Pricing and funding for safety and quality: the Australian approach

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1 Pricing and funding for safety and quality: the Australian approach Sarah Neville, Ph.D. Executive Director, Data Analytics Sean Heng Senior Technical Advisor, AR-DRG Development Independent Hospital Pricing Authority

2 Australian and international costing studies estimate that adverse events explain between 12.0% and 16.5% of total cost of care in the hospital setting 2 Independent Hospital Pricing Authority

3 Outline Australian context and IHPA Pricing and funding for safety and quality Hospital acquired complications (HACs) HAC episode level funding adjustment Risk Adjustment (Complexity + Model Assessment) Incremental cost of a Hospital Acquired Complication Dampening Factors Funding Adjustments Interactive Calculator Funding impact 3 Independent Hospital Pricing Authority

4 Australian context and IHPA 4

5 Australian context IHPA determines the National Efficient Price annually Funding = Price Volume Commonwealth funding is provided by the National Health Funding Body to the hospital States and territories determine the volume and distribution of services 5

6 The Independent Hospital Pricing Authority (IHPA) Independent of all governments Can not be directed on pricing Governed by a 9 member board Established under the National Health Reform Act as playing a key role in the national implementation of Activity Based Funding (ABF) Strong consultation and transparency agenda Determines the National Efficient Price (NEP) annually 6 Independent Hospital Pricing Authority

7 The National Efficient Price (NEP) Makes the determination of funding transparent Promotes efficiency by setting the price at the mean, and building in incentives for reduced length of stay into the model All hospital inpatient diagnoses coded in ICD-10-AM Interventions coded using Australian Classification of Health Interventions (ACHI) Grouped to AR-DRGs for pricing purposes (and other classifications for subacute, emergency and outpatient care) National Hospital Cost Data Collection over 95% of the acute admitted (inpatient) population is costed at a patient level 7 Independent Hospital Pricing Authority

8 8 Independent Hospital Pricing Authority

9 Pricing and funding for safety and quality 9

10 Premise Australian and international costing studies estimate that adverse events explain between 12.0% and 16.5% of total costs ICD-10-AM data is a rich source of safety and quality data, currently under-utilised Literature review Good evidence that the provision of timely clinical information to clinicians & managers leads to improvements in patient outcomes Pricing signals Provide clear sign that government values safety and quality Promote discussion of safety and quality systems amongst clinicians AND managers 10 Independent Hospital Pricing Authority

11 Commonwealth directions to IHPA COAG 1 April 2016 All jurisdictions agreed to take action to improve the quality of care in hospitals and reduce the number of avoidable admissions, by: improving hospital pricing mechanisms to reflect the safety and quality of hospital services by reducing funding for unnecessary or unsafe care reducing hospital-acquired complications will improve patient safety; and reducing the number of avoidable hospital readmissions. 11 Independent Hospital Pricing Authority

12 August 2016 Commonwealth direction to IHPA This included a specific provision for Hospital Acquired Complications (HACs), along with sentinel events and avoidable readmissions The Direction requires IHPA to develop a comprehensive and risk adjusted model to determine how funding and pricing can be used to improve patient outcomes and reduce the amount the Commonwealth pays for a set of preventable HACs 12

13 Summary Component Zero funding for sentinel events Reduced funding for episodes with HACs Scope All public hospitals, all service streams ABF hospitals, Acute admitted Status for Commonwealth funding Applies from 1 July 2017 Shadow model for Avoidable hospital readmissions Under development Under development 13 Independent Hospital Pricing Authority

14 Hospital acquired complications 14

15 Development of list of hospital acquired complications Independent Hospital Pricing Authority (IHPA) Implements national Activity Based Funding (ABF) for Australian public hospitals Australian Commission on Safety and Quality in Health Care (ACSQHC) Leads and coordinates national improvements in safety and quality in health care Formation of Joint Working Party (JWP) preventability List of HACs cost impact 15 Independent Hospital Pricing Authority patient impact clinical priority

