers on May ; being one of a series of six lectures on The Practical Applications of Electricity,“ in Popular Lectures and Addresses, Vol 1 London: MacMillan. p. 73

So think about the tomato issue
Cost is only one attribute of tomatoes

Access Efficiency Quality The object(s) of policy Quality improvement
Financial barriers Geographic barriers Cultural barriers Temporal barriers Access Efficiency Quality Quality improvement Quality assurance Allocative (social) Technical Dynamic

The object(s) of policy
The right member of the health care team enables the right care in the right setting, on time, every time at the right cost Doing the right things (sometimes called allocative or social efficiency) Doing things right (sometimes called technical efficiency) and also thinking about tomorrow (dynamic efficiency)

P – Patient assessed value eg expectations of symptom
Building the ‘value cube’ 3 key perspectives (and trade-offs) of healthcare performance P – Patient assessed value eg expectations of symptom relief, functional improvement, being treated with dignity, Information, access etc Maybe different in different populations P Duckett, S. and Ward, M. (2008) 'Developing ‘robust performance benchmarks’ for the next Australian Health Care Agreement: the need for a new framework ', Australian and New Zealand Health Policy, 5(1),

Building the ‘value cube’ 3 key perspectives (and trade-offs) of healthcare performance
P – Patient assessed value C – Performance of clinical interventions e.g. process & outcome markers lab tests, interventions, teamwork, communication Need to define ‘the normal’ and then measure individual and systematic variation The complexity of outcome measures and their purpose P C

Building the ‘value cube’ 3 key perspectives (and trade-offs) of healthcare performance
P – Patient assessed value C – Clinical quality E – Efficiency Allocative Technical Dynamic P C E

Excerpt from IHPA Pricing guidelines - 1
Overarching Guidelines that articulate the policy intent behind the introduction of funding reform for public hospital services comprising activity based funding and block grant funding: Timely–quality care: Funding should support timely access to quality health services. Efficiency: Activity based funding should improve the value of the public investment in hospital care and ensure a sustainable and efficient network of public hospital services. Fairness: Activity based funding payments should be fair and equitable, including being based on the same price for the same service across public, private or not-for-profit providers of public hospital services. Maintaining agreed roles and responsibilities of governments determined by the National Health Reform Agreement: Funding design should recognise the complementary responsibilities of each level of government in funding health services.

What problem are you trying to solve?
Health systems have multiple objectives Access Distribution of access also important (i.e. equity) Clinical quality Efficiency vs constrain total expenditure NB: ABF is neutral on savings it depends on where you set the price Maximise patient assessed value There may also be funding system objectives e.g. transparency, equity Reform to provider payment may attempt to Optimise all Maximise/minimise one, satisfice on others ABF is principally used to drive efficiency improvement

Excerpt from IHPA Pricing guidelines - 2
Process Guidelines to guide the implementation of activity based funding and block grant funding arrangements: Transparency: All steps in the determination of activity based funding and block grant funding should be clear and transparent. Administrative ease: Funding arrangements should not unduly increase the administrative burden on hospitals and system managers. Stability: The payment relativities for activity based funding are consistent over time. Evidence-based: Funding should be based on best available information. Percentage change in inlier price between NEP14 and NEP15 Number of DRGs Less than -20% 7 -20% to -10% 61 -10% to 0% 407 0% to 10% 159 10% to 20% 13 Over 20% 10 Stabilised Stabilised

Policy levers to achieve change
BEHAVIOUR Organisations Professionals Communities People Culture/ values (often through other, education) Feedback Information provision Financial incentives, taxes, setting up markets Provision of new services Governance: Organisation structure (+ workforce roles) Regulation: laws, rules system targets Rhetoric Marketing Consumer education and empowerment Are all the incentives and levers aligned?

A model of organisational responses to incentives
Different groups in organisation may prioritise different incentives differently Again, all incentives might not be in alignment Frolich A, Talavera JA, Broadhead P, et al. A behavioral model of clinician responses to incentives to improve quality. Health Policy ;80:179 –193

The background: Political and economic context of activity based funding

Ageing, comm & disability services
Health is the fastest growing segment of government expenditure ( to ) Real growth Growth if expenditure a constant % of GDP $B Change in Australian governments’ expenditure by category, to , real change in expenditure, 2013$bn Source: Grattan analysis of Commonwealth, state and territory budget papers for and Notes: ‘Infrastructure’ is infrastructure, transport and planning. Source: Grattan analysis of Commonwealth and State budget papers for and Welfare Health Edu’n Defence Infra-structure Ageing, comm & disability services Government Other

Hospitals are the fastest growing segment of health expenditure (2002-3 to 2012-13)
$B

National Health and Hospitals Reform Commission recommendations, June 2009
To improve the efficiency of both public and private hospitals we are recommending introducing the use of efficient ‘activity-based funding’ for hospitals using casemix classifications. Activity-based funding refers to making payments on the basis of ‘outputs’ delivered by health service providers, such as a hospital admission, an emergency department visit or an outpatient consultation. Activity-based funding explicitly links funding to the actual services provided. It allows funders to compare the costs across different health service providers (such as hospitals) in providing the same health service (such as a hip operation).

National Health and Hospitals Reform Commission recommendations, June 2009
95. We recommend that incentives for improved outcomes and efficiency should be strengthened in health care funding arrangements. This will involve a mix of: • activity-based funding (e.g. fee for service or casemix budgets). This should be the principal mode of funding for hospitals; • payments for care of people over a course of care or period of time. There should be a greater emphasis on this mode of funding for primary health care; and • payments to reward good performance in outcomes and timeliness of care. There should be a greater emphasis on this mode of funding across all settings. We further recommend that these payments should take account of the cost of capital and cover the full range of health care activities including clinical education. 96. We believe that funding arrangements may need to be adjusted to take account of different costs and delivery models in different locations and to encourage service provision in under-served locations and populations. At 100%

What is National Health Reform
What is National Health Reform? (excerpt from 2011 National Health Reform Agreement – pre 2014 Budget) 3. The Commonwealth and the States will work in partnership to implement new arrangements for a nationally unified and locally controlled health system which will a. improve patient access to services and public hospital efficiency through the use of activity based funding (ABF) based on a national efficient price; b. ensure the sustainability of funding for public hospitals by increasing the Commonwealth’s share of public hospital funding through an increased contribution to the costs of growth; c. improve the transparency of public hospital funding through a National Health Funding Pool and a nationally consistent approach to ABF;

What is National Health Reform?
d. improve standards of clinical care through the Australian Commission on Safety and Quality in Health Care (ACSQHC); e. improve performance reporting through the establishment of the National Health Performance Authority (NHPA); f. improve accountability through the Performance and Accountability Framework; g. improve local accountability and responsiveness to the needs of communities through the establishment of Local Hospital Networks and Medicare Locals; h. improve the provision of GP and primary health care services through the development of an integrated primary health care system and the establishment of Medicare Locals; and i. improve aged care and disability services by clarifying responsibility for client groups.

