2. Purchasing Policy Access, Quality and Efficiency

The budgets for casemix funding from 1996 - 97 to 1998 - 99 are given in table 1. Table 1 shows a continuing modest increase in funding outlays.

Table 1: Casemix Funding Outlays 1996-97 to 1998-9

	1996-97 ($M)	1997-98 ($M)	1998-99 Budget ($M)
Casemix Variable Payments Notional Fixed Grant VariableGrant/AdditionalThroughput Performance Enhancement Program Casemix Fixed Non-Admitted Patient Grant Training and Development Specified Grants Other Grants	$501 $921 $20   $358 $132 $226# $15	$530 $956 $34   $356 $127 $262# $4	$565 $1,010 $30   $372 $116 $275 $21
Total Budget	$2,173	$2,269	$2,389

Notes:

# Excludes Psychiatric Primary Care and Public Health Specified Grants.

- Figures for 1996-97 exclude Fairfield Hospital. Figures for 1997-98 exclude end of year throughput, elective and other adjustments, but includes post budget amounts such as $17 million for increased HSUA wage agreements.

- Figures for 1997-98 and 1998-99 exclude funding under the Information, Information Technology and Telecommunications Strategy of $25 million in each year.

- Totals may not add due to rounding

In 1998 - 99 the total Budget is $2,389 million, an increase of 5.2 per cent over 1997 - 98 expected actual expenditure. The Government's budget process requires a annual productivity saving of 1.5 per cent from all Government sectors including the hospital sectors. This involves a return to Government from the Acute Health Program of $27.5 million, however, as in past years these funds have been returned to hospitals for specific purposes.

The Department's budget for hospitals includes provision to pay agreed wage increases during 1998 - 99 and an allowance for increases in non-wage costs. Additional funding has been provided to public hospitals to meet increasing demand for public inpatient services associated with population growth and ageing; the impact of new technology; and the continuing decline in private health insurance coverage. Funding has also been provided to maintain and improve the quality of patient care, with a specific initiative providing additional care for maternity patients.

High levels of industry performance have been achieved since the introduction of casemix funding. The Report on Government Services Provision published in 1998 provides an interstate comparison of Victoria's hospitals against those in other States, while information on individual Victorian hospital performance is published quarterly by the Department in the Hospital Services Report. This report includes information on inpatient activity; access to emergency services and elective surgery; and enables comparisons to be made between individual hospitals.

In previous years, Departmental funding and monitoring has been provided in terms of WIES. This year, the concept of WIES equivalents has been introduced to adequately account for additional throughput and funding for renal dialysis, radiation oncology and emergency department services.

2.1 Increased Recurrent Funding

2.1.2 Growth

Population Growth: The Victorian population is growing at approximately 0.9 per cent each year. The ageing of the population is expected to increase demand for public hospital services by a further 0.7 per cent per year, as older people have a much higher per capita use of hospitals than others and tend to stay in hospital longer because of generally slower recovery and associated illnesses. This estimate is consistent with data agreed by the Commonwealth and all States as part of the Australian Health Care Agreement renegotiations. To meet these combined demand factors additional recurrent funding of $28.8 million (1.6 per cent) has been provided. Additional inpatient throughput will be largely undertaken in hospitals in the middle and outer suburban areas of Melbourne as these are areas where demographic change is greatest. Growth in renal dialysis and emergency departments will also be met from these funds.

Technology Growth: Public hospitals will receive additional recurrent funding of $10 million to meet costs associated with new technological developments ahead of them becoming factored into annual case weights. New technology, including new drugs, can enable treatments for conditions previously untreatable. It often increases the cost of the initial treatments but with a more reliable or longer beneficial impact. Examples include cardiac and aortic stenting, more sophisticated implantable electronic devices for cardiac conditions and movement disorders, and microsurgery. Guidelines for applicants will be finalised and distributed in August 1998. Notional 1998 - 99 grant allocations based on 1997 - 98 allocations have been included in modelled budgets.