16 List of hospital acquired complications 1. Pressure injury 2. Falls resulting in fracture or other intracranial injury 3. Healthcare associated infection 4. Surgical complications requiring unplanned return to theatre 5. Unplanned intensive care unit admission 6. Respiratory complications 7. Venous thromboembolism 8. Renal failure 9. Gastrointestinal bleeding 10. Medication complications 11. Delirium 12. Persistent incontinence 13. Malnutrition 14. Cardiac complications 15. Third and fourth degree perineal laceration during delivery 16. Neonatal birth trauma 16 Independent Hospital Pricing Authority

17 HAC statistics ,828 acute admitted episodes with at least one HAC 2.91 HACs per 100 episodes Increases cost of an episode by on average 10% 17 Independent Hospital Pricing Authority

18 HAC statistics Independent Hospital Pricing Authority

19 Options considered Hospital level versus episode level Pricing versus funding pricing framework: Pricing and funding approaches should balance the likelihood that some patients will be at higher risk of experiencing an adverse event while recognising that all hospitals have scope to improve safety and quality 19 Independent Hospital Pricing Authority

20 HAC Episode Level Funding Adjustment 20

21 Outline Overview Risk Adjustment (Complexity + Model Assessment) Incremental cost of a Hospital Acquired Complication Dampening Factors Funding Adjustments Interactive Calculator 21 Independent Hospital Pricing Authority

22 Overview 22

23 List of hospital acquired complications 1. Pressure injury 2. Falls resulting in fracture or other intracranial injury 3. Healthcare associated infection 4. Surgical complications requiring unplanned return to theatre 5. Unplanned intensive care unit admission 6. Respiratory complications 7. Venous thromboembolism 8. Renal failure 9. Gastrointestinal bleeding 10. Medication complications 11. Delirium 12. Persistent incontinence 13. Malnutrition 14. Cardiac complications 15. Third and fourth degree perineal laceration during delivery 16. Neonatal birth trauma 23 Independent Hospital Pricing Authority

24 Structure of funding adjustment Risk Adjustment Risk adjustment involves calculating the an episode complexity score for each HAC. Complexity Score Probability of HAC Dampening factors are calculated based on the complexity, or risk, of a patient having a HAC Dampening Factors Final Adjustment Incremental Cost of a HAC The incremental cost of each HAC is determined by comparing the cost of episodes containing HACs to those without (this is the maximum possible deduction) Combines to create the final funding adjustments Adjusted NWAU=NWAU (1-adjustment factor) 24

25 Risk Adjustment The Beginning 25

26 Age Only Model 2. Falls resulting in fracture or other intracranial injury 000 to to to to to to to to to to to to to to to to to to to 095 2yr seps with HAC02 2-year HAC02 % 26 Independent Hospital Pricing Authority

27 Number of episodes % of episodes with HAC02 Limitations 2. Falls resulting in fracture or other intracranial injury Episodes Actual% Age Model Not transferred Admission Transfer Status Transferred 27

28 Number of episodes % of episodes with HAC02 Limitations 2. Falls resulting in fracture or other intracranial injury Episodes Actual% Age Model or more Charlson co-morbidity score 28

29 Feedback Did not take into account other risk factors Over penalised paediatric hospitals The age only model was simple and easy to understand but did not capture the entire complexity of a HAC episode 29 Independent Hospital Pricing Authority

30 Complexity Model 30

31 Risk Factors Independent Hospital Pricing Authority 31

32 Risk Factor Selection Overall Significance Parameter Impact 32 Preliminary Grouping Parameter Significance Group based on Sample size and HAC prevalence rates Using Chi-squared statistics and individual parameter confidence intervals. Stepwise logistic regression to measure the overall significance of the risk factor Reassess the impacts for each risk factor in order to optimise the statistical performance and reduce the overall model complexity.