New simplified system

Increased transparency (of sorts – hospital level)
From a hospital/LHN perspective there are two main changes (in terms of national agenda) Increased transparency (of sorts – hospital level) Service category Total NHR payments YTD (ex GST) GST YTD Commonwealth NHR payments YTD (ex GST) State/territory NHR payments YTD (ex GST) ($) Acute admitted - public 364,825,610 140,992,675 223,832,935 Acute admitted - private 64,726,808 25,014,707 39,712,101 Non-admitted 103,426,248 39,970,723 63,455,525 Emergency department 61,430,160 23,740,665 37,689,495 Admitted mental health 41,102,923 15,884,880 25,218,043 Sub-acute 21,371,509 8,259,361 13,112,149 Total ABF payments (Pool) 656,883,258 253,863,011 403,020,247 Non-admitted mental health 22,900,792 Small rural hospitals 40,523,881 Teaching, training & research 7,278,948 Other non-admitted services 13,987,656 Total Block payments (SMF) 84,691,277 Total NHR Payments 741,574,535 NHR payments –Sydney Local Health District, March 2014 (YTD) NB State is key player

Increased transparency (of sorts – hospital level) Changed incentives
From a hospital/LHN perspective there are two main changes (in terms of national agenda) Increased transparency (of sorts – hospital level) Changed incentives Changed incentives on Commonwealth Commonwealth now shares in costs of hospital activity growth Stronger efficiency incentives on hospitals/LHNs Because of state adoption of ABF

What the Independent Hospital Pricing Authority does
Determines National Efficient Price (and Efficient Cost for Block Funded Services) This determines the way Commonwealth funding to states is described (and what each LHN's notional share of that is) and the rate for payment of additional activity State as system manager Hospital behaviour

What are public hospital services?
In patient ED Outpatient (setting independent) A public hospital service’s eligibility for inclusion on the General List is independent of the service setting in which it is provided (e.g. at a hospital, in the community, in a person's home). In line with the criteria … community mental health, physical chronic disease management and community based allied health programs considered in-scope will have all or most of the following attributes: Be closely linked to the clinical services and clinical governance structures of a public hospital (for example integrated area mental health services, step-up/step-down mental health services and crisis assessment teams); Target patients with severe disease profiles; Demonstrate regular and intensive contact with the target group (an average of eight or more service events per patient per annum); Demonstrate the operation of formal discharge protocols within the program; Demonstrate either regular enrolled patient admission to hospital or regular active interventions which have the primary purpose to prevent hospital admission.

Public hospital expenditure growth is slowing
Increase in current $ Increase in constant $ Increase in constant $, per capita

Technical feasibility
Progress on Activity based funding relies on alignment of three key factors Technical feasibility Management capacity Political will

The questions of the age
Should you reward less efficient hospitals by paying them more for treating patients than more efficient hospitals Should you reward poor quality by paying hospitals that have higher rates of adverse events more than hospitals with lower rates Should you reward less efficient hospitals by paying them more for inefficient management of the whole patient pathway? Should hospitals be rewarded more or less if they don’t deliver on their commitments to patients as part of informed consent? Yes No Yes No Yes No Yes No

Should you reward less efficient hospitals by paying them more for treating patients than more efficient hospitals Answer: clearly not. Introduce activity based funding in Victoria in early 1990s, get to laggard states by early 2010s Sort of, enough to get going at least (Both in Victoria in 1993 and nationally 2009) Technical feasibility Management capacity Political will Budget imperative in Victoria, ‘It’s time’ nationally

Should you reward poor quality by paying hospitals that have higher rates of adverse events more than hospitals with lower rates Answer: No, as per COAG decision, not from 2017 So 2000s ??? Technical feasibility Management capacity Political will

Introduction to reimbursement policy and casemix
Reimbursement policy is about who manages what risk It is about what incentives apply and on whom they apply ↑ measurement = ↑ incentive design

Tinbergen rule Number of instruments = Number of targets (objectives of policy) Economic activity, like any real activity, has to reckon with many aspects originating from very different realms of life, and hence certainly not only economic view points: institutional, juridical, technical in the widest sense of the word, and psychological (apart from the restricted psychology taken as the basis for usual economics). Jan Tinbergen Tinbergen, Jan (1952), On the theory of economic policy (Amsterdam: North-Holland Pub. Co.).

Financial Risk Of Care For Provider And Payer, By Payment Method.
Austin B. Frakt, and Rick Mayes Health Aff 2012;31: ©2012 by Project HOPE - The People-to-People Health Foundation, Inc.

Options for paying for hospital care
Politics or negotiation History (plus or minus an annual incremental change) Payment based on ‘inputs’ salaries, costs of supplies Tendering Payment based on the population served (‘capitation’) Payments based on activity Services provided to inpatients ‘Treated patients’ Payment based on adjusted activity Quality adjusted (poorer clinical outcomes) Improvement in health status (as measured by Patient reported Outcome Measures (PROMs) The first four are typically top down Either top down or bottom up

Broad choices in hospital funding
Determining hospital funding Top down 'Budgets' Bottom-up 'Revenue' (markets or market like) Adjustments during the year? What sort of accountability?

The big choices (currently) are paying for activity or paying for population
Is there a right answer? vs. How do you manage the polarity? +vs Activity based payment Capitation payment -vs Johnson, B Polarity management: identifying and managing unsolvable problems HRD Press 1996

Options for paying for hospital care
Politics or negotiation History (plus or minus an annual incremental change) Payment based on ‘inputs’ salaries, costs of supplies Tendering Payment based on the population served (‘capitation’) Payments based on activity Services provided to inpatients ‘Treated patients’ Payment based on adjusted activity Quality adjusted (poorer clinical outcomes) Improvement in health status (as measured by Patient reported Outcome Measures (PROMs) These options vary in terms of ability to hold hospitals to account The first four are typically top down A critical issue is who bears what risk Either top down or bottom up

Hospital payment incentives
Increase activity Expenditure control Improve quality Enhance efficiency Technical Cost Allocative Cost-based/ fee-for-service Strong Weak Global budget (negotiated) Moderate DRG-based payments Depends on: . Capping . Marginal cost < marginal revenue Depends on year to year transition Depends on nature of quality incentives Source: Street, Andrew, et al. (2011), 'DRG-based hospital payment and efficiency: Theory, evidence, and challenges', in Reinhard Busse, et al. (eds.), Diagnosis-Related Groups in Europe: Moving towards transparency, efficiency and quality in hospitals (Maidenhead: Open University Press).

Mixed results on efficiency
Case payment impacts Mixed results on efficiency Depends on where you set price and pre-existing arrangements Increases use of substitute services (e.g. rehabilitation) Palmer KS, et al. (2014) Activity-Based Funding of Hospitals and Its Impact on Mortality, Readmission, Discharge Destination, Severity of Illness, and Volume of Care: A Systematic Review and Meta-Analysis. PLoS ONE 9(10): e

Some ‘theory’ about activity based funding
Size of (weighted, needs adjusted) population Utilization Rate (conditions per person X admissions per condition) Cost/service (eg days, tests) Population expenditure How successful have any entities been in managing this? Services/ admission x = x Casemix x x Population Funding Funder Area Health Authority etc Who allocates funding to hospitals on different bases Activity-based Funding ABF Hospital Funder

Some ‘theory’ about activity based funding
Population expenditure = Size of (weighted, needs adjusted) population x Utilization Rate (conditions per person X admissions per condition) Casemix Cost/service (eg days, tests) Services/ admission Hospital Who controls this? Who controls this? How much of our variation problem relates to this or cost control? Different levers for two components Conditions per person: hard to influence Admissions per person: also hard to influence How much of our variation problem relates to this or cost control?

Doctors direct ≈ 80% of hospital expenditures
PCSI Summer School 2012 Doctors direct ≈ 80% of hospital expenditures Discharge timing Imaging & test orders Use of theatre Use of ICU Drugs Surgical prostheses Frequency of observations Equipment purchases

The fundamental premises of activity based funding
The overall goal of activity based funding is usually to address efficiency variation i.e. to have equitable payment so that hospitals (or other services) which do the same thing get paid the same.