Offset for Decline in Private Patient Revenue: Public hospitals will receive additional recurrent funding of $9 million to cover the revenue lost as a result of the continuing decline in the number of patients holding private health insurance. This revenue replacement will not normally be available when policy choice, for example co-location of a private hospital, has led to the revenue decline. In such cases there may be several factors at work and each case will be examined on its merits.

2.1.2 Quality

Improved Measures: Quality of hospital care will continue to have high priority. In 1998 - 99 work will continue on quality of care measures. This will increase the information available to the community about the performance of the health care system. It will also be an essential component for future development of incentive schemes to encourage providers to improve quality. Substantial improvements in access to emer gency and elective surgical services have been obtained by providing hospitals with financial incentives to improve performance. Planning for similar targetted systems to promote other aspects of continuous quality improvement will be developed over the coming year.

To continue the focus on patient needs, options for incorporating patient feedback into indicators of hospital performance in areas such pre-admission and post discharge planning and information provision will be explored. Work on clinical and safety indicators, particularly in the area of infection control and adverse events will also be undertaken.

Improved Access: The Hospital Access Program (HAP) replaces the previous Elective Surgery Enhancement and Emergency Services Enhancement Programs. Elements of these two programs have been incorporated into HAP together with indicators designed to decrease the level of inappropriate inter-hospital transfers of patients requiring critical care. Targets are set for waiting times for urgent and semi-urgent elective surgery procedures; for access to, and waiting times in, emergency departments; and for numbers of critical care inter-hospital transfers. Incentive funding of $29.5 million statewide will be paid to Networks and hospitals prospectively on the assumption that individual targets will be met. Failure to achieve performance targets will result in bonus funds being recalled. The method of purchasing private sector critical care beds for public patients will also change. From 1 July 1998 additional WIES will be allocated to the Austin and Repatriation Medical Centre and Networks providing adult intensive care, for the purchase of private hospital critical care services. Purchase of these services will continue to be coordinated by the Office of the Co-ordinator of Emergency and Critical Care Services (OCECCS).

Maternity Services: An additional $12.9 million has been provided to improve maternity services throughout the State. In the 1998 - 99 financial year $10.7 million will be allocated to networks and rural hospitals to improve coverage of antenatal programs and increase the level of postnatal care. The remaining money will be used to provide targetted services to women with special needs; improve birthing services for Aboriginal and Torres Strait Islander people; and fund projects designed to encourage system wide adoption of practices and care pathways that are known to improve the effectiveness of care in pregnancy and childbirth.

Infection Control: $3 million will be allocated in 1998 - 99 to improve infection monitoring and control in Victorian hospitals. Infection control is an integral part of the day-to-day operation of any hospital and Network who are responsible for ensuring that their managers support and allocate appropriate resources for effective prevention, monitoring and control of infection within the facility. This year the Department will strengthen statewide systems to monitor and support the achievement of appropriate standards of infection control, and will implement the strategies recommended by the Infection Control Taskforce.

Pneumococcal Vaccinations: Additional funding of $2 million will be transferred to the Public Health Division to fund pneumococcal vaccination for all Victorians aged more than 65, through their general practitioners and other providers. It is expected that this will reduce hospital emergency department attendances and demand for inpatient care, especially for those with chronic cardiovascular or pulmonary disease.

Clinical Risk Management: $1 million will be spent to support and evaluate the current Clinical Risk Management pilot projects.

Best Practice Funding: Networks and hospitals will be invited to submit suitable funding proposals for best practice projects. $0.75 million in funding will be distributed on a competitive basis. The Department will actively pursue strategies which encourage the use of health care practices which are known to improve health outcomes. Strategies to promote the use of clinical care pathways based on best available evidence; to decrease unplanned or inappropriate variations in care; and to improve information for consumers will also be developed over the next year.

2.1.3 Innovative Programs

Post Acute Care Program: Introduced in June 1995 as a joint Aged Care/Acute Health initiative, this program promotes early identification of patients at high risk of hospital readmission. $6.2 million in total, of which $4.2 million is contributed from the Acute Health Division, will continue to be provided to support post acute care projects in rural regions and metropolitan hospital Networks.

