The National Pricing Model Explained

The National Pricing Model Explained

2013 ABF Conference16 May 2013

1

Trent YeendSenior Advisor, Pricing & Funding

IHPA

Overview of workshop

1. ABF and the National Health Reform Agreement

2. Introduction to the National Pricing Model

3. Introduction to the National Cost Model

4. Transformation of National Cost Model to National Pricing Model

5. National Pricing Model by service category

6. Application of the National Pricing Model

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§1Activity Based Funding

andthe National Health Reform Agreement

3

ABF and the NHRA

Under the National Health Reform Agreement, the role

of the national efficient price is to:

a. form the basis for the calculation of the

Commonwealth funding contribution; and

b. provide a relevant price signal to States and Local

Hospital Networks.

- Clause B114

ABF and the NHRA

Two features of role (a) in ABF:

1. Volumes of (price) weighted activity at the Local Hospital Network (LHN) level are used to proportionally allocate each state/territory’s Commonwealth funding among their LHNs.

5

ABF and the NHRA

Two features of role (a) in ABF:

2. Growth in price and activity over time are used to determine growth in Commonwealth funding over time.

• Commonwealth funds 45% of growth from 2013-14 to 2016-17, then 50% of growth from 2016-17 onwards.

CFx – Commonwealth funding in year xPx – Price in year xVx – Volume in year x

CF2 = CF1 + 45% (P2 V2 – P1 V1)

2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 . . .45% 45% 45% 50% 50% 50%

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ABF and the NHRA

Other features of the NHRA:

1. Scope of services

2. Private patients

3. Other Commonwealth programs

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§2Introduction to

the National Pricing Model

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The National Pricing Model

The National Pricing Model provides the means by which IHPA prices hospital services. It comprises three parts:

National Pricing Model

National Efficient Price (NEP)

Price Weights Adjustments

Combine to define theNational Weighted Activity Unit (NWAU)

Price of hospital service = NEP × NWAU

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• Define a measure of relative price across all in-scope activity.

• Are used to modify price relativities to account for legitimate and unavoidable variations in the costs of service delivery.• Are defined across the

classification systems within each service category.

Adjustments

Non-Admitted

Emergency

Subacute

Acute

Price Weights

ActivityWeighted Activity(NWAU)

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Price Weights Adjustments


Price Weights

Acute admitted care

Subacute & non-acute admitted care

Emergency care

Non-admitted care

Adjustments

1. Paediatric

2. Specialist Psychiatric

3. Indigenous

4. Remoteness

6. Private Patient Service

7. Private Patient Accommodation

1 2 3 4 5 6 7

5. ICU

Mental health care

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National Efficient Price (NEP)

• Converts NWAU to price

‒ The NEP is the price of 1 NWAU

‒ Price = NEP x NWAU volume

• Measures year on year change in mean price

‒ Based on mean price of in-scope acute admitted activity

‒ Excludes changes in mean price caused by changes in

activity profile (ie. case-mix change).

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Change in NEP and change in Price Weights


13

Non-Admitted

Emergency

Subacute

Acute

Price Weights

NEP

YEAR 1

Non-Admitted

Emergency

Subacute

Acute

Price Weights

NEP

YEAR 2

Change in NEP

Change in Price Weights


Example: Change in Price Weights vs Change in PricePrice Weights

change direction2012-13 2013-14I61A 3.3272 3.2545 -2.2% M63Z 0.3789 0.3787 -0.1% E62C 0.7785 0.7915 1.7%

NEP

change2012-13 2013-14

$4,808 $4,993 3.8%

priceschange direction2012-13 2013-14

I61A $15,997 $16,250 1.6% M63Z $1,822 $1,891 3.8% E62C $3,743 $3,952 5.6%

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This relationship extends to NWAU:

For a fixed ‘basket’ of activity, after converting the activity to NWAU using two years’ pricing models, the following can be said:

1. NWAU increases aggregate price has grown at a rate greater than the

growth in NEP

2. NWAU remains constant aggregate price has grown in line with growth in

NEP

3. NWAU decreases aggregate price has grown at a rate less than the

growth in NEP

Property: For fixed activity,

(% change in NWAU) × (% change in NEP) = % change in aggregate price. 15

relative change (eg. 5% growth expressed as 105% change, -2% growth expressed as 98% change)

§3Introduction to

the National Cost Model

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The National Cost Model

• The National Pricing Model is based on cost and activity data from three years prior; eg. the 2013-14 pricing model is based on 2010-11 cost and activity data.