Conceptual model to analyse waste
Waste in the Health Care System Administrative Operational Clinical Transactions - Related Other Waste Cost - Ineffective Detrimental to Health Unnecessary paperwork Excess Diagnostics Procedures Disinvestment Duplication of Services Inefficient Processes Expensive Inputs Errors Noah’s Ark Lean Productivity Wages Roles Procurement Rework Adverse Events Source: Bentley, T., et al. (2008). "Waste in the U.S. Health Care System: A Conceptual Framework." Milbank Quarterly 86(4):

Cost/output Cost/outcome Outcome/output Some background
ABF is about technical efficiency Cost/outcome Cost/output Outcome/output

Hospitals need to know where to look
Cost/outcome Cost/output Cost/unit of service Services/output Outcome/output

Targets of health care cost control
Demand side Supply side Price Volume Are different interest groups likely to have different preferences? Design/structure of fee schedule Use of ‘efficient price’ in hospital funding Consumer co-payments Assessment processes for eligibility Regulating capacity Utilisation review

Typical (espoused) objectives for activity based funding
Provider payment equity Provider efficiency Payment transparency Level of achievement depends on payment rates Cots, F., et al. (2011). DRG-based hospital payment: Intended and unintended consequences. In R. Busse, A. Geissler, W. Quentin & M. Wiley (Eds.), Diagnosis-Related Groups in Europe: Moving towards transparency, efficiency and quality in hospitals. Maidenhead: Open University Press.

Fetter’s insight into what a hospital does
Fetter’s insight was to distinguish intermediate and final products Final Products (Described Using Case Mix Groups) Patient Treated for Transient Ischemic Attack Patient Treated for Chronic Obstructive Pulmonary Disease Patient Treated for Viral Meningitis Intermediate Products Patient Days Meals Laboratory Procedures Surgical Procedures Medications Inputs Labour Materials Equipment Management Funding could be described in terms of final products, providing a financial incentive for clinicians to use the best combination of intermediate products to achieve the final product

The Fetter breakthrough
Inputs Labour Materials Equipment Management Outputs Patient days Meals Laboratory procedures Surgical procedures Medications Products (described as DRGs) Transient Ischemic Attack Chronic Obstructive Pulmonary Disease Percutaneous Coronary Intervention Without MI/Shock/Arrest/Heart Failure Once you can describe, it is possible/logical to pay You still have to manage this And this Under ABF this is how you get paid

Contemporary consideration
Inputs Labour Materials Equipment Management Outputs Patient days Meals Laboratory procedures Surgical procedures Medications Products (described as DRGs) Transient Ischemic Attack Chronic Obstructive Pulmonary Disease Percutaneous Coronary Intervention Without MI/Shock/Arrest/Heart Failure Outcomes Improved health status Patient experience Improved death experience Cost per day, test etc Average length of stay Risk adjusted mortality rate Cost per DRG x Cost per weighted patient Cost per Quality Adjusted Life Year

How does payment design work? What are some choices?
Relativity * price = payment for that case Choices about relativity, price and their interaction (total payment) Relativity choices: Relativity sometimes called ‘cost weight’ better description is ‘payment weight’ May decide to adjust relativity on normative grounds (encourage some types of activity vs other)

Potential ‘prevention’ incentives
INDICATOR POSSIBLE INCENTIVE DESIGN Potentially preventable hospital admissions Avoidable mortality Discounted payment for potentially preventable admissions Penalty in population funding formula for excess avoidable mortality

Potential ‘Coding quality and timeliness’ incentives
INDICATOR POSSIBLE INCENTIVE DESIGN Timeliness Incidence of “error” DRGs Coding error as measured by audit Zero payment for submission of data outside specific timeframes Zero payment for ‘error’ DRG codes. Penalty for up-coding (e.g. double deduction where over-coding found).

Payment system elements
The big focus to date has been here Cost per unit of input Inputs per unit of output Output per unit of outcome One of the big funding reforms in the future will be incorporating quality and allocative efficiency issues into funding and (somewhat related) about who should pay for what

James, B. C. and Poulsen, G. P. (2016) 'The Case for Capitation', Harvard Business Review, 94(7), p

Payment method and risk
Payment per unit of service Cost of inputs cost of intermediate products Payment per hospital stay Mix of intermediate products for outputs Payment per episode of care use of inpatient/outpatient/ rehabilitation Payment for year of care for persons with given diagnosis Mix of treatment services over course of year Payment per year of care Mix of diagnoses Payment for life time costs Incidence of disease Effectiveness of prevention policies

Should contiguous rehabilitation be bundled with index admission?
Is there a right answer? vs. How do you manage the polarity? +vs Single payment for both acute and rehabilitation Separate payments for acute and rehabilitation components -vs Johnson, B Polarity management: identifying and managing unsolvable problems HRD Press 1996

Hospital + readmissions (30? day window) + contiguous rehabilitation
+ physician payments Hospital

DRGs need to be updated Year 2 Year 3 Year 1
Clinical practice reflected in activity and cost data Year 2 Lag in terms of coding, data collection and provision of data to funding authority Year 3 Analysis of collected data to develop new payment relativities Year 4 Year 1 clinical practice reflected in payments

DRGs need to be updated New technologies and their impacts
This one probably needs a new DRG

DRGs need to be updated New technologies and their impacts

DRGs are not all there is Australian Mental Health Care Classification Version 1.0
DRAFT

DRGs are not all there is Australian Mental Health Care Classification Version 1.0

The challenge of TT + R Direct activities – are distinct and separable activities that occur outside of an episode of care but are directed towards skills and knowledge development (in the case of teaching and training) or the generation of new knowledge (in the case of research). In the teaching and training context, direct activities may include lectures, tutorials and workshops. In the context of research, direct activities relate to the conduct of research. Indirect activities – are those ‘back office’ administrative and coordination activities undertaken by a health service that are essential to facilitate TTR. These activities may include the coordination of student placements, rotations, educational program development or negotiation with higher education providers. Embedded activities – which describe where TTR occurs in conjunction with patient care.

How might payment vary with activity?

Choices about target setting approaches
Never change Only with capital enhancement Negotiated annually Politics Prior year actuals Planning ‘catchment area’ growth Take into account activity you want and activity you don’t want? Readmissions Ambulatory care sensitive conditions Referral sensitive conditions Readmission choice: Do nothing (default) P4P penalty Monitor as part of QI processes Discount in target setting Bundled payment

ABF challenges for managing (groups of) hospitals

What is activity based funding?
Funding varies with activity Activity based funding has two components Payment design Payment rules (alongside payment design) Central (state) health authority role shifts from allocating global budgets to allocating (potential) revenue (and monitoring and…) Service management role becomes Determining budget (given likely revenue) Managing costs to budget Managing revenue Watching adherence to the rules

Broad choices in hospital funding
We are seeing a shift from top down budget allocation to top down activity (aka revenue) allocation Determining hospital funding Top down 'Budgets' Bottom-up 'Revenue' (Markets)

So what is the role of state as ‘system manager’?
Under this (National Health Reform) Agreement, the States will be responsible for: a. system management of public hospitals, including: i. establishment of the legislative basis and governance arrangements of public hospital services, including the establishment of Local Hospital Networks; ii. system-wide public hospital service planning and performance; iii. purchasing of public hospital services and monitoring of delivery of services purchased; iv. planning, funding and delivering capital; v. planning, funding (with the Commonwealth) and delivering teaching, training and research; vi. managing Local Hospital Network performance; and vii. state-wide public hospital industrial relations functions, including negotiation of enterprise bargaining agreements and establishment of remuneration and employment terms and conditions to be adopted by Local Hospital Networks; b. taking a lead role in managing public health; and c. sole management of the relationship with Local Hospital Networks to ensure a single point of accountability in each State for public hospital performance, performance management and planning.

