Australian pricing models: understanding the NEP and NEC
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1 Australian pricing models: understanding the NEP and NEC Sarah Neville, Ph.D. Executive Director, Data Analytics Samuel Webster, Ph.D. Director, Pricing
2 Outline Australian context and IHPA NEP versus NEC why two models? National Efficient Price National Efficient Cost 2
3 Australian Context and IHPA 3
4 Australian context IHPA determines the National Efficient Price annually FFFFFFFFFFFFFF = (PPPPPPPPPP VVVVVVVVVVVV) Commonwealth funding is provided by the National Health Funding Body to the hospital 4 States and territories determine the volume and distribution of services
5 The Independent Hospital Pricing Authority (IHPA) IHPA designs the pricing system to promote safe, efficient healthcare for all Australians 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) and National Efficient Cost (NEC) annually 5
6 Activity based funding a requirement of Commonwealth funding for hospitals National Health Reform Agreement is signed by all First Ministers. This agreement outlines the establishment of IHPA Sixth NEP was established for NEP17 at $4,910 Fifth NEC was established for NEC17 at $5.406 M First National Efficient Price (NEP) was established for NEP12 at $4,808 First National Efficient Cost (NEC) was established for NEC13 at $4.738 M
7 7
8 NEP versus NEC: Why two models? 8
9 Why two models? ABF does not work for all hospitals Economies of scale Criteria for block funding ensures that only smaller hospitals are eligible 9
10 NEP versus NEC NEP NEC Model Patient based Hospital based No. hospitals ~ Total expenditure ~ $30 billion ~ $2 billion Data quality Good Fair (at hospital level) Funding flow Commonwealth to LHN Commonwealth to state 10
11 National Efficient Price 11
12 What? Statistical modelling Statisticians How? Why? Develop NEP to drive efficiency and improve transparency Actuaries Analysis of activity and cost data Consultation with stakeholders Economists Mathematicians Collaboration with other teams 12
13 13 NEP17 = $4,910
14 Public hospital services Acute Subacute Emergency Non-Admitted 14
15 Activity data Cost data Cost profile Price profile NEP, price weights + adjustments Classifications
16 Data overview IHPA Activity Data: Admitted Acute National Health Cost Data Collection (NHCDC) Pharmaceuticals Private Patient Medical Costs 16
17 Pharmaceuticals Private Patient Medical Costs 17 Episode Characteristics Hospital ID Date of Birth Admission Date Separation Date Sex Remoteness Leave Days Qualified Days DRG/Product Cost IHPA Activity Data National Hospital Cost Data Collection (NHCDC)
18 Illustration of cost profile In-scope Cost Actual Cost Long Stay Outlier Rate Inlier Rate Short Stay Outlier Per Diem Rate Short Stay Outlier Base & Same Day AAAAAAAA AAAAAAAA AAAAAAAA 1.5 AAAAAAAA 3 Length of Stay 18 Average Length of Stay
19 Pricing streams In-scope Services Classifications Adjustments Model Type Admitted acute Admitted subacute and non-acute Emergency department/service Non-admitted AR-DRG v8.0 AN-SNAP v4.0 URG v1.4 UDG v1.3 Tier 2 v4.1 HAC* Indigenous Remoteness Specialist psychiatric Radiotherapy Dialysis ICU Paediatric Multidisciplinary Age Bundled Partially Bundled 19
20 Pricing streams In-scope Services Classifications Adjustments Model Type Admitted acute Admitted subacute and non-acute Emergency department/service Non-admitted AR-DRG v8.0 AN-SNAP v4.0 URG v1.4 UDG v1.3 Tier 2 v1.4 HAC* Indigenous Remoteness Specialist psychiatric Radiotherapy Dialysis ICU Paediatric Multidisciplinary Age Bundled Partially Bundled 20
21 Pricing streams In-scope Services Classifications Adjustments Model Type Admitted acute Admitted subacute and non-acute Emergency department/service Non-admitted AR-DRG v8.0 AN-SNAP v4.0 URG v1.4 UDG v1.3 Tier 2 v1.4 HAC* Indigenous Remoteness Specialist psychiatric Radiotherapy Dialysis ICU Paediatric Multidisciplinary Age Bundled Partially Bundled 21
22 Pricing streams In-scope Services Classifications Adjustments Model Type Admitted acute Admitted subacute and non-acute Emergency department/service Non-admitted AR-DRG v8.0 AN-SNAP v4.0 URG v1.4 UDG v1.3 Tier 2 v1.4 HAC* Indigenous Remoteness Specialist psychiatric Radiotherapy Dialysis ICU Paediatric Multidisciplinary Age Bundled Partially Bundled 22