• The cost and activity data for each of the historical years are used derive the National Cost Model for that year.

• The National Cost Model is designed to ensure that the total model costs are equalised with the estimated total actual costs across ABF establishments.

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The National Cost Model• The cost model is made up of cost parameters and adjustments:

– paediatric adjustment,

– specialist psychiatric age adjustment,

– indigenous adjustment,

– remoteness area adjustment,

– and ICU adjustment

• The private patient service and private patient accommodation adjustments do not form part of the cost model.

– They are introduced in the pricing model to remove out of scope costs associated with private patients.

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Adjustments

Non-Admitted

Emergency

Subacute

Acute

Cost Parameters

Activity

Modelled cost of activity

($)


Cost Parameters Adjustments• Define a measure of cost across

all in-scope activity (cost profiles).• Are used to modify modelled costs

to account for legitimate and unavoidable variations in the costs of service delivery.

• Are defined across the classification systems within each service category

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§4Transformation of

the National Cost Modelto


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Transformation of NCM to NPM

There are three key differences between the National Pricing Model and the National Cost Model:

1. The pricing model comprises an NEP (ie. a reference cost), price weights and adjustments, whereas the cost model comprises cost parameters and adjustments.

2. The cost model is based on costs and activity three years prior to the year of the corresponding pricing model.

3. The pricing model excludes costs offset by revenue from other Commonwealth programs.

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Cost ModelCost ParametersAdjustments

Cost Weight ModelReference CostCost WeightsAdjustments

Pricing ModelNEPPrice WeightsAdjustments

1. Derivation of a reference cost

2. Conversion of parameters to weights

4. Indexation to reflect costs in the year of the pricing model

3. Removal of out of scope costs

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Step 1: Derivation of a reference cost

• The reference cost is the precursor to the NEP.

• The change in reference cost over time is ‘standardised’ to ensure it is not influenced by changes in activity profile (ie. case-mix change).

– cf. standardised incidence/prevalence/mortality rates controlling for differences demographic/age profile.

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Year of activity data2009-10

2010-11

$4,260 (A)

$4,587 (B)

$4,489 (C)

(X)

(Y)

(Z)

A – 2009-10 reference cost (= 2009-10 mean cost)

B – 2010-11 mean cost

C – 2010-11 reference cost

X – crude growth rate of mean cost

Y – standardised growth rate

Z – ‘rebasing’ factor

Step 1: Derivation of a reference cost

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Step 2: Conversion of parameters to weights

• The parameters of the cost model are divided by the reference cost, converting the parameters to cost weights and transforming the cost model to a cost weight model.

• The selection of reference cost in the previous step ensures that the two consecutive years’ cost weight models give the same total weighted volume when applied to the activity data on which the standardised growth rate is derived.

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Step 3: Removal of out of scope costs

Out of scope costs can be classified as follows:

1. Costs associated with out of scope activity, (eg. activity delivered to out of scope patient types such as DVA), and activity not regarded as from an in-scope service type (eg. out of scope Tier 2 non-admitted service types).

2. Proportions of costs associated with private patients that are offset by non-government and Commonwealth revenue.

3. Costs associated with other Commonwealth programs(eg. Highly Specialised Drugs program, Pharmacy Reform Agreements).

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Step 3: Removal of out of scope costs

1. Group 1 costs are excluded by simply restricting the cost model to in-scope activity.

2. Group 2 costs are excluded through the implementation of the private patient service adjustment and private patient accommodation adjustment within the pricing model.

3. Group 3 costs are excluded by deflating them out of the cost model.

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Step 4: Indexation

• The final step is the indexation of costs to estimate those in the year of the pricing model.