What are the constraints on state variability?
The parties agree to contribute funding for hospitals into a single national pool There will be complete transparency and line of sight of respective contributions into the pool and from the pool through State accounts to Local Hospital Networks (LHNs), and of the basis on which the contributions are calculated. The parties agree that funding on the basis of activity from the national pool for public hospital services will flow to State accounts, and from there to LHNs, based on: a. the efficient price set by the Independent Hospital Pricing Authority; b. the volume of services provided in accordance with service agreements agreed by State governments, as the managers of the hospital system, and negotiated with LHNs; and c. State variations in payments to LHNs in that State to reflect differences in the efficiency of public hospital services within that State and other factors States will determine the amount they pay for public hospital services, and will meet the balance of the cost of delivering public hospital services, including any costs over and above the Commonwealth’s contribution. Attachment A to Heads of Agreement

ABF is different in each state
State is ‘system manager’ State is majority funder so funding, at the margin, will be determined by state State effectively treats Commonwealth funding as revenue target

ABF is different in each state
Price adjustments Teachingness Remoteness Aboriginality Recognition of multiple products Inpatient, outpatient etc (and in some cases, the activity measures used) Inlier and outlier Private patients One bucket or many? National Weighted Activity Unit

ABF is different in each state: Autonomy choices in top down systems
Control of movement between funding lines Control on movement between programs 'Global budget' Should mental health be a (one way) protected funding line? Policy choice: Fully fungible NWAUs or WIES, VACS etc?

‘Adjunct’ incentives: conditionality for additional activity payment (or whatever)
Quality Access Prevention Coding quality and timeliness Duckett, S. (2008). Design of price incentives for adjunct policy goals in formula funding for hospitals and health services. BMC Health Services Research, 8(72).

Choices about target setting approaches
Never change Only with capital enhancement Negotiated annually Politics Prior year actuals Planning ‘catchment area’ growth Take into account activity you want and activity you don’t want? Readmissions Ambulatory care sensitive conditions Referral sensitive conditions

The critical ‘system manager’ role: governance
The regulatory and compliance framework Addressing gaming Ensuring appropriate financial responses Short term responses Graded accountability requirements to file recovery strategies reductions in autonomy appointed observers to board designated management adviser dismissal of the board and/or management

Need to introduce/use graded governance

Variation for a particular condition: Exercise
Cost of gall bladder removal, unadjusted, five high-volume hospitals, A B C D E Note: H08B, the less complicated DRG category for the procedure

What is the major management issue?
Cost of gall bladder removal, unadjusted, five high-volume hospitals, Groups A-E How can the hospital improve? Management of outliers Management of clinical pathway A B C D E Note: H08B, the less complicated DRG category for the procedure

Managing performance at the hospital level: Running the diagnostics - the information tools

Conceptual model to analyse waste
Waste in the Health Care System Administrative Operational Clinical Transactions - Related Other Waste Cost - Ineffective Detrimental to Health Unnecessary paperwork Excess Diagnostics Procedures Disinvestment Duplication of Services Inefficient Processes Expensive Inputs Errors ‘Medical arms race’ Lean Productivity Wages Roles Procurement Rework Adverse Events Source: Bentley, T., et al. (2008). "Waste in the U.S. Health Care System: A Conceptual Framework." Milbank Quarterly 86(4):

Cost/output Cost/outcome Outcome/output Some background
ABF is about technical efficiency Cost/outcome Cost/output Outcome/output

Hospitals need to know where to look
Cost/outcome Cost/output Cost/unit of service Services/output Outcome/output Lean agenda Economies of scale Benchmarking

Analysing a value stream map
Transportation: Is there unnecessary (non-value-added) movement of parts, materials, or information between processes? Waiting: Are people, parts, systems, or facilities idle, waiting for a work cycle to be completed? Overproduction: Are you producing sooner, faster, or in greater quantities than the customer is demanding? Defects: Does the process result in anything that the customer would deem unacceptable? Inventory: Do you have any raw materials, work-in-progress (WIP), or finished goods that are in excess or not having value added to them? Movement: Do you move materials, people, equipment, and goods unnecessarily or excessively within a processing step? Extra processing: Do you have work being performed beyond what is required to satisfy the customer standards or requirements? Under-utilization of employees’ brainpower, skills, experience and talents

Duckett, Stephen and Nijssen-Jordan, Cheri (2012), 'Using Quality Improvement Methods at the System Level to Improve Hospital Emergency Department Treatment Times', Quality Management in Healthcare, 21 (1), 29-33

Act: adopt the change, abandon it or run through the cycle again
Deming’s language: Act: adopt the change, abandon it or run through the cycle again Study the results: What did we learn? What went wrong? Deming, W. E. (1993). The new economics for industry, government, education. Cambridge, MA: Massachusetts Institute of Technology, Center for Advanced Engineering Study.

Multiple cycles (and multiple interventions) are to be expected
This leads on to the SDSA cycle

Nelson, E. C. , Batalden, P. B. , & Godfrey, M. M. (2007)
Nelson, E. C., Batalden, P. B., & Godfrey, M. M. (2007). Quality by design : a clinical microsystems approach. San Francisco: Center for the Evaluative Clinical Sciences at Dartmouth; Jossey-Bass/Wiley. p280

The Alberta Health Services’ Improvement Way

Accompanied by two steps in parallel

Multiple paths

Payment relativities make a difference
Payment relativity DOES NOT EQUAL profit/surplus

Managing performance at the hospital level – key messages
Know what the incentives on your network/hospital are Get paid for what you do (i.e. tell people correctly what you do) Manage the average (i.e. benchmarking) Manage variation

What information tools do you have?
Computerised discharge abstracts Everyone has this Data easy to interpret The problem: cost is not perfectly correlated with length of stay Especially for surgical cases Rough rule of thumb: 1 hour in theatre = 1 day of stay ($$) And ICU Data from clinical support systems Pathology/radiology Cost? Volumes √ Cost modeling data No process of care variation Patient level costing data Round table type data

Is your length of stay different? Is the problem in one specialty?
What sort of preliminary (or final) analysis can you do with discharge abstract data? Is your length of stay different? Is the problem in one specialty? easiest to define this to start with as MDC but computer file often has doctor ID so can get specialty Or with a group of DRGs? Or with a particular clinician? How are you going on hospital acquired diagnoses? Adverse events add 18% to cost of stay What sort of pattern problem is it?

What is the pattern of the problem?
State average

Managing cost/resource use variation - 1

(aka individual physician variation)
Pyramid Model of Investigation (adapted to emphasis cost variation investigation) Professional (aka individual physician variation) Process of Care Structure of resources (internal and external) Patient Case Mix Data - really recording © Stephen Duckett 2011

Have you recorded correctly what you do?
Getting started Have you recorded correctly what you do? Is your diagnosis coding reflecting the diagnoses that the patient has and which affected the patient’s treatment while in hospital? NB: Recording more diagnoses doesn’t necessarily change the DRG When a patient’s treatment moves into a rehabilitation program post the acute phase, is that recorded?