33 HAC Prevelaence Rate # Episodes Preliminary Grouping 2. Falls resulting in fracture or other intracranial injury 0.180% % 0.140% 0.120% 0.100% 0.080% 0.060% 0.040% 0.020% Total HAC Rate 0.027% % Year Age Group - HAC Episodes Prevelance Rate Total HAC Rate Grpd Avg 33

34 Overall Significance 2. Falls resulting in fracture or other intracranial injury Analysis of Independent Effects Effect DF Chi Squared Statistic Pr > ChiSq MDC <.0001 Age Group <.0001 LOS Flag <.0001 Charlson Score <.0001 ICU Flag <.0001 High Specialised Procedure <.0001 Transfer Flag <.0001 DRG Type <.0001 SEIFA Indigenous Flag <.0001 Remoteness Gender Gender is insignificant if modelled independently (0.05 threshold) 34

35 Overall Significance 2. Falls resulting in fracture or other intracranial injury Summary of Stepwise Selection Effect DF Chi Squared Statistic Pr > ChiSq 1 MDC < Age Group < LOS Flag < Charlson Score < ICU Flag < Gender Indigenous Flag Remoteness DRG Type Transfer Flag SEIFA High Specialised Procedure

36 Parameter Significance Probability Confidence Level Parameters Group Episodes HAC Episodes Estimate Chisq Lower Upper Odds Ratio Age Group 00 to 44 1,632, to , to , to , to , to , to , to , to , or more 79,

37 Parameter Impact 13 Independent Logistic Regression Models Provide a period of reassessment. Statistical Performance Model Complexity 37

38 01. Pressure injury 02. Falls resulting in fracture or other intracranial injury 03. Healthcare associated infection 04. Surgical complications requiring unplanned return to theatre 06. Respiratory complications 07. Venous thromboembolism 08. Renal failure 09. Gastrointestinal bleeding 10. Medication complications 11. Delirium 12. Persistent incontinence 13. Malnutrition 14. Cardiac complications Complexity Model Risk Factors Admission Status Patient Age MDC ICU Status DRG Type Charlson Score Gender Transfer Status 38 Independent Hospital Pricing Authority

39 Estimates to Points Parameter Level Estimate Points Age Group 00 to to to to to to to to to to to Points are additive: 52 year old female, intensive care unit = = 6 points Intensive care unit No 0 0 Yes Gender Male 0 0 Female

40 Separations Probability of a HAC Complexity Distribution HAC 10 : Medical Complications HAC Separations PCT NON HAC Separations PCT Probability 12.00% 35.00% 10.00% 30.00% 8.00% 25.00% 20.00% 6.00% 15.00% 4.00% 10.00% 2.00% 5.00% 0.00% Complexity Score 0.00% 40

41 Model Assessment 41

42 Number of episodes % of episodes with HAC02 Segment Analysis 2. Falls resulting in fracture or other intracranial injury Episodes Actual% Age Model Complexity Model Not transferred Charlson co-morbidity score Transferred 42

43 Number of episodes % of episodes with HAC02 Segment Analysis 2. Falls resulting in fracture or other intracranial injury Episodes Actual% Age Model Complexity Model or more Charlson co-morbidity score 43

44 ROC Curve (Receiver Operating characteristics) ERROR MATRIX EXAMPLE Predicted HAC Non HAC Total Actual HAC Non HAC Total True Positive Rate: (TPR) 8/10 = 80% False Positive Rate: (FPR) 5/90 = 6% 44

45 True Positive Rate ROC Curve (Receiver Operating characteristics) ROC curve was one of the diagnostics presented to stakeholders. Higher area under the curve = better model. False Positive Rate 45

