Pricing and funding for safety and quality: the Australian approach

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

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

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

Australian context and IHPA 4 www.ihpa.gov.au

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

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

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

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Pricing and funding for safety and quality 9 www.ihpa.gov.au

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

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

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

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 2017-18 Commonwealth funding Applies from 1 July 2017 Shadow model for 2017-18 Avoidable hospital readmissions Under development Under development 13 Independent Hospital Pricing Authority

Hospital acquired complications 14 www.ihpa.gov.au

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

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

HAC statistics 2014-15 107,828 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

HAC statistics 2014-15 18 Independent Hospital Pricing Authority

Options considered Hospital level versus episode level Pricing versus funding 2017-18 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

HAC Episode Level Funding Adjustment 20 www.ihpa.gov.au

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

Overview 22 www.ihpa.gov.au

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

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 www.ihpa.gov.au

Risk Adjustment The Beginning 25 www.ihpa.gov.au

Age Only Model 2. Falls resulting in fracture or other intracranial injury 000 to 004 005 to 009 010 to 014 015 to 019 020 to 024 025 to 029 030 to 034 035 to 039 040 to 044 045 to 049 050 to 054 055 to 059 060 to 064 065 to 069 070 to 074 075 to 079 080 to 084 085 to 089 090 to 095 2yr seps with HAC02 2-year HAC02 % 26 Independent Hospital Pricing Authority

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 www.ihpa.gov.au

Number of episodes % of episodes with HAC02 Limitations 2. Falls resulting in fracture or other intracranial injury Episodes Actual% Age Model 0 1 2 3 4 5 6 7 8 9 10 or more Charlson co-morbidity score 28 www.ihpa.gov.au

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

Complexity Model 30 www.ihpa.gov.au

Risk Factors Independent Hospital Pricing Authority 31

Risk Factor Selection Overall Significance Parameter Impact 32 www.ihpa.gov.au 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.

HAC Prevelaence Rate # Episodes Preliminary Grouping 2. Falls resulting in fracture or other intracranial injury 0.180% 200 0.160% 0.140% 0.120% 0.100% 0.080% 0.060% 0.040% 0.020% Total HAC Rate 0.027% 180 160 140 120 100 80 60 40 20 0.000% 0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 5 Year Age Group - HAC Episodes Prevelance Rate Total HAC Rate Grpd Avg 33 www.ihpa.gov.au

Overall Significance 2. Falls resulting in fracture or other intracranial injury Analysis of Independent Effects Effect DF Chi Squared Statistic Pr > ChiSq MDC 13 4515.9 <.0001 Age Group 9 1650.7 <.0001 LOS Flag 2 1382.2 <.0001 Charlson Score 6 1104.9 <.0001 ICU Flag 1 291.7 <.0001 High Specialised Procedure 1 97.8 <.0001 Transfer Flag 1 84.6 <.0001 DRG Type 2 41.4 <.0001 SEIFA 10 21.0 0.0208 Indigenous Flag 1 16.5 <.0001 Remoteness 4 12.9 0.0117 Gender 1 0.3 0.6034 Gender is insignificant if modelled independently (0.05 threshold) 34 www.ihpa.gov.au

Overall Significance 2. Falls resulting in fracture or other intracranial injury Summary of Stepwise Selection Effect DF Chi Squared Statistic Pr > ChiSq 1 MDC 13 4515.9 <.0001 2 Age Group 9 1319.4 <.0001 3 LOS Flag 2 799.8 <.0001 4 Charlson Score 6 64.5 <.0001 5 ICU Flag 1 26.6 <.0001 6 Gender 1 6.7 0.0098 7 Indigenous Flag 1 0.6 0.4307 8 Remoteness 4 4.3 0.3732 9 DRG Type 2 1.3 0.534 10 Transfer Flag 1 0.8 0.3699 11 SEIFA 10 12.7 0.2384 12 High Specialised Procedure 1 1.4 0.2437 35 www.ihpa.gov.au

