THE UNIVERSITY OF

WESTERN AUSTRALIA

Setting the Scene: What are provider payment reforms?

Professor Stephen DuckettAdjunct Professor

ACERH/University of Queensland

Presentation to Regional Health Financing Seminar:Strategic Choices for Better Outcomes

February 4 – 5, 2008Bangkok, Thailand

Key issues in provider payment reform:

What problem trying to solve? How is risk to be distributed? What instruments/policy levers do

you have available?

What problem are you trying to solve?

Health systems have multiple objectives• Access

Distribution of access also important (i.e. equity)

• Quality • Efficiency

Vs Constrain total expenditure

• Maximise patient assessed value Reform to provider payment may attempt to

• Optimise all• Maximise/minimise one, satisfice on others

How is risk (cost broadly defined) to be distributed?

Cost here includes:• Money costs to consumers

including travel costs Out of pocket costs

• Non-monetary costs to consumers including Quality costs Travel time

• Profit/surplus of providers• Total program costs

Service provision offset by consumer copayments

Risk will fall differently on those with different roles in health system

Oversight Funder

• Treasury• Patient in fully privatised system • What is in scope (medical, dental)• Nature of mutualisation pool

Purchaser• May not exist• Meso-level organisation • What is in scope (more refined), under what conditions

Provider Owner

How is risk (cost broadly defined) to be distributed?

Can fall on any or all of:• Funder/Taxpayer/Contributor• Purchaser• Provider• Consumer

Design should reflect• Goals (see previous slide)• Who is best placed to manage the risk• Inevitability of gaming

What policy instruments/levers do you have available (NB: different equity effects) Culture Price Regulation

• Preferably in alignment

• Different instruments can be used for different purposes

Demand Supply

What price-based instruments/policy levers do you have available to distribute risk?

Demand side: Patient contributions

Supply side:• Payment methods

How describe product

• Payment amount

What regulatory instruments/policy levers do you have available to distribute risk?

Constraints on consumer choices (aka demand)• What providers for what services • Gate keeping (absolute, higher co-payment)

Constraints on provider choices (aka supply)• What treatments• What co-payments can be charged (autonomy)• Prioritisation of patients• Services in scope• Protocols etc, • Second opinions

What policy instruments/levers do you have available (NB: different equity effects)

Supply Demand

Price Fee Schedule Co payments

Regulation Licensing rules Gate keeping rules

Instrument – Objective matrix Casemix funding (supply side) example

Efficiency Access Mitigate risks

(gaming, quality)

Price Benchmark payment per separation

Activity cap at full priceBonus/Penalty scheme for elective surgery and emergency access failure

Coding auditAccreditation mandatory

Regulation Coding rules Patient Satisfaction SurveyReporting of quality indicators

Services have to be funded - 1

Less (economically) rational• History, politics aka “need”

Inputs• Salaries + other inputs

Outputs, volume• Casemix, Fee for service• Incentive payments including ‘adjunct

incentives’ Population, Capitation

• Area vs consumer choice Mix for different levels of system

Services have to be funded - 2

Hierarchies• Can use market-like instruments

Increasing tendency to do so

Markets• Demand driven or not

“Soft vs hard caps” vs no cap (within budget cycle)

Incentives on providers– Tapering– ‘Volume performance standards’/ Agreements

‘Professional payment model’ vs ‘business model’ including tenders

Williamson’s Transaction Cost Economics suggests market superiority affected by:

Frequency of transactions Asset specificity Uncertainty (? reduced by

hierarchy) Product description

Ouchi Culture Analysis

Ability to describe product

Knowledge of transformation process

Perfect Imperfect

High

Low

Markets/hierarchies

Hierarchies

Markets

Clan

Services have to be funded - 3 All systems require risk adjustment (or

fee schedule) of some kind• Fee schedules have tended to over compensate

procedural work and correspondingly under compensate cognitive work

Risk adjustment for hospitals is called case mix• Requires ‘grouper’, updating

Risk adjustment for population • Requires population weights etc

Each liable to gaming Requires technically skilled

policy/purchasers

Services have to be funded - 4

Each funding option has strengths and weaknesses• Including moral hazard of providers

Salary Fee-for-service

• Including moral hazard of consumers Most research/experience suggest

mix of methods is required to balance relative strengths and weaknesses

Who is best placed to manage which risk

Risk Assessment and Skill Assignment

Casemixfunding HospitalFunder

Populationfunding HospitalFunder Purchaser

+ Residual (perverse incentive risk)

Populationexpenditure

=

Size of(weighted,

needs adjusted)

population

x Utilisationrate

x Casemix xCost/service

(eg days, tests)

xServices/

separation

Casemix issues Prerequisites Distribution of efficiency risks

• Purchaser vs provider

Gaming moral hazard Casemix policy doesn’t determine

efficiency P4P along side casemix

CASEMIX FUNDING: The prerequisites

Identification of products

Identification of output measuresfor each product

Pay the price for each unit of output measure

$

Same day

Low Boundary

Costs

Payments and costs by length of stay

Length of stay

High Boundary

Payments

Provider at risk of loss

Purchaser risk of over payment

Length of stay

Risk

Theoretical funding risk as a function of length of stay

Payment amount

Provider at risk of loss

Purchaser risk of over payment

Length of stay

Risk

Theoretical funding risk as a function of length of stay

Payment amount

This is all an inexact science because provider costs not necessarily clear (to either providers or purchaser!) so the curves are in fact quite broad zones

Assignment of risks in casemix funding

Type of risk

Assigned to

Caveat Mitigation strategy

Number and costs per unit of service

Hospital Quality I ndicators Patient surveys

Number of patients

Funder Type of patients (adverse selection)

Activity tapering/ cap

Type of patients

Funder Gaming (upcoding)

Waiting lists and by-pass

Allocative efficiency

Coding audit Bonuses ????

Public hospital separations/000 population, NSW and Victoria

0

50

100

150

200

250

NSW

Vic

Same day separations as proportion of all separations from public hospitals

0

10

20

30

40

50

60

NSW

Vic

Average cost per weighted public hospital separation, NSW vs Victoria

0

1000

2000

3000

4000

NSW

Vic

INDICATOR POSSIBLE INCENTIVE DESIGN

Clinical indicators e.g. % adherence

to specific treatment for specific

disease Adherence to (any) endorsed care path

Achievement of hospital accreditationComplications of care

Appropriateness of care: Propensity

to admit conditions which exhibit high

geographic variation.

Incremental payment where

evidence of specific

intervention Increment for adherence to

care path Bonus for accreditation Remove from DRG calculation Discounted payment for

admission of high variability

conditions

DOMAIN INDICATOR POSSIBLE INCENTIVE DESIGN

ACCESS Elective surgery waiting times

Hospital emergency service times to treatment (by triage category)

Long stays in hospital emergency service

Discount/penalties for high percent or number of patients waiting in excess of threshold time Penalties for failure to achieve threshold t treatment time goals

Penalties for number of patients staying in excess of threshold times

PREVENTION Avoidable hospital admissions Avoidable mortality

Discounted payment for avoidable admissions Penalty in area funding formula for excess avoidable mortality

CODING QUALITY AND TIMELINESS

Timeliness

Incidence of “error” DRGs

Coding error as measured by audit

Zero payment for submission outside specific timeframes Discounted payment for ‘error’ DRG codes.

Penalty for upcoding (eg. double deduction where overcoding found).

Summary

Instrument objective matrix• Price and regulation• Mix of instruments better• Instrument choice needs to be aligned to

what objectives are

Different payment methods have different behavioural consequences

All systems have skill set issues