Coding makes a difference

Different proportions of separations in lowest weight DRG

Getting ready to look at processes of care
Do you have good data analysis support Sophisticated statistical analysis is not required

Sometimes statisticians’ methods are somewhat dubious
Lessons: Sometimes statisticians’ methods are somewhat dubious Be wary of replicating them, even if you think you understand them

Do you have good data analysis support Sophisticated statistical analysis is not required Visual portrayal, good descriptions ‘inter-ocular traumatic test’

Do you have good data analysis support Sophisticated statistical analysis is not required Visual portrayal, good descriptions ‘inter-ocular traumatic test’ What type of data do you have access to? Computerised discharge data  Cost of intermediate products (lab, DI, patient dependency) Patient level costing data More on this later In either case, do the data get fed-back in a sensible form to the right people/groups

Is your organisational structure appropriate? Do managers have budgets? Do managers have budgets based on activity? Do managers have budgets which are somewhat related to things they can control? Do you have the right mechanisms for medical involvement? Do you have processes to review adoption of new technologies? Are your links with other (external) services working?

Managing cost/resource use variation - 2

Costs aren’t driven by scale
Cost of gall bladder removal, unadjusted, five high-volume hospitals, A B C D E Note: H08B, the less complicated DRG category for the procedure

What is the major management issue?
Cost of gall bladder removal, unadjusted, five high-volume hospitals, Groups A-E How can the hospital improve? Management of outliers Management of clinical pathway A B C D E Note: H08B, the less complicated DRG category for the procedure

Prevention and primary care
Utilisation and management review needs to focus on whole continuum of care Prevention and primary care Hospital stay Pre-admission Post-discharge Re-admission Can analyse from cost or stay perspective

Length of stay reduction: the good, the bad and the ugly
Patient preferences Clinical change Benefits of early ambulation Better home care support Greater technical efficiency Potential clinical risk (readmissions) Cost shifting Also unbundling of care Create care discontinuity Avoid (for time being at least) addressing difficult management issues associated with improving technical efficiency

If length of stay information is all you’ve got, then need to use what you have, but
Remember: length of stay is only a surrogate for the cost of care Inaccurate (and potentially distorting) measurement of the inputs of care Distortion of the outputs of care

Prevention and primary care
Utilisation and management review needs to focus on whole continuum of care Prevention and primary care Hospital stay Pre-admission Post-discharge Re-admission Can analyse from cost or stay perspective

Prevention and primary care:
Utilisation and management review needs to focus on whole continuum of care Prevention and primary care: Is this admission necessary? (i.e. is the utilisation rate too high?) Is hospital in the home an appropriate alternative? Could earlier prevention reduce the likelihood of admission? Ambulatory care sensitive conditions Conditions for which consistent, high quality primary care (including outpatient care) is thought to be likely to reduce a patient's need for hospitalisation, an increased likelihood of hospitalisation is interpreted as evidence of impaired access to ambulatory care or receipt of poor care.

Ambulatory sensitive conditions will reduce admissions by:
Preventing the start of the illness or condition (an avoidable condition e.g. vaccine preventable diseases) Controlling an acute episodic illness or condition, or Managing a chronic disease or condition COPD, heart disease

Why care about prevention?
Staff often want you to People with ambulatory care sensitive conditions may end up as part of a ‘long tail’ problem Reducing demand for these admissions may help meet other goals for which hospital is rewarded: ED waits Elective surgery capacity

Pre-admission services Are all the routine tests necessary?
Utilisation and management review needs to focus on whole continuum of care Pre-admission services Are all the routine tests necessary? Reduce volumes hence (to some extent) costs Can these tests be done prior to admission? Reduce inpatient waits for results When is discharge planning commenced? Discharge planning at start of admission ‘Integrated plan of care’

Review every aspect of the stay: Process of care
Have we ‘Leaned-out’ the whole patient flow process? Are the theatre allocation and admission process synchronised (i.e. do patients wait for theatre?) Is theatre utilisation optimal? Has the hospital developed a common care path for this condition? Are there variations between practice patterns in the hospital?

Is standardisation the future?
Is there a right answer? vs. How do you manage the polarity? +vs Standardise and develop care paths Every patient is different -vs Johnson, B Polarity management: identifying and managing unsolvable problems HRD Press 1996

Have we ‘Leaned-out’ the whole patient flow process? Are the theatre allocation and admission process synchronised (i.e. do patients wait for theatre?) Is theatre utilisation optimal? Has the hospital developed a common care path for this condition? Are there variations between practice patterns in the hospital? Could this condition be handled on a day-only basis? What proportion of cases is wholly treated on the appropriate specialty ward/nursing unit? Are all the tests ordered necessary? Are there delays caused by waiting for allied health or rehabilitation services? Are there delays getting access to necessary diagnostic tests or getting results back? Are there other resource co-ordination issues?

Have we ‘Leaned-out’ the whole patient flow process? Are the theatre allocation and admission process synchronised (i.e. do patients wait for theatre?) Is theatre utilisation optimal? Has the hospital developed a common care path for this condition? Are there variations between practice patterns in the hospital? Could this condition be handled on a day-only basis? What proportion of cases is wholly treated on the appropriate specialty ward/nursing unit? Are all the tests ordered necessary? Are there delays caused by waiting for allied health or rehabilitation services? Are there delays getting access to necessary diagnostic tests or getting results back? Are there other resource co-ordination issues? What is the pattern of adverse events in this specialty/DRG? Are there opportunities to reduce the incidence of adverse events?

Patients with at least one hospital-onset adverse event:
Cases with a diagnosis which arose during course of admission (working definition of ‘adverse event’ sampling frame) represent a large economic burden to the health care system Patients with at least one hospital-onset adverse event: Stay nearly 10 days longer than other patients Cost $6826 more per episode (controlling for DRG, age and co-morbidity) (on average $3,000) Extrapolated to entire hospital system: Adds 18.6% to hospital expenditures Around $2 bil pa nationally Even if only 40% preventable $200 mil pa saved in Vic; $800 mil nationally Ehsani JE, Jackson TJ and Duckett SJ. ‘The incidence and cost of adverse events in Victorian hospitals, ’ Medical Journal of Australia, 184;11; 5 June 2006

What is a realistic proportion of cases which should have a hospital acquired diagnosis?
12 3 6 9 15

Have we ‘Leaned-out’ the whole patient flow process? Are the theatre allocation and admission process synchronised (i.e. do patients wait for theatre?) Is theatre utilisation optimal? Has the hospital developed a common care path for this condition? Are there variations between practice patterns in the hospital? Could this condition be handled on a day-only basis? What proportion of cases is wholly treated on the appropriate specialty ward/nursing unit? Are all the tests ordered necessary? Are there delays caused by waiting for allied health or rehabilitation services? Are there delays getting access to necessary diagnostic tests or getting results back? Are there other resource co-ordination issues? What is the pattern of adverse events in this specialty/DRG? Are there opportunities to reduce the incidence of adverse events? Are there systematic reasons for any ‘outliers’? (review all patients who stay > 21 days?)

Review every aspect of the stay:
Structure of resources (internal): Is there adequate theatre capacity? Are there delays caused by waiting for allied health or rehabilitation services? Are there delays getting access to necessary diagnostic tests? Does scheduling or availability of junior medical staff (interns etc) affect flow? Are care processes followed by junior medical staff (interns etc) appropriate? (e.g. test ordering behaviour) Professional: Are there variations between practice patterns in the hospital?

Post discharge services aka structure of resource –external
Utilisation and management review needs to focus on whole continuum of care Post discharge services aka structure of resource –external Has discharge planning started early enough? What proportion of patients is waiting transfer to another hospital, or home or residential care placement? Are all patients who have had their acute care finished classified as Nursing Home Type? Would additional home and community care (or hospital in the home services) reduce length of stay or hospital costs? Is residential aged care provision adequate?

