Performance management using ABF (or managing performance under ABF)

Performance management using ABF (or managing performance under ABF)
Stephen Duckett @stephenjduckett ABF Workshop PCSI Dublin October 2016

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?

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

The background: Political and economic context of activity based funding

What’s happening globally

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

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

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

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 Helps if all eight are aligned ABF ABF ABF ABF

A model of organisational responses to incentives
Frolich A, Talavera JA, Broadhead P, et al. A behavioral model of clinician responses to incentives to improve quality. Health Policy ;80:179 –193

What are we trying to achieve?
Technical efficiency is the easiest place to start Cost/outcome Cost/output Outcome/output

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

Typical (espoused) objectives for activity based funding
Provider payment equity Provider efficiency Payment transparency 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.

Why this focus on hospital efficiency?
Cost of hip replacements in the six highest-volume hospitals,

What problem are you trying to solve?
There is no ‘right design’ for ABF implementation, the ‘best’ depends on context and objectives The design of ABF will depend on the relative priority for the various objectives: Spending reductions vs not Activity increases vs not Activity increases in particular specialties vs not The design of ABF will be constrained by management capacity information systems capacity (e.g. coding depth, hospital information systems to assist management) of the health system But note: ignoring an issue (accepting the default) is a policy choice

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?

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’ The first four are typically top down These options vary in terms of ability to hold hospitals to account Either top down or bottom up

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 x Casemix x Population Funding Funder Area Health Authority etc Who allocates funding to hospitals on different bases Activity-based Funding ABF Hospital Funder

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? 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

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?

The fundamental premises of activity based funding
To hold hospitals accountable for costs and quality, patient variation needs to be adjusted for the mix of cases The ‘product’ of hospital care is the ‘treated patient’ not individual ‘services’

ABF Building blocks Describing Hospital Activity
Paying on the Basis of Activity Regulating the Funding System

Importance of funding system incentives
Institutions (and the people in them) respond to the incentives of a payment system unless strong counter-values come into play Funding systems should avoid creating incentives which institutions are meant to ignore Funding systems should involve a mix of instruments to address the mix of goals

From description to payment
DRGs defines the normal acute inpatient case outliers’ are the abnormal There are other hospital products May not have agreed (or any) classification Need to consider incentive effects in design of classification (and payment system)

What is activity based funding?
Funding varies with activity Activity based funding has two components Payment design Payment rules (alongside payment design) Central 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

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)

How does payment design work? What are some choices?
Price adjustments Extent of teaching (and research) (or is this a separate product?) Remoteness Recognition of multiple products Inpatient, outpatient etc Inlier and outlier One bucket or many? Weighted Activity Unit covering all products?

Choices about outlier payment
Whether low stay and long stay Cost vs. stay outliers? Requires consistent costing systems Non-parametric Median * inter-quartile range Median + X * inter-quartile range X chosen so given % of cases or days are outliers L3H3

Payments and costs by length of stay
Mean cost Payments $ The wider the boundary points, the less risk falls on the funder and the more risk (to manage cost variation) falls on the provider Inliers fall in here High Boundary Low Boundary Same day Length of stay © Stephen Duckett 2011

Activity based funding issues
Activity based funding is about clarifying who is responsible for what What will the funder manage, what will the hospital manage Distribution of efficiency risks Purchaser vs provider Gaming moral hazard Casemix policy doesn’t determine efficiency P4P along side casemix

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 US for Medicare in 1980s, Victoria in early 1990s, now widespread internationally So 1980s Happy to debate assessments in appropriate environment Technical feasibility Management capacity Political will Budget imperative in Victoria, ‘It’s time’ nationally in Australia

Should you reward poor quality by paying hospitals that have higher rates of adverse events more than hospitals with lower rates Answer: No, US Medicare in 2008, Australia from 2017 So 2000s ??? Technical feasibility Management capacity Political will

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

Figure 4. Discharge Destination Forest Plot.
Palmer KS, Agoritsas T, Martin D, Scott T, Mulla SM, 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 doi: /journal.pone

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

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

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):

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

Fetter’s original principles
Class definitions were to be based on information routinely collected on computerised hospital discharge abstracts Manageable number of classes Similar patterns of resource use within a given class (resource homogeneity) Similar types of patients in a given class from a clinical perspective (clinical homogeneity) Fetter, R. B., Shin, Y., Freeman, J. L., & Averill, R. F. (1980). Case mix definition by diagnosis related groups. Medical Care, 18(2 (supplement)), 1-53. Fetter, R. B. (1991). The DRG Patient Classification System: background. In R. B. Fetter, D. A. Brand & D. Gamache (Eds.), DRGs: Their design and development (First ed., pp. 3-27). Ann Arbor: Health Administration Press.

