Clinical Costing

Clinical Costing processes and business application in the hospital setting

Health Finance Fundamentals Program 2018

Glenn PrenticeManagement Accounting

Kelly MorrisonPrincipal Cost Analyst

Gold Coast Hospital and Health Service

• Is one of the fastest growing health services in Australia

Clinical Costing processes and business application in the hospital setting

Gold Coast Hospital and Health Service

• Operates almost 20 facilities and delivers a broad range of secondary and tertiary health services

• Comprises over 1,150 beds across the two main hospital sites: Gold Coast University and Robina

• Employs more than 8,900 staff

• Had an annual operating budget of $1.359 billion in 16/17

• Services delivered include surgery, trauma, paediatric, general and specialist medicine, maternity and intensive neonatal care, aged and dementia care, emergency medicine, intensive care, cardiology, mental health, outpatients, environmental health, public health services and more.

Glossary

Clinical Costing processes and business application in the hospital setting

• Episodes: An episode of care (episode) is the set of services provided to treat a clinical condition or procedure, during a set time period

• Diagnosis Related Group – DRG: is classification system for admitted patients (inpatients) that provides a clinically meaningful way of relating the number and type of patients treated in a hospital to the resources required by the hospital. Each DRG represents a class of patients with similar clinical conditions requiring similar hospital services. DRGs ‘roll up’ to Service Related Groups - SRGs

• Direct cost areas: relate to patient costs, aka final costs

• Indirect cost areas: relate to overhead costs (ultimately allocated to direct/patient/final cost areas)

• Departments/Areas: Interchangeable terms used in Costing systems

• WAU: weighted activity unit. The WAU provides a common unit of comparison, a 'common currency' to measure the value of the care and resources used to provide services to patients.

Gold Coast HHS Activity 2012/13 – 2016/17

Clinical costing - business application in the hospital setting

Growth from 2012/13 to 2016/17

30% growth in ED presentations59% growth in Inpatient Separations69% growth in Outpatient Occasions of Service

* Oral Health & Breastscreen have been excluded from 16/17 Outpatient activity for trending purposes

Moved to new

Hospital Sept 2013

Gold Coast HHS FTE & Expenditure Budget 2012/13 – 2016/17

Clinical costing - business application in the hospital setting

Growth from 2012/13 to 2016/17

46% growth in MOHRI Occupied FTE57% growth in Expenditure Budget

FTE

Full Time Equivalent employee

MOHRI Occupied FTE

A measurement of FTE used by Department of Health for reporting

Clinical Costing processes

Patients consume services (blood tests, surgery, rehabilitation, pharmacy) which consume resources (lab testing, staffing hours, pharmaceuticals, cleaning, food) which generate costs

Clinical Costing processes

Clinical Costing traces this consumption of costs through from the general ledger/financial system to the individual patient episodes.

3. Areas allocated to

Product Categories1. General Ledger Cost Centres:4. Products allocated to

individual patients episodes

In 2016/2017 at GCHHS, expenses in 1,016 CC >> 287 Costing Areas >> 223 Direct/Patient Areas

All expenses allocated to Direct (Patient) or Indirect (O/head) Areas 2. Costing System

All Indirect Areas allocatedto a Direct Patient Area

Clinical Costing processes

Costing in Health

Clinical Costing processes

3. Areas allocated to

Product Categories1. General Ledger Cost Centres:4. Products allocated to

individual patients episodes

In 2016/2017 at GCHHS, expenses in 1,016 CC >> 287 Costing Areas >> 223 Direct/Patient Areas

All expenses allocated to Direct (Patient) or Indirect (O/head) Areas 2. Costing System

All Indirect Areas allocatedto a Direct Patient Area

Clinical Costing processes

Relationship between the $ and the Activity

Clinical Costing processes

Patient Activity Source Systems

in use at Gold Coast HHS

Clinical Costing processes

GCHHS Costed Activity in 2016/17 (extract)

• 908,109 Inpatient, Outpatient & Emergency episodes were costed• $1,084 million allocated to these episodes

Source: GCHHS PPM costing dataset, 2016/17

Clinical Costing processes

EDEmergency DepartmentLabour SuppliesImagingPharmacyPathologyOther services

Example of Product costs incurred on a patient journey

TheatreLabour SuppliesBloodOther services

RehabilitationLabour SuppliesPathology & PharmacyOther services

DischargeLabour PharmacyOther services

Clinical Costing processes

Challenges encountered during the Costing Process

Clinical Costing processes and business application in the hospital setting

Cost centre (activity centre) purpose not properly identified at the start

Cost centres mapped to wrong patient care areas

Poor identification of all the service lines, or, some service lines are not mapped to a patient care area -missing activity could overstate the cost of the existing mapping

Staff being paid from wrong cost centre – activity has moved but staff still being paid from their original cost centre

Good News!As finance professionals, these may be areas of your responsibility or influence to improve the quality of ledger and costing data

X

• Costing data assists Business Managers/Service Directors to understand their costs

Application of Costing data How and where it is used internally

Clinical Costing processes and business application in the hospital setting

• This in turn assists with cost containment –resources become available for patient care

• Understanding costs drives process improvement

• The Costing System serves as a proxy data warehouse of all the individual source/feeder systems

• Monthly/annual reporting to Qld Department of Health who in turn report at the national level

Application of Costing data How and where it is used externally

Clinical Costing processes and business application in the hospital setting

• National Hospital Cost Data Collection (NHCDC) submission to Independent Hospital Pricing Authority (IHPA)

• IHPA use the data to form the basis of the price weights and national efficient price (NEP)

• Health Round Table (HRT) organisation in Australia and New Zealand collect, analyse and publish costing data for peer-to-peer comparisons, benchmarking and identifying ways to improve operational practices

• Financial and Residential Activity Collection (FRAC) is an annual collection that collects public hospital data including expenditure, revenue, staffing levels and other related data.

Clinical Costing - business application in the hospital setting

1. It was identified that the Vascular service line was over budget in Prosthetics

Case Study: Vascular Service Line, Prosthetics Expenditure

Clinical costing - business application in the hospital setting

2. The Vascular Service Line was under YTD WAU Target, and

YTD WAU had decreased compared to the same period on prior year

Clinical costing - business application in the hospital setting

3. However YTD Separations (Seps) had increased compared to prior YTD Seps by 6%

A Separation (Sep) is defined as the time between a physical admission and discharge … multiple episodes of care can occur during a separation e.g. a patients care type might change

Clinical costing - business application in the hospital setting

ICU Costs = $525KHRT ICU Costs = $418K26% ($107K) higher Controllable Costs

Operating Theatre Costs = $1.01MHRT Operating Theatre Costs = $712K43% ($307K) higher Uncontrollable Costs

Prosthetics Costs = $537KHRT Prosthetics Costs = $467K15% ($70K) higherControllable Costs

4. Comparison of Cost Buckets against HRT benchmark

5. When comparing Vascular ICU Hrs per Sep to other Hospitals, GCUH has

more ICU Hrs per Sep than other Hospitals.

Clinical costing - business application in the hospital setting

Hospital BHospital A Hospital C

Thank you !

Any Questions ?

References

IHPA Hospital Patient Costing Standards v 3.1https://www.ihpa.gov.au/sites/g/files/net636/f/publications/ahpcs-version3.1.pdf

Queensland Clinical Costing Guidelines 2016-2017https://qheps.health.qld.gov.au/abf/html/015-abf-model

And with thanks to:Bairnsdale Regional Health Service/HFMA for images used in presentation