Parameter Significance Probability Confidence Level Parameters Group Episodes HAC Episodes Estimate Chisq Lower Upper Odds Ratio Age Group 00 to 44 1,632,259 66-1.544 0.000-1.8852-1.2027 0.21354 45 to 54 412,379 47-0.7047 0.000-1.0658-0.3436 0.49426 55 to 59 228,784 38-0.4433 0.024-0.8295-0.0571 0.64191 60 to 64 74 248,613 54-0.2441 0.165-0.589 0.1007 0.78339 65 to 69 277,031 81 0. 0 0 0.00000 70 to 74 263,869 80-0.0262 0.868-0.3357 0.2833 0.97415 75 to 79 257,181 160 0.6025 0.000 0.3342 0.8708 1.82669 80 to 84 223,903 182 0.7826 0.000 0.519 1.0462 2.18708 85 to 89 166,018 180 0.9607 0.000 0.6956 1.2259 2.61347 90 or more 79,096 124 1.2917 0.000 1.0071 1.5763 3.63862 36 www.ihpa.gov.au

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

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

Estimates to Points Parameter Level Estimate Points Age Group 00 to 39 0 0 40 to 49 0.7695 4 50 to 54 0.9993 5 55 to 59 1.132 6 60 to 64 1.3564 7 65 to 69 1.6639 8 70 to 74 1.7197 9 75 to 79 2.2564 11 80 to 84 2.613 13 85 to 89 2.7861 14 90 to 95 3.1042 16 Points are additive: 52 year old female, intensive care unit = 5 + 0 + 1 = 6 points Intensive care unit No 0 0 Yes 0.7419 4 Gender Male 0 0 Female 0.1689 1 39 www.ihpa.gov.au

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% 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 Complexity Score 0.00% 40 www.ihpa.gov.au

Model Assessment 41 www.ihpa.gov.au

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 www.ihpa.gov.au

Number of episodes % of episodes with HAC02 Segment Analysis 2. Falls resulting in fracture or other intracranial injury Episodes Actual% Age Model Complexity Model 0 1 2 3 4 5 6 7 8 9 10 or more Charlson co-morbidity score 43 www.ihpa.gov.au

ROC Curve (Receiver Operating characteristics) ERROR MATRIX EXAMPLE Predicted HAC Non HAC Total Actual HAC 8 2 10 Non HAC 5 85 90 Total 13 87 100 True Positive Rate: (TPR) 8/10 = 80% False Positive Rate: (FPR) 5/90 = 6% 44 www.ihpa.gov.au

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 www.ihpa.gov.au

Incremental cost of a HAC The challenge 46 www.ihpa.gov.au

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 www.ihpa.gov.au

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 www.ihpa.gov.au

Dampening Factors The challenge 49 www.ihpa.gov.au

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% $11,000 10.00% $10,000 $9,000 8.00% $8,000 6.00% $7,000 $6,000 4.00% $5,000 2.00% $4,000 $3,000 0.00% 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 Complexity Score $2,000 50 www.ihpa.gov.au

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 www.ihpa.gov.au

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% = 0.27 52 www.ihpa.gov.au

Calculating the funding adjustment Bringing it all together 53 www.ihpa.gov.au

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% = 0.27 1.00 x 0.081 = 0.081 0.46 x 0.081 = 0.037 0.27 x 0.081 = 0.022 Incremental Cost of a HAC10 = 8.1% 54 www.ihpa.gov.au

HAC Excel Calculator Bringing it all together 55 www.ihpa.gov.au

Funding impact 56 www.ihpa.gov.au

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

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

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 1. 59 Independent Hospital Pricing Authority

Distribution of funding to LHNs Consider 2015-16 growth funding for LHN A. Let the volumes for LHN A be defined as: 2014-15 2015-16 NWAU15 100,000 105,000 60 Independent Hospital Pricing Authority

Distribution of funding to LHNs Under the existing arrangements, the difference in volume is 5,000 NWAU, or an increase of 5% between 2014-15 and 2015-16. This translates to growth funding of: = 45% V n P n V n 1 P n 1 = 45% 105,000 $4,971 100,000 $4,826 = 45% $39,355,000 = $17,709,750. 61 Independent Hospital Pricing Authority

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

Wrap up 63 www.ihpa.gov.au

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

Questions sarah.neville@ihpa.gov.au sean.heng@ihpa.gov.au 65