Substitution Initiative: The co-ordinated care trial in the Southern Health Care Network will continue in 1998 - 99. This project substitutes a range of health care services for acute hospital care, while improving health outcomes for patients. The co-ordinated care trial in the North Western Health Care Network, while predominantly focussing on aged care, also includes an acute substitution component, predominantly in respiratory disease care. This trial will also continue to be developed in 1998 - 99.

Management Information Initiatives: The successful response of hospitals to inevitable change is dependent on accurate and appropriate information systems. Hospitals require clinical and resource information from clinical costing and decision support systems to:

• Plan affordable clinical services within available funding limits;
• Manage actual clinical services against a plan;
• Develop and monitor clinical care pathways to reduce undesirable variations in care and improve effectiveness of care;
• Revise current clinical practices to improve quality and reduce unit costs;
• Bid for additional work at marginal cost;
• Use current resources in the best possible way, particularly in a network environment; and
• Plan revenues and costs over the longer term.

Fundamental to these requirements are information systems that produce patient level activity and cost data. The majority of major hospitals in Victoria have systems in place to provide this information. These systems however need refinement and upgrading.

In recognition of the importance of the availability of high quality, timely and relevant patient level cost data a series of initiatives for 1998 - 99 will be funded. Funding totalling $1.5 million will be made available for 1998 - 99 for Group A hospitals for:

The development of information and reporting structures appropriate to the needs of hospital managers and clinicians;

• The development and monitoring of clinical care pathways; or
• The development of feeder systems to improve the accuracy of information.

A forum will be held in July 1999 to communicate key findings from the model sites initiatives and a series of educational workshops for hospital decision support staff and clinical managers will be given. A series of workshops will be run for rural hospitals on the application and use of patient based activity and resource use reporting. Further details will be circulated.

2.1.4 Information, Information Technology and Telecommunications (I, IT & T)

Information, Information Technology and Telecommunications Strategy: A commitment of $100 million over a period of four years has been made by Government towards improving the information technology capability in public hospitals. $25 million will be provided again in 1998 - 99 for the further implementation of the Hospital Information, Information Technology and Telecommunications Strategy. Released in late 1996 by the Minister for Health, the Strategy has been well-received by the public hospital industry. The Strategy is phased over several years, and defines performance measures in the form of information capability at the end of each phase. Funding allocations have been made on the basis of business plans from Networks and priority plans for the rural technology alliances. These plans will be key components of local information technology strategic plans. The Hospital Information, Information Technology and Telecommunications Strategy is consistent with the Government's overall multimedia strategy. Funding for 1998 - 99 will concentrate on resolution of Year 2000 problems.

ICD-10-AM: ICD-10-AM is a superior disease classification to ICD-9-CM, with strong endorsement for timely implementation from clinicians and health information managers. Coded data which reflect current clinical practice are fundamental to hospitals maintaining adequate levels of service co-ordination, quality management and clinical service planning. Introduction of ICD-10-AM coding will require hospitals and networks to ensure that health information management and medical records administration personnel are competent in coding to the upgraded classification standards. Provision of the necessary staff development and resourcing by hospitals is considered a core activity and is part of WIES pricing and overall funding levels that have been provided to hospitals under the modelled budgets. Provision has been made in the I,IT&T programs for support of the systems upgrade necessary to support ICD-10-AM coding collection along with other required technical upgrades.

2.2 DVA Patients

The current arrangements for the treatment of Department of Veterans' Affairs (DVA) patients in public hospitals is scheduled to expire on 31 December 1998. The Department of Human Services (DHS) is currently negotiating with DVA for the provision of services in public hospitals for the period ending 31 December 2004. It is expected that the new DVA Agreement will come into effect earlier than January 1999 and perhaps as early as July 1998.

DVA and the Repatriation Commission have determined that they will, in the new agreement, fund on an output basis whether the service is provided in the public or private hospital sector. Negotiations with DVA have resulted in preliminary agreement to an attractive casemix price to be made available to public hospitals treating veterans in Victoria. This price will be differentially higher than that provided for other patients to allow higher levels of service for veterans.