Palmer and Reid criteria
Predictive validity Proportion of total variation `explained’ by the classification The homogeneity of individual DRGs The definition and proportion of outliers Number of groups and low-volume groups Clinical coherence and acceptability Other The magnitude and consistency in average length of stay increases between subdivisions of adjacent DRG classes The surgical hierarchy Palmer, G., & Reid, B. (2001). Evaluation of the performance of diagnosis-related groups and similar casemix systems: Methodological issues. Health Services Management Research, 14,

Simplicity and transparency
Duckett, Hatcher, Murphy and Richards criteria for activity based funding use Simplicity and transparency Relevant to both classification system and payment system design Stability Minimising susceptibility to gaming Upcoding (vs. audit) Minimising inappropriate rewards In part depends on design of funding system Volume? ICU ‘Quality’ incentives: Comorbidities vs complications © Stephen Duckett 2011

Simplicity and transparency
Duckett, Hatcher, Murphy and Richards criteria for activity based funding use Simplicity and transparency Relevant to both classification system and payment system design Stability Minimising susceptibility to gaming Upcoding (vs. audit) Minimising inappropriate rewards In part depends on design of funding system Volume? ICU ‘Quality’ incentives: Comorbidities vs complications Recognising legitimate variations (Fetter) © Stephen Duckett 2011

Common approaches to classification system development
(Generally) start with splitting into body systems Clinical homogeneity Procedure vs non-procedure (vs other) Definition of what counts as a procedure Surgical hierarchy Subsequent splits Resource homogeneity

The Australian approach
Pre-MDC Very high cost Procedures not exclusively single body system related Transplants Major Diagnostic Category assignment Intervention or not? or other e.g. maternity Called ‘partition’ ‘Adjacent’ DRG DRG Based on complication and comorbidity level/ patient clinical complexity level CCL: 0-3 medical; 0-4 surgical/neonatal (0=not cc, definition of DRG, related to PDx) PCCL: combining effects e.g. 2 may equal 3

AR-DRG numbering system (4 alphanumeric codes)
First (generally alpha) = MDC/preMDC A=PreMDC, B=nervous system… (some) Numeric: 801A OR PR UNREL TO PDX+CCC (catastrophic) 801B OR PR UNREL TO PDX+SMCC (severe or moderate) 801C OR PR UNREL TO PDX-CC 960Z UNGROUPABLE 961Z UNACCEPTABLE PRINCIPAL DX 963Z NEONATAL DX NOT CONSNT AGE/WGT Handy hint: how many of these do you have? Next two (numeric) = which adjacent DRG 01 to 39 = Surgical partition 40 to 59 = Other 60 to 99 = Medical Last: within adjDRG for complexity: A→D (most to least complex) A+B common, A+B+C less so, A+B+C+D rare Z = no split

An Example of DRG logic

Australian DRG evolution
AR-DRG v1 v2 v3 v4 v5 v6 Year 1992 1993 1995 1998 2002 2008 No. of groups 527 530 667 661 665 698 Note: there were intermediate minor revisions e.g. v and v

From description to payment
AR-DRG defines the normal acute inpatient case ‘outliers’ are the abnormal There are other hospital products May not have agreed (or any) national classification Need to consider incentive effects in design of classification (and payment system)

Hospital products (normal and abnormal)
Admitted acute Is ICU a separate product? If not, why not? Polarity management

-vs +vs Is ICU a separate product?
Is there a right answer? vs. How do you manage the polarity? +vs ICU payment incorporated in DRG Separate payment for ICU -vs Johnson, B Polarity management: identifying and managing unsolvable problems HRD Press 1996

Hospital products (normal and abnormal)
Admitted acute Is ICU a separate product? If not, why not? Polarity management Also need to define criteria for ‘abnormal’ Emergency Activity availability Sub-acute Outpatient (aka non-admitted) Mental health Community Teaching and research Community service obligations

Defining hospital products
Duckett, S. J., & Jackson, T. (1993). Casemix classification for outpatient services based on episodes of care. Medical Journal of Australia, 158, © Stephen Duckett 2011

Current paradigm

Alternative paradigm (with different incentive model)

Each cell must be completed (sort of)
Admitted acute Emergency Sub-acute Outpatient Mental health Community Teaching and research Community service obligations Product Identification and Classification AR-DRGs Counting Product level costing National Data Management Activity based funding design Governance & Management

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.

ABF challenges for managing (groups of) hospitals

Should mental health be a (one way) protected funding line?
ABF is different in every implementation: 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).

Potential ‘quality’ incentives
INDICATOR POSSIBLE INCENTIVE DESIGN Clinical indicators e.g. % adherence to specific treatment for specific disease Adherence to (any) endorsed care path Provision of data to allow clinical benchmarking Achievement of hospital accreditation Complications which arise during course of treatment (such as adverse events) Score on consumer satisfaction questionnaire Appropriateness of care such as measured by agreed instrument. Propensity to admit conditions that exhibit high geographic variation such as carpal tunnel operations. Incremental payment where evidence of specific indicator Increment for adherence to care path Payment for provision of data Bonus for accreditation Non-payment Incremental payment Discount payment for cases which do not meet appropriateness of admission criteria Reduce “profitability” of these cases by discounted payment for admission of high variability conditions

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).

How might payment vary with activity?

How might payment vary with activity?
Current Victorian system Above target activity entered into ‘Additional Activity Pool’ which has defined budget allocation. Payment out of pool proportional to activity entered into pool

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

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

Recognise potential perverse responses
Adapted from Steinbusch PJ, et al. The risk of upcoding in casemix systems: a comparative study. Health Policy. 2007;81(2-3):

Need to introduce/use graded governance

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

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

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?

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?

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.

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

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?)

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

Marginal cost of a complication (aka adverse event) by CHADx category

Total system cost estimates (probably similar to hospital-level ranking)

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

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 (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

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?

Further info at: Duckett, S. , Jackson, T. , Hatcher, J. , Richards, H
Further info at: Duckett, S., Jackson, T., Hatcher, J., Richards, H. and Murphy, K. (2013) The Why, the What and the How of Activity-Based Funding in Canada: A Resource for Health System Funders and Hospital Managers, Canadian Institute for Health Information

Performance management using ABF (or managing performance under ABF)

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