46 Incremental cost of a HAC The challenge 46

47 Incremental cost of a HAC The funding approach for HACs requires that the funding level for all HACs across every hospital be reduced to reflect the extra cost of a hospital admission with a complication. This additional cost may be as a result of a more complex episode of stay or due to an increase in the length of stay than would have otherwise occurred. In episodes that contain a HAC, it is impossible to identify what components of the cost result from HAC directly from the cost data. The presence of a HAC may increase the length of stay, but it is impossible to determine the additional length of stay directly attributable to the HAC in the current data collections as there is no record of the date that the HAC occurred. The presence of a HAC may increase the complexity of an episode (resulting in a more complex DRG) and this may confound analysis to determine the incremental cost and how an episode should be classified. 47

48 Determining a HAC adjustment HAC Episodes Cohort Non HAC Episodes Cohort 1. Developed an underlying predictive model based on the Non-HAC Episode Cohort. 2. Applied the model to the HAC Episode cohort. 3. Compared actual and predicted cost of the HAC cohort. 4. This was repeated for each HAC group separately. 48

49 Dampening Factors The challenge 49

50 Separations Cost per GWAU16 Complexity Distribution HAC 10 : Medical Complications HAC Separations PCT NON HAC Separation PC HAC Average Cost Per GWAU NON HAC Average Cost Per GWAU HAC Average Cost per GWAU Smoothed NON HAC Average Cost per GWAU Smoothed 12.00% $11, % $10,000 $9, % $8, % $7,000 $6, % $5, % $4,000 $3, % Complexity Score $2,

51 Dampening Episodes were classified into different complexity groups low, moderate and high based on the complexity score. If the episode was a moderate or high complexity, then the adjustment would be dampened i.e. the full reduction in NWAU would not apply. 51

52 Dampening Calculations HAC 10 : Medical Complications Complexity Group % HAC cost profile non HAC cost profile Dampening Factor Low 21.8% 1.00 Moderate 10.0% 10.0% 21.8% = 0.46 High 5.8% 5.8% 21.8% =

53 Calculating the funding adjustment Bringing it all together 53

54 Funding Adjustment Calculations HAC 10 : Medical Complications Complexity Group % HAC cost profile non HAC cost profile Dampening Factor Adjustment After Dampening Low 21.8% 1.00 Moderate 10.0% 10.0% 21.8% = 0.46 High 5.8% 5.8% 21.8% = x = x = x = Incremental Cost of a HAC10 = 8.1% 54

55 HAC Excel Calculator Bringing it all together 55

56 Funding impact 56

57 February 2017 Commonwealth direction to IHPA The Direction requires IHPA to: shadow the implementation of the HAC model to assess impact on funding, data reporting, clinical information systems, and specific population and peer hospitals 57

58 Impact of back-casting The growth in both volume and price between years informs the Commonwealth funding that each LHN receives Each year, this growth is back-cast to ensure that each year is compared consistently, and that changes in pricing methodology, classification and counting rules do not influence growth Introduction of the HAC funding adjustment will be back-cast 58 Independent Hospital Pricing Authority

59 Impact on total Commonwealth funding The annual funding for year n depends on changes in both price and volume from year (n 1), and is calculated based on the formula below: year n amount = year n 1 amount + 45% {V n 1 P n P n 1 + P n (V n V n 1 )}. This formula can also be expressed as: year n amount = year n 1 amount + 45% V n P n V n 1 P n Independent Hospital Pricing Authority

60 Distribution of funding to LHNs Consider growth funding for LHN A. Let the volumes for LHN A be defined as: NWAU15 100, , Independent Hospital Pricing Authority

61 Distribution of funding to LHNs Under the existing arrangements, the difference in volume is 5,000 NWAU, or an increase of 5% between and This translates to growth funding of: = 45% V n P n V n 1 P n 1 = 45% 105,000 $4, ,000 $4,826 = 45% $39,355,000 = $17,709, Independent Hospital Pricing Authority

62 Example Incidence of HACs between years LHN funding impact stable minimal (slight decrease) increases decreases decreases increases 62 Independent Hospital Pricing Authority

63 Wrap up 63

64 Where to now? Implementation of HACs from 1 July 2018 Avoidable readmissions Questions? 64 Independent Hospital Pricing Authority

65 Questions 65

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