At the same time DVA will considerably enhance veterans' ability to access private hospitals. A patient-level competitive market for veterans care is anticipated. DHS has obtained agreement from the Commonwealth Department of Health and Family Services that preferential access for veterans into Victorian public hospitals will be permitted, providing it does not impair public patient care. This will ensure the ability of public providers to compete on an equitable basis.

In line with the principles of the new DVA Agreement, in 1998 - 99 public hospital model budgets include funding at the current full variable plus fixed rate for all DVA patients. For the purpose of these calculations, DVA targets have been identified based on historical VIMD data. DVA patients will be separated from and not counted towards the Target A allocation which will be adjusted following removal of DVA patients. Until negotiations are finalised the anticipated new higher case price (above the full variable plus fixed rate) for veterans cannot be modelled.

For 1998 - 99 it is anticipated that there will be a transition arrangement such that hospitals losing DVA patients will be part compensated for the risk of revenue loss below historic levels and those gaining extra work will be funded at full rates. After year one, all funding will be on a net revenue basis. Details will be provided as soon as possible.

The payments for other DVA patient services, such as outpatients, admitted rehabilitation and psychiatric services will also be based on outputs delivered, but at an attractive differential price.

In April 1998, the Commonwealth Government announced that it would extended eligibility for the DVA Gold Card (this card entitles the holder to have DVA meet the costs of all their hospital and medical treatment) to all veterans who faced danger from hostile forces in World War II. It is expected that this will make a further 12,000 Victorians over the age of 70 eligible for DVA funded services in public hospitals from 1 January 1999.

Hospitals are advised to closely examine these changes and to develop service quality and marketing plans to attract and retain veterans.

2.3 Higher payment for Aboriginal and Torres Strait Islander Patients

It is estimated that, in Victoria, Aboriginal and Torres Strait Islander patients account for about 0.6 per cent of all public hospital WIES. In 1998 - 99 the WIES6 formula will provide an additional payment for these patients. All Aboriginal and Torres Strait Islander patients will be funded at 10 per cent higher than the usual payment for WIES6.

This initiative has been introduced in response to a recent National Aboriginal and Torres Strait Islander Casemix Study which found that the cost per casemix adjusted separation of treating indigenous patients was about 20 per cent higher than that of treating non-indigenous patients. However this study was based on a small number of hospitals in outback Australia and does not accurately represent experience in Victoria, where average length of stay is only slightly longer for Aboriginal and Torres Strait Islander patients than for other patients. In Victoria, additional costs for providing hospital care for Aboriginal and Torres Strait Islander patients are more likely to arise from social, cultural and economic barriers which frequently result in such patients presenting late in an illness. In addition, extra support and care are likely to be needed to provide culturally sensitive hospital services for Aboriginal and Torres Strait Islander people. This additional funding is expected to improve care for Aboriginal and Torres Strait Islander people and a review will be conducted.

The introduction of additional funding should provide an added incentive for hospitals to ensure that these patients are identified in reporting to the VIMD. The Department is committed to improving the recording of Aboriginality in its health data collections and to reporting on data quality to the Australian Health Ministers' Advisory Council. In accordance with this commitment, the Department will monitor the accuracy of recording Aboriginality in the VIMD and any increases in the reporting of Aboriginal and Torres Strait Islander admissions following the provision of increased funding.

2.4 Capital Expenditure

The 1998 - 99 Budget announced new capital spending for 1998 - 99 totalling $16.7 million (total end cost of $43.8 million) for the continuing implementation of the Metropolitan Health Care Services Plan. In rural areas, a package of acute capital works totalling $16.1 million (total end cost of $43.4 million) will also commence in 1998 - 99.

The Department has established a pool of capital funding from which allocations will be made across the Networks and non-Network public hospitals in 1998 - 99 for equipment and infrastructure maintenance purposes. It is anticipated that allocations from this pool in 1998 - 99 will be for Year 2000 Compliance needs.