Consider whether discharge is occurring too early
Utilisation and management review needs to focus on whole continuum of care Readmission Consider whether discharge is occurring too early

Why worry about readmissions?
National quality indicator Staff often want you to Reducing readmissions may help meet other goals for which hospital is rewarded Re-admissions cost system money*: 16,045 admissions with a PDx of a ‘complication of surgical or medical care’ $70.6 mil pa public expenditure on these cases * Includes admissions for adverse events from primary care and nursing homes McNair P, Borovnicar D, Jackson TJ. ‘Costs of Victorian admissions for treatment of adverse-event principal diagnoses, 2005/06’ ANZJPH. June 2010

External issues Adverse selection Systematic within-DRG variation
Paediatric care Socio-economic status/indigeneity Adequate recognition of costs of teaching, training and research Adequacy of outlier policies LOS only? Potential to negotiate exceptional cases Where do costs fall for failure in step-down care systems (seniors, transfers)

If you have patient level cost data

Patient level costing data
Allows more powerful analysis Is constrained by the embedded choices in how you have structured Chart of accounts Feeder systems Overhead allocation Accuracy of splits across products Inpatient vs. outpatient vs teaching vs subacute vs … Important to distinguish: Fixed and variable costs Average and marginal costs Is essential (today) for managing a large hospital

Cost concepts

NB: surplus should not be only criterion Issue of stability of weights
Why is this important? If price < average cost, then increasing volume will help if and only if marginal cost < price NB: ‘price’ here is the effective price – be it base or marginal If price > average cost, then increasing volume may be a good strategy if marginal cost < price Depending whether you want volume in this area NB: surplus should not be only criterion Issue of stability of weights Hospital role

But things aren’t as simple as your costing reports would make you think

A tale of two hospitals

Comparative information should be available

The costs of DRG I03C (Hip Replacement – Cscc)
Direct Ohead Total Ward Medical 1,076 159 1,235 Ward Nursing 1,857 353 2,210 Non-clinical 418 Pathology 143 30 173 Imaging 156 186 Allied health 283 83 366 Pharmacy 32 218 Critical Care 48 12 60 Oper Rooms 2,311 550 2,861 Emerg Dept 61 15 76 Supplies 239 215 454 Spec Proc Suites 131 13 144 Prostheses 4,596 On-costs 481 Hotel 360 Depreciation 237 11,505 2,570 14,075

The direct costs of DRG I03C (Hip Replacement – Cscc)
Clinician preference, purchasing policy driven Length of stay driven Theatre, transport and surgeon efficiency, driven Source (so you can do comparisons with your results):

Advantage of costing systems
Allow you to look at costs, not just stay Allow you to distinguish direct costs By comparing with national or state data, allow you to identify where you are aberrant and prioritise areas for examination

The cost estimation continuum
‘Cost’ is a construct, not reality Costing is always ‘cost estimation’

precision of allocation of costs and
Patient costing systems allocate costs to patients and involve choices about precision of allocation of costs and identification of patients to allocate costs to NB: all costs are ‘modelled’ in some way, just some costing systems have greater use of averages/aggregates

Evaluating comparability of data
Coronary Care Unit Costs Precision of Patient Identification Precision of Cost Identification All inpatients All inpatients in clinical unit All inpatients in DRG All inpatients admitted CCU Separation LEAST PRECISE RVU for separation (eg, National Service Weight) Unweighted LOS Hospital A* Hospitals B,C,D RVU-weighted LOS Hospitals E,F Unweighted shift Hospital G RVU-weighted shift Hospitals H,I** Unweighted actual minutes/costs RVU weighted actual minutes Time unit weighted by actual skill mix Actual time weighted by actual skill mix MOST PRECISE Hosp A: CCU costs allocated across all patients in cardiac-specific DRGs Hosp H: CCU costs allocated only to patients admitted to CCU based on CCU LOS

Evaluating comparability of (inpatient) data
Coronary Care Unit Costs Precision of Patient Identification Precision of Cost Identification All inpatients All inpatients in clinical unit All inpatients in DRG All inpatients admitted CCU Separation LEAST PRECISE RVU for separation (eg, National Service Weight) Unweighted LOS Hospital A* Hospitals B,C,D RVU-weighted LOS Hospitals E,F Unweighted shift Hospital G RVU-weighted shift Hospitals H,I** Unweighted actual minutes/costs RVU weighted actual minutes Time unit weighted by actual skill mix Actual time weighted by actual skill mix MOST PRECISE Hosp A: CCU costs allocated across all patients in cardiac-specific DRGs Hosp H: CCU costs allocated only to patients admitted to CCU based on CCU LOS The same sort of matrix can be used to evaluate comparability of outpatient data, ED data etc

Patient level costing systems
Have embedded choices Rely on allocation of costs to a chart of accounts Which may not reflect your organisational hierarchy Report allocation of direct and overhead costs Which may not reflect reality at the current level of marginal activity Are based on feeder systems which assign costs with varying degrees of accuracy Themselves cost money

The cost modelling approach
‘Top down’--hospital expenditures apportioned to patient groups Uses formulae to apportion joint costs Uses external relativities (RVUs) to apportion direct care costs: DRG-level or ‘service weights’ Practice pattern changes ‘frozen’ in RVUs (whenever measured) No estimates of inter-patient variability in the DRG

Clinical or ‘activity-based’ costing
Direct and overhead costs distinguished Overhead (joint) costs absorbed by direct care cost centres by ‘process costing’ (# employees, M2) ‘Feeder systems’ record patient utilisation computerised systems, eg, lab orders, nursing dependency scores by-product of clinical care Total costs estimated by ‘job order’ costing (linked to individual patient by patient/episode identifier) Hospital and department-specific product costs (local RVUs; patient acuity scales) assign costs to individual patients ‘Bottom up’ costing; DRG $ = mean of patients in DRG

An example of patient costing using resource counts and local RVUs
Patient A: grouped to DRG123 1.5 hr in emergency dept x staff salaries .75 hours in OR x $/hr staff salaries 4 days of stay x meals/day x meal cost 3 high-dependency shifts x $/shift HD ward salaries 9 low-dependency shifts x $/shift ward salaries 10 lab tests x RVU weight x lab ‘base’ or unit cost 1 CT + 2 plain film xrays x RVU weight x imaging base cost Patient costs should reconcile to General Ledger

Problems in generalising cost estimates
What costs are included? capital? outpatient? medical fees? Are episodes defined in the same way? Rehab? ‘Up’ & ‘down’ transfers? Have ‘outlier’ patients been trimmed from the data?

Atypical values affect the mean

The problem of outliers
The ‘long tail’ of the resource-use histogram ‘Trimming’ used to define ‘typical’ vs ‘atypical’ cases Statistical criteria (IQR, 2SD) used to define and exclude atypical cases from DRGs This raises the problem of the ‘long tail’ of the resource-use histogram--medical phenomena very vulnerable to long RH tail of distribution : long LOS, high cost, high dependency, etc. ‘Trimming’ used to define ‘typical’ vs ‘atypical’ cases: also termed ‘inlier’ those lying within certain boundaries and ‘outliers’ those outside Most definitioins rely on LOS criteria less subject to gameing but also less sensitive The L3/H3 rule is used in Victoria: Patients with LOS < 1/3 or > 3 times the DRG average are ‘outliers’ There are obviously other ways of defining cost outliers (US medicare for example, has a LOS and high cost threshold for outlier payments); various statistical approaches (3 x SD often suggested)… Advantage of Victorian approach: defines both low and high anomalies © Stephen Duckett 2011

Have you allocated overheads across products fairly
Patient level costing Have you allocated overheads across products fairly Inpatient, outpatient, ED, mental health Have you got the big cost drivers right Materiality is important

Strategies in activity based funding environment:
Assume we have activity based funding. Let us assume that the marginal revenue for each hospital is 50% of the average revenue (essentially the Commonwealth share) and that it is uncapped What should Holy Mother’s strategy be in this scenario? What factors should Holy Mother’s management take into account? What are the governance rules? Who sets the governance rules? How much power do they have?

