FUNDING: The Data, the Devil and the DetailsPanel Discussion, CEO Forum Glenda Yeates, President and CEO

February 16, 2009

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Service Based Funding What is it?“… financially reimbursing hospitals based on the episodes

of care for which patients are admitted and on the type

of services or procedures performed.”

Prospective (or case mix) payment system• For each case mix group a payment rate for the upcoming

period is set in advance based on historical average cost• Facility paid for outputs

– Actual volume and mix of patients

• May also include– Activity targets or caps

– Financial incentives to influence activity

– Quality indicators

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Service Based Funding Frequently Cited Goals

• Equitable allocation of resources• Increased throughput/access• Driving down cost per case• Improved quality of care

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SBF Scope Considerations

Which sectors?• Acute care, primary care, etc.

Within hospitals what portion of the budget?• 100% SBF or blend of SBF and other method• Inpatient, emergency department, outpatient clinics

Which expenses?• Hospital operating costs• What other expenses?

– Teaching– Capital projects

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Case StudySBF for Acute CareKey building blocks for SBF

1. Defining outputs2. Financial data3. Quality indicators4. Ministry/Region expertise, capacity, infrastructure5. Facility expertise, capacity, infrastructure

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1 Defining Outputs Case Mix Systems

• A method to define hospital outputs• A classification of patients into resource homogeneous

and clinically similar groups• Initial purpose

– Comparison of hospital performance

• Canada has case mix systems for many sectors– CMG+ for acute care inpatients

• Recently re-engineered, very robust

• Primary use in Canada is utilization management, benchmarking, planning and budgeting

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Case Mix Groups (CMG+)• Based primarily on diagnoses and interventions

– Canada has comprehensive, high-quality classification-systems for diagnoses and interventions

– Canada has comprehensive, high-quality, acute-care data

• 588 CMG cells• Factors provide additional differentiation

– Age, interventions, comorbidities

• Resource Intensity Weights (RIW)– Reflect cost relative to the average typical acute inpatient– Factors adjust the base RIW for each CMG– Examples of RIW:

• Primary Caesarean Section: 0.88▪ Hip Replacement: 1.89▪ Lung Transplant: 5.85

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Defining OutputsAssessment• Canada’s case mix methodologies quite advanced• Considerations for widespread use in funding

– Greater scrutiny by providers and funders– Refinements may be needed– Change in purpose may require changes

in methodology• More groups, fewer groups or different groups

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2 Financial DataMIS Standards• National standards for the collection, processing

and reporting of financial information• All facility costs captured and recorded in a consistent manner

Functional Centre Reporting• Capture of department specific costs• All hospitals report at this level• Departmental expenses and budgets can be tracked

Patient Specific Reporting• Capture of patient-specific costs• Only a subset of hospitals report at this level

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Rules/MIS Standards

Departments/Functional Centers

All HospitalsAll ActivitiesAll Expenses

Global Budget

$

Overview

$ Rules/MIS Standards

Patients

Only Cases Costing Hospitals All Expenses

$

Rules/MIS Standards

Departments/Functional Centers

All HospitalsAll ActivitiesAll Expenses

Global Budget

$

$ Rules/MIS Standards

Patients

Only Case Costing Hospitals All Expenses

$

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Total Hospital Cost and Share by Function

Overview

0 5 10 15 20

Inpatient, Acute Care

Outpatient Services

Inpatient, Long-term Care

Day Surgery Cases

Diagnostic Imaging

Clinical Laboratory

Research and Development

Inpatient, Rehabilitation

Other

Hospital Expenses ($Billion)

46.3%

17.6%

8.1%

8.0%

6.5%

4.2%

3.3%

1.3%

4.7%

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Patient Specific Cost Data• Approximately 500,000 inpatient cost records per year

– 20% of activity records, 30+ facilities

• 2006–2007 is most recent available• Cost records are linked to DAD abstracts for complete

picture of clinical and financial information• Used to develop case mix groups• Used in calculation of RIW

– Each patient’s cost is linked to their grouped activity data– Average cost is calculated for each CMG– Adjusted for variations (facility size, wage rates, etc) and

converted to relative values

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Patient Specific Reporting Scenario• Patient in hospital for hip replacement• Hospital has a case costing system

– Nursing workload is recorded for each patient and is used to assign nursing costs to individual patients

– The costs of each laboratory test, X-ray, MRI, CT etc. are also calculated (using workload measurement systems or standard cost methodologies) and are charged to patients receiving these services.

– Drug costs are charged to each patient separately as are the costs of large dollar items like the prosthetic.

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Patient Specific Costing

• Administrative costs such as Finance, Human Resources and Laundry get allocated to departments that provide direct patient care such as Nursing departments, Laboratories, Diagnostic Imaging, Physiotherapy, etc.

• Costs from these patient care departments (including the allocated Administrative costs) are assigned to each patient based on the types and number of services they receive.

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Cost Per Weighted Case

• CPWC is average cost, adjusted for patient-care characteristics

• Planning, budgeting applications– CPWC x RIW of patient gives estimate of patient cost

• Useful in non-case costing hospitals

• Can be used in setting payment rate in SBF– Payment rate per weighted case– Rate may vary based on facility characteristics

• Can be used to measure and/or fund based on efficiency– Hospitals with actual CPWC lower than expected are more efficient

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Financial DataAssessment• Comprehensive Functional Centre Reporting• Patient Level Reporting

– Non-representative sample of facilities (i.e. currently larger facilities, concentrated in Alberta and Ontario)

• Facilities without patient level reporting would be disadvantaged in SBF– Identification of areas of inefficiency at granular level

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3 Quality Indicators

Pay for performance• Funding is tied to quality of care• Bonus money for meeting targets

or clawbacks for not meeting targets• Can be used with any of the funding methods

Indicator examples

Wait times Readmission rates Hospital acquired illnesses Surgical misadventures Patient satisfaction

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Quality IndicatorsAssessment• Substantial work required for the incorporation of

indicators into funding• Some indicators can be supported by current data

(e.g. readmission rates, HSMR)• Significant effort required to select, define, and collect

data for appropriate quality measures

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4 Ministry/Region Capacity, Expertise and Infrastructure

Development of funding methodology• Setting prices• Incentives• Forecasting demand/Setting activity targets• Performance targets and penalties• Buy-in from providers

Information systems • Billing and payment in SBF• Collection of quality indicators in P4P

Audits and penalties to prevent gaming• Some experience with gaming in Canada

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5 Facility Capacity, Expertise and Infrastructure

• Information systems and analytical support – Patient level costing– Performance indicators

• Incorporation of incentives into strategic and operational plans

• Training and education– Funding methodology– Ensure understanding and adherence

to coding standards– Significant cultural shift

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Capacity, Expertise and InfrastructureAssessment

Substantial effort and cost required• Commitment to develop, maintain and evolve the system• Cultural shift

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Summary

• Canada has some of the building blocks for service-based funding

• Substantial costs and effort would be needed to develop and implement SBF

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Conclusion

“Payment mechanisms represent one of the fundamental building blocs of any health system, introducing powerful incentives for the actors in the systems and fierce technical design complexities.”

“The use of case payments . . . poses severe technical and policy challenges . . .”

Busse, Schreyogg, and Smith. Health Care Management Science 2006 9(3), pp 211–213