• To derive this indexation rate:

1. the cost model is applied retrospectively to the five years of patient costed acute admitted activity data up to the year of the cost model.

2. Scaling factors are calculated that adjust the cost model so that model costs are equalised with each year’s actual costs.

3. The trend of these scaling factors is then projected forward from the year of cost model to the year of pricing model.

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Step 4: Indexation

Projected

s4

s5= 1

s

s2

s3

Year 1 Year 4 Year 5 Year 6 Year 7 Year 8

Actual costs

s1 s

4 s

5 s

Model costs derived by applying cost model to costed activity data

Historical

s1

s2 s3

sx Scaling factor required to equalise

model costs with actual costs

Time series Projection of time series

Year ofcost model

Year ofpricing model

Illustration of scaling factors required to equalise model and actual costs

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Cost Parameters

Adjustments

Cost Model Cost Weight Model

Reference Cost

Cost Weights

Adjustments

Pricing Model

National Efficient Price

Price Weights

Adjustments

· Derivation of reference cost· Conversion of cost parameters to cost weights

· Deflation to remove costs offset by funding from other Commonwealth programs· Indexation

· Inclusion of private patient adjustments

· Restriction to in-scope activity

§5National Pricing Model

by Service Category

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National Pricing Model by Service Category• Activity is grouped into four streams (service categories)

– Acute Admitted

– Subacute and Non-Acute Admitted

– Emergency

– Non-Admitted

– With mental health spanning all four streams

• Classification systems are defined across all service categories, and the National Pricing Model defines prices over these classification systems.

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National Pricing Model- Acute Admitted -

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NPM – Acute Admitted• Classification: Australian Refined Diagnosis Related Groups

(AR-DRGs)

• DRGs are broken into price categories based on (ICU adjusted) length of stay:

– same-day

– short-stay outlier

– inlier

– long-stay outlier

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NPM – Acute Admitted

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Is the episodesame-day?

Does the DRG have a same-day price

categoryYes

No

Yes

Define ‘ICU-adjusted LOS’ as LOS minus

whole eligible ICU days (ensuring a lower bound of 1 day)

Does the DRG have ICU unbundled? Yes

No

Episode

Define ‘ICU-adjusted LOS’ as LOS

Is ICU-adjusted LOS (strictly) less than DRG inlier lower

bound?

No

Yes

Is ICU-adjusted LOS less than or equal to

DRG inlier upper bound?

No

Yes

No

Price CategorySame-day

Price CategoryShort-Stay

Outlier

Price CategoryInlier

Price CategoryLong-Stay

Outlier

NPM – Acute Admitted• There are seven episode-level adjustments:

– paediatric adjustment

– specialist psychiatric age adjustment

– indigenous adjustment

– remoteness area adjustment

– ICU adjustment

– private patient service adjustment

– private patient accommodation adjustment

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Price Weight Table

37


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Price weights

• Same-day price category makes use of same-day price weight

• Short-stay outlier price category makes use of short-stay outlier base and per diem price weights

• Inlier price category makes use of inlier price weight

• Long-stay outlier price category makes use of inlier and long-stay outlier per diem price weights


Basic form of DRG price weight function

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ICU-adjustedLOS

price weight

SD SSO Inlier LSO

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SD/SSO/Inlier/LSO

SD/Inlier/LSO

SSO/Inlier/LSO

Inlier/LSO

Inlier

SD/Inlier

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230

293

1

119

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Price Weight function Price CategoriesDRGs

MDCs 19&20 Remainder

3

0

15

0

1

1

NPM

– A

cute

Adm

itted

Price Weight function forms

NPM – Acute AdmittedExample of cost model DRG profile against actual costs and activity

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Application of adjustments

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PWApply paediatric adjustment

Apply specialist psychiatric age adjustment

Apply indigenous adjustment and remoteness area adjustment

Apply private patient service adjustment and private patient accommodation adjustment

Apply ICU adjustment NWAU

National Pricing Model- Subacute & Non-Acute Admitted -

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NPM – Subacute & Non-Acute Admitted• Classifications:

– The Australian National Subacute and Non-Acute Patient (AN-SNAP) Classification

– Care Type

• AN-SNAP classes are broken into price categories based on length of stay:

– same-day

– entire episode per diem

– short-stay outlier

– inlier

– long-stay outlier44

NPM – Subacute & Non-Acute Admitted

45

Are the AN-SNAP class inlier lower

and upper bounds zero?