Group exercise Groups for this exercise are based on people fulfilling like roles with access to similar information systems (e.g. people with costing systems in their hospitals vs. not) 1: Design a suite of mock up reports of information you would like to receive monthly in order to manage to the efficient price 2. Assume there is an untoward variance in one of the metrics (chose any one of the metrics in one of your mock-up reports). How would you approach the next steps? Which of your subordinates would you involve? What committees?

Current policy Current issues What to measure The quality agenda
What is wrong with this cartoon? Current policy Current issues What to measure If you take away one thing: Adverse events are common. The dramatic is rare.

Should you reward less efficient hospitals by paying them more for treating patients than more efficient hospitals Should you reward poor quality by paying hospitals that have higher rates of adverse events more than hospitals with lower rates Should you reward less efficient hospitals by paying them more for inefficient management of the whole patient pathway? Should hospitals be rewarded more or less if they don’t deliver on their commitments to patients as part of informed consent? Yes No Yes No Yes No Yes No

Should you reward less efficient hospitals by paying them more for inefficient management of the whole patient pathway? Answer: No. But technically more difficult than some of the previous issues. US just starting on this with Accountable Care Organisations. Lot of rhetoric about continuity. When will it be time to put our money where our mouth is? Typical way of phrasing this issue is ‘bundling across care pathway’ So 2010s ??? Technical feasibility Management capacity Political will

Bundling Uncomplicated maternity care
IHPA is exploring the feasibility of a bundled price for uncomplicated maternity care services, including antenatal and postnatal services and the admission for birth. Uncomplicated maternity care services are potentially amenable to bundled pricing as they follow a relatively predictable care pathway with clear starting and concluding points to episodes. They are also high volume services, meaning that small improvements in service delivery can result in significant savings to the health system. IHPA has completed a baseline review of the literature which has identified potential variation in the service delivery of different jurisdictions. The Commonwealth Clinical Practice Guidelines – Antenatal Care are nationally agreed guidelines for maternity care. They recommend seven (for subsequent pregnancies) to ten (for a first pregnancy) antenatal visits for a maternity care episode. A review of public data sources has indicated that over 86 per cent of pregnant women in South Australia had seven visits or more and 97 per cent had five or more in However, approximately 15 per cent of women in the Australian Capital Territory had less than five antenatal visits in 2012. This data suggests that bundled pricing for uncomplicated maternity care could potentially support the implementation of the nationally agreed guidelines.

More bundling options Stroke
IHPA is exploring the feasibility of bundled pricing for stroke patients across the entire episode of care, including admitted acute, subacute and non-admitted settings. Strokes may be amenable to bundled pricing as they are common, the care episode generally lasts for a definable period of time, and high costs offer potentially significant savings to the health system. Due to differences in the severity of strokes, IHPA is considering bundled price weights which are weighted for complexity and notes that there are a range of issues involved in differentiating between stroke bundles. Joint replacement IHPA is exploring whether joint replacement (particularly for elective hip and knee replacement surgeries) is amenable to bundled pricing for care across settings. IHPA has identified joint replacement surgeries as being potentially amenable to bundled pricing as they are high volume, span multiple settings (non-admitted pre-operative assessment, admitted acute, subacute and follow up) and have a relatively predictable care pathway for most patients.

And finally….. The concerns were that it would unduly increase financial risk for jurisdictions as any cost variance would not be reimbursed, that it is not IHPA’s role to use its pricing mechanisms to drive service improvement, that it would introduce more complexity into the National Pricing Model and that it would only cover public hospital services which does not confer significant benefit.

Should you reward less efficient hospitals by paying them more for admitting patients ‘unnecessarily’? Answer: No. Technically more difficult than some of the previous issues. So 2010s Although it is now possible to take both Ambulatory Care and Referral Sensitive Conditions into account in setting activity targets Scoring on incorporating into funding system Scoring on incorporating into target setting ??? ??? Technical feasibility Management capacity Political will

Aligning economic and patient value perspectives
Should hospitals be rewarded more or less if they don’t deliver on their commitments to patients as part of informed consent? Adjust payment to hospital (?surgeon) if expectations of sight improvement not achieved For the 7 difficulty items: Do you have difficulty with the following activities because of your vision? (yes, very great difficulties; yes, great difficulties; yes, some difficulties; no, no difficulties) 1. Reading text in the newspaper 2. Recognizing faces of people you meet 3. Seeing prices of goods when shopping 4. Seeing to walk on uneven ground 5. Seeing to do needlework and handicraft 6. Reading text on television 7. Seeing to carry out a preferred hobby Two global assessment items 8. Do you experience that your present vision gives you difficulties in any way in your daily life? (yes, very great difficulties; yes, great difficulties; yes, some difficulties; no, no difficulties) 9. Are you satisfied or dissatisfied with your present vision? (very dissatisfied; rather dissatisfied; fairly satisfied; very satisfied) Lundström, M., and K. Pesudovs Catquest-9SF patient outcomes questionnaire: nine-item short-form Rasch-scaled revision of the Catquest questionnaire. Journal of cataract and refractive surgery 35 (3): Either use general utility weights or person-specific weights Can average over class or person-specific adjustments

Should hospitals be rewarded more or less if they don’t deliver on their commitments to patients as part of informed consent? Answer: Why not put some consumer focus into the system? (May also help address issues of supplier induced demand). Could only work for a narrow range of procedures, lot of data gaps. A different approach would be to move toward normative pricing where DRG payment weights are adjusted for average expected benefit. There are still data gaps here but probably more feasible. So 2020s ??? ??? For some procedures Technical feasibility Management capacity Political will

Addressing technical efficiency (broadly defined)

COAG outcomes 1 April 2016 10. The Parties, in conjunction with the Australian Commission on Safety and Quality in Health Care (ACSQHC) and the IHPA, will develop a comprehensive and risk-adjusted model to integrate quality and safety into hospital pricing and funding. The model will determine how funding and pricing can be used to improve patient outcomes and reduce the amount that should be paid for specified adverse events, ineffective interventions, or procedures known to be harmful. This could include an adjustment to the amount the Commonwealth contributes to public hospitals for a set of agreed hospital acquired conditions. Any downward adjustment to an individual state would not be deducted from the available pool of funding under the overall cap of 6.5 per cent. 11. The Parties agree to develop the model for implementation by 1 July 2017.

Hospital acquired condition list developed for payment purposes: Section 5001(c) of Deficit Reduction Act requires the Secretary to identify conditions that are: (a) high cost or high volume or both, (b) result in the assignment of a case to a DRG that has a higher payment when present as a secondary diagnosis, and (c) could reasonably have been prevented through the application of evidence-based guidelines.