23 Pricing streams In-scope Services Classifications Adjustments Model Type Admitted acute Admitted subacute and non-acute Emergency department/service Non-admitted AR-DRG v8.0 AN-SNAP v4.0 URG v1.4 UDG v1.3 Tier 2 v1.4 HAC* Indigenous Remoteness Specialist psychiatric Radiotherapy Dialysis ICU Paediatric Multidisciplinary Age Bundled Partially Bundled 23
24 National Weighted Activity Unit Admitted Acute Subacute Emergency Non-Admitted Hip Replacement NWAU Rehab Spinal Cord Dysfunction NWAU Non-Admitted Triage NWAU General medicine NWAU 24
25 Live example - NWAU calculations 25
26 Cost per NWAU A hospital or LHN s cost per NWAU measures actual cost adjusted for casemix This allows hospitals providing vastly different services to be compared fairly also known as benchmarking Cost per NWAU is influenced by both length of stay and the inherent cost profile of a hospital/lhn 26
27 Hospital A Primarily providing acute and ED services Outer regional Hospital B Primarily providing subacute and outpatient services Inner regional Average cost per separation $10,000 Average cost per separation $2,
28 Hospital A Primarily providing acute and ED services Outer regional Hospital B Primarily providing subacute and outpatient services Inner regional Cost per NWAU $4,900 Cost per NWAU $5,
29 National Efficient Cost 29
30 Outline NEC Why not ABF? Pricing development Future directions 30
31 Why not ABF? 31
32 The Commonwealth will fund hospital services better funded through block grants, including relevant services in rural and regional communities NHRA A1(c) 32
33 Background Supporting remote communities Health service gaps Employment Transparent funding Flexibility 33
34 Health Reform and IHPA The efficient cost will be determined annually by the IHPA to ensure the Local Hospital Network has the appropriate capacity to deliver the relevant block funded services and functions. NHRA A4 34
35 Hospitals or Services? Technical requirements for ABF can not be satisfied Absence of economies of scale or lack of financial viability 35
36 Pricing Development 36
37 Challenges 400+ block funded hospitals 280 ABF hospitals $2 billion in expenditure $30 billion for ABF Outside metro and regional hubs varied services 37
38 38
39 Challenges Reporting requirements less arduous than ABF hospitals Rely heavily on aggregate data collections Expenditure data at hospital level 39
40 Options $ Length of Stay Fixed ABF 40
41 Early pricing models Table of fixed costs Group similar hospitals Size Remoteness NEC13 and NEC
42 Early pricing models Measure size with NWAU Admitted Acute Admitted subacute and non-acute Emergency Non - Admitted Hip Replacement NWAU Rehab Spinal Cord Dysfunction NWAU Non-Admitted Triage NWAU General medicine NWAU 42
43 43
44 44
45 Early pricing models NEC14 ( cost model) ASGS Remoteness Classification Volume Group Group A Group B Group C Group D Group E Group F Group G Major Cities $3.229m $4.996m $20.661m Inner Regional $1.049m $1.815m $2.592m $4.146m $4.981m $6.855m $14.243m Outer Regional $1.151m $1.602m $2.910m $3.799m $4.346m $7.272m $13.803m Remote $0.970m $1.044m $2.512m $3.108m $5.963m $7.833m $22.069m Very Remote $1.069m $2.456m $2.380m $4.119m $6.515m $10.720m $20.208m 45
46 Current pricing model Table of fixed costs Recognise cost of service availability Surgical/Obstetrics (Type A) Admitted activity (Type B) NEC15, NEC16 and NEC
47 Current pricing models Measure hospital service with NWAU Admitted Acute Admitted subacute and non-acute Emergency Non - Admitted Hip Replacement NWAU Rehab Spinal Cord Dysfunction NWAU Non-Admitted Triage NWAU General medicine NWAU 47
48 Current pricing model NEC15 ( cost model) Region Type Volume Group Group 0 Group A Group B Group C Group D Group E Group F Group G Inner/Outer Regional and Remote Type A $3.742m $4.762m $6.649m $9.266m $14.874m Type B $2.255m $3.189m $4.058m $5.665m $7.896m $12.674m Type C $0.164m $1.440m $1.962m $2.775m $3.531m $4.930m $6.871m Very Remote $0.354m $1.030m $2.220m $3.314m $4.425m $7.324m $11.664m $27.235m 48
49 Current pricing model NEC17 ( cost model) Region Type Volume Group Group 0 Group A Group B Group C Group D Group E Group F Group G Inner/Outer Regional and Remote Type A $3.278m $4.448m $5.287m $7.894m $11.298m $17.166m Type B $2.760m $3.745m $4.451m $6.646m $9.512m $14.452m Type C $0.229m $1.787m $3.193m $4.334m $5.150m $7.691m $11.007m Very Remote $0.490m $2.271m $3.220m $4.137m $5.707m $9.351m $22.176m 49
50 Future direction 50
51 Future direction Remove disincentives in pricing Innovative use of data New model investigations 51
52 Questions
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