NoYes

Episode

Is episode LOS (strictly) less than

AN-SNAP class inlier lower bound?

Yes

Is episode LOS less than or equal to

AN-SNAP inlier upper bound?

No

Yes

No

Price CategoryEntire Episode

Per Diem

Price CategoryShort-Stay

Outlier

Price CategoryInlier

Price CategoryLong-Stay

Outlier

Is the AN-SNAP class same-day (referred to as ambulatory in

description)?

No

Yes Price CategorySame-day

NPM – Subacute & Non-Acute Admitted• There are five episode-level adjustments:

– paediatric adjustment


– remoteness area adjustment

– private patient service adjustment

– private patient accommodation adjustment

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Price Weight Table

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Price Weights

• Same-day price category makes use of episode price weight

• Episode per diem price category makes use of outlier per diem price weight

• Short-stay outlier price category makes use of outlier per diem price weight

• Inlier price category makes use of episode and inlier per diem price weights

• Long-stay outlier price category makes use of episode and inlier per diem and outlier per diem price weights

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Basic form of AN-SNAP price weight function

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EpisodeLOS

price weight

SSO Inlier LSO

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SSO/Inlier/LSO

Inlier/LSO

Same-day

EpiPerDiem

Price Weight function Price categoriesAN-SNAP

classes

45

13

45

24

Price Weight function forms



Application of adjustments

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PWApply paediatric adjustment

Apply indigenous adjustment and remoteness area adjustment

Apply private patient service adjustment and private patient accommodation adjustment

NWAU

National Pricing Model- Emergency -

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NPM – Emergency

• Classifications:

– Urgency Related Groups (URGs)

– Urgency Disposition Groups (UDGs)

• There is one episode-level adjustment:


• A single price weight is defined for each URG and for each UDG.

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PW Apply indigenous adjustment NWAU

National Pricing Model- Non-Admitted -

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NPM – Non-Admitted• Classification:

– Tier 2 Non-Admitted Services Classification

• There is one episode-level adjustment:


• A single price weight is defined for each in-scope Tier 2 Service class.

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PW Apply indigenous adjustment NWAU

§6Application of


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NWAU calculators• Available from the IHPA website

• Microsoft Excel Workbooks

• One for each service category

1. Copy & Paste activity data into appropriate Workbook

– Input variables defined in Workbooks (incl. formatting)

2. Press button Validation Checks on input data

Outputs NWAU value against each record

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NWAU calculators

Excel NWAU calculator – Acute Admitted

Input variables required:

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1. RecordID

2. Hosp_State

3. Hosp_RA06

4. Hosp_Level3ICU_Flag

5. Hosp_Paed_Flag

6. Pat_AgeYears

7. Pat_Indigenous_Flag

8. Pat_Postcode

9. Pat_SLA

10. FundingSource

11. LOS

12. Psych_Days

13. ICUHours

14. SameDay_Flag

15. DRG6x

NWAU calculators

Excel NWAU calculator – Subacute & Non-Acute Admitted

Input variables required:

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1. RecordID

2. Hosp_State

3. Hosp_RA06

4. Pat_AgeYears


6. Pat_Postcode

7. Pat_SLA

8. FundingSource

9. Phase_LOS

10. SameDay_Flag

11. ANSnapClass_v3

12. CareTypeCode

NWAU calculators

Excel NWAU calculator – Emergency

• Two calculators:

– URG version

– UDG version

• Input variables required:

1. RecordID


3. URG v1.3 Code / UDG v1.3 Code

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NWAU calculators

Excel NWAU calculator – Non-Admitted

• Input variables required:

1. RecordID


3. Tier2_Clinic_Code

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The National Pricing Model Explained

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