HACs which result in DRG re-assignment (2015)
Foreign Object Retained After Surgery Air Embolism Blood Incompatibility Stage III and IV Pressure Ulcers Falls and Trauma (Fractures, Dislocations, Intracranial Injuries, Crushing Injuries, Burn, Other Injuries) Manifestations of Poor Glycemic Control (Diabetic Ketoacidosis, Nonketotic Hyperosmolar Coma, Hypoglycemic Coma, Secondary Diabetes with Ketoacidosis, Secondary Diabetes with Hyperosmolarity) Catheter-Associated Urinary Tract Infection (UTI) Vascular Catheter-Associated Infection Surgical Site Infection Following CABG, cardiac implantable device, Bariatric Surgery or Certain Orthopaedic Procedures Deep Vein Thrombosis (DVT)/Pulmonary Embolism (PE) Following Certain Orthopedic Procedures (Total Knee Replacement, Hip Replacement) Iatrogenic Pneumothorax with Venous Catheterization

COAG outcomes 1 April 2016 3 years after discharge
12. The Parties agree to work together to reduce avoidable readmissions to hospital within 28 days of discharge, with a particular focus on avoidable readmissions within 5 days of discharge, for conditions arising from complications of the management of the original condition that were the reason for the patient’s original hospital stay. 13. The Parties, in conjunction with the ACSQHC and the IHPA, will develop a comprehensive and risk-adjusted strategy and funding model that will adjust the funding to hospitals that exceed a predetermined avoidable readmission rate for agreed conditions and the circumstances in which they occur by 1 July 2017. 3 years after discharge 3 minutes after discharge Hospital responsibility Not hospital responsibility

Bad Bad Types of readmissions Elective index admission
Emergency index admission Elective re-admission Emergency re-admission Bad < x days? Bad Exacerbation of chronic condition < x days? Exacerbation of chronic condition? Bad ‘…exceed a predetermined avoidable readmission rate for agreed conditions and the circumstances in which they occur’

Readmissions good or bad indicator?
We found that the validity of readmission rates as a quality indicator is influenced by the clinical process that is assessed, the indicator definition, the extend of case-mix correction, the effect of competing outcomes and the data reliability. Ignoring or poorly handling these aspects may lead to a biased estimation of the overall readmission rate and a biased comparison of readmission rates between hospitals. As a result of variance in handling these methodological threats, studies on the validity of readmission rates as a quality indicator reach conflicting conclusions. We conclude that given the limitations of readmission rates, they need to be used with caution as a measure of in-hospital quality, even more when used as a tool for a pay for performance scheme. Fischer, C. et al (2014) 'Is the readmission rate a valid quality indicator? A review of the evidence', PLoS ONE, 9(11),

IHPA’s pricing framework from 1 July 2017
No funding for episodes that include a ‘sentinel event’ aka never or poisson events 2002 (pre-ABF) list currently being reviewed IHPA will conduct ‘shadow’ trial of reducing funding for episodes involving a hospital-acquired complication (HAC) Reduction will be based on the extra cost of these episodes and will be risk adjusted List of HACs developed by Aust Commission on Safety and Quality in Health Care (ACSQHC) IHPA will consult on the trial and report back to health ministers in Nov 2017 Aim to implement from 1 July 2018 IHPA will continue to develop a funding/pricing approach for avoidable hospital readmissions Current focus on readmissions within 5 days related to a HAC in the original episode ACSQHC to develop list of conditions to be deemed avoidable readmissions

Options for incorporating HACs
IHPA originally proposed 3 options: HAC would be removed from DRG assignment This would change the DRG of around 15% of episodes with HACs Reduce funding of hospitals that exceed a specified threshold HAC rate. Would include a risk adjustment. Remove HACs from calculation of the NEP, and also reduce funding for hospitals that exceed a threshold HAC rate. Original Option 3 dismissed on basis of little stakeholder support 3.* Reduce funding for all episodes involving a HAC, based on extra cost of these episodes and subject to risk adjustment

NSW beginning to publish comparative quality data - mortality and readmissions

IHI waste identification tool

Waste abounds in hospitals: proportion of beds with identified waste at audit
Resar, R. K., et al. (2011) Hospital inpatient waste identification tool, Institute for Healthcare Improvement Note: Only one type of waste was recorded for each bed.

Multiple causal factors for safety weaknesses
Boards with right skills ? Accreditation system not risk-based Dysfunctional incident reporting system Dysfunctional safety monitoring system Focus on finance Perneger, Thomas (2005), 'The Swiss cheese model of safety incidents: are there holes in the metaphor?', BMC Health Services Research, 5 (1), 71.

Major CHADx Groupings M CHADx 1 Post-procedural complications
M CHADx 2 Adverse drug events M CHADx 10 Hospital-acquired psychiatric states M CHADx 3 Accidental injuries M CHADx 11 Early pregnancy complications M CHADx 4 Infections M CHADx 12 Labour & delivery complications M CHADx 5 Cardiovascular complications M CHADx 13 Perinatal complications M CHADx 6 Respiratory complications M CHADx 14 Haematological complications M CHADx 7 Gastrointestinal complications M CHADx 15 Metabolic complications M CHADx 8 Skin conditions M CHADx 16 Nervous system complications M CHADx 9 Genitourinary complications M CHADx 17 Other complications

A more detailed CHADx example…
MCHADx1 Post-procedural complications 1_1 CCs of Infusion /Transfusion 1_2 Gas Embolism 1_3 Failed or Difficult Intubation 1_4 Haemorrhage & haematoma complicating a procedure 1_5 Accidental puncture/lac during proc 1_6 Foreign body or substance left following procedure 1_7 Other comps of Surgical and Medical NEC (Incl Shock T81.1) 1_8 Disruption of wound 1_9 Wound infection (Excl Septicaemia) …1_23 Post-procedural genitourinary

Different ambitions All admissions Multiday admissions Sentinel events
All admissions Multiday admissions Sentinel events 0.0012% Not published Designated ‘Hospital Acquired Complications’ 2% 5% All complications 11% 27%

Substantial harm is caused to patients from complications that are excluded from the priority complication list Extremely serious complications Considered a priority complication Extremely common complications

Patients who experience post-procedural complications (which is not a HAC) stay longer in hospital
Knee replacement admissions 8.0 With complications Without complications 5.9 Bariatric surgery admissions With complications 7.6 Without complications 3.1 All admissions With complications 11.5 Without complications 6.5 1 5 10 15 20 25 30+

We should be aiming to halve the number of complications that occur in Australian hospitals
HACs only CHADx and HACs CHADx only Title: We should be aiming to half the number of complications that occur in Australian hospitals Subtitle: Complications as a proportion of all admissions Source: Grattan analysis of the Hospital Morbidity dataset Notes: “All complications” is defined to include incidents that are identified by CHADx, and potentially also HACS (a subset of CHADx). While 2% of admissions involve a HAC complication, eliminating HACs would have a markedly smaller impact on the total complication rate because three quarters of patients which experience a HAC event also experience a separate CHADx event. All complications Eliminating HACs Reducing complications: Remaining rate of complications to best quartile performance to best decile performance

Worst decile hospitals
The greatest opportunity to make Australian hospitals safer is to move average hospitals closer towards excellence Incidence of excess complications as a percentage and count of annual medical cardiology admissions, by performance category Number of admissions with unnecessary complications (in excess of best decile rate) Worst decile hospitals Average performers Best decile hospitals

Headline complication rates disguise differences in the rates of particular complications across hospitals Actual complication rates relative to average rates for medical cardiology admissions, adjusted for risk profiles of hospitals’ patients

The safety of hospitals’ care varies by specialty
Excess risk of a complication by admission type, multiday admissions only

Pyramid Model of Investigation
Professional (aka individual physician variation) Process of Care Structure of resources (internal and external) Patient Case Mix Data - really recording © Stephen Duckett 2011

Performance management using ABF (or managing performance under ABF)

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