2.5 Activity Trends

Over the past three years inpatient throughput has continued to increase in terms of total and same day separations and estimated casemix funded WIES5 as seen in table 2.

Table 2: Activity Trends, 1995-96 to 1997-98 (estimated)

	1995-96	1996-97	1997-98*
Separations Total Same Day	854,075 361,286	883,534 391,236	898,750 410,750
WIES5	733,182	745,600	756,000
Same Day Medical Separations WIES5	116,590 35,198	121,491 37,060	129,000 40,000

* Estimated activity for 1997-98 based on July 1997 to March 1998 year to date figures.

* This Table differs from that presented in the 1997-98 Guidelines due to coding changes which have been applied to earlier years and the inclusion of unqualified newborns in all years of this table.

In 1997 - 98 funded inpatient WIES throughput is expected to reach approximately 756,000 WIES5. Over the past three years, separations have increased by 5 per cent. Most of this increase is due to same day cases, which increased by 14 per cent. Surgical same day cases increased at a faster rate (15 per cent) than medical same day cases (11 per cent). Same day medical WIES5 which is capped remains at approximately 5 per cent of total WIES5. This level is anticipated to increase with the introduction of a uniform, statewide cap of 6.5 per cent.

2.6 Throughput WIES Targets

Over 1997 - 98 substantial work was undertaken to examine population utilisation and to determine whether the base targets reflected current and/or expected utilisation. The results of this analysis in brief showed:

• Population utilisation is similar across the metropolitan areas, but with lower utilisation in outer growth areas;
• Population utilisation is generally higher in the country than in the city and the more rural the area the higher the rate of utilisation. This is to be expected and is likely to reflect both different patterns of service and underlying differences in health status. An exception is Geelong, with lower utilisation than comparable rural or metropolitan areas; and
• Multiple factors affect supply and demand for services and these factors are frequently interrelated.

Given this analysis which showed that there was no major disparity in particular metropolitan areas or rural areas, current target relativities were retained. These analyses will be circulated to all Networks and Regions to assist their planning processes.

Changes for 1998 - 99 are relatively modest and are based on both demand and supply factors especially the expected introduction of new services under the Metropolitan Health Services Plan. Growth in throughput has been targetted to the outer growth areas of the peninsula, south-east, outer-east and outer-west in metropolitan Melbourne and in rural areas to Geelong and Bendigo. A proportion (0.75 per cent) of Target A WIES has been reallocated into the Tender Pool to improve contestability and to introduce greater flexibility in service provision.

Aggregate throughput targets for metropolitan networks and rural regional aggregate targets will continue. This guarantees greater attention to local differences and complexities within Networks and rural regions.

In 1998 - 99 the unit of measure for casemix adjusted throughput will be formally known as WIES6. For more details and a formal definition see Section 3Calculation of WIES.

2.6.1 Impact of ICD-10-AM on Meeting WIES Targets

AN-DRG Version 3 was introduced on 1 July 1997 and will continue in 1998 - 99. The grouping software used is AN-DRG Version 3.1.

From 1 July 1998, all hospital admissions will be coded to ICD-10-AM. Preliminary analysis has shown that for a hospital undertaking exactly the same work there will be differences between the WIES calculated under ICD - 9-CM, the current system, and that calculated under ICD-10-AM. These differences will vary depending on the particular casemix of each hospital. Due to these expected differences, a code mapping adjustment factor has been developed for each hospital, based on its 1997 - 98 casemix. This factor calculates the expected difference based on an analysis of all cases in the 1997 - 98 acute patient population in the Cost Weight Study. The derivation of this factor will be circulated to all Networks, regions and hospitals.

The mapping adjustment factors will be applied to WIES after grouping on the mapped ICD-10-AM data to AN-DRG and WIES6 calculations at the hospital and Network level.

In terms of the payments to hospitals, this means that adjustments to WIES throughput values will only reflect actual throughput changes relative to 1997 - 98 and not fortuitous mapping adjustments between ICD-9-CM and ICD-10-AM. To achieve this, mapping adjustment factors may need to be revised at the 6 and 12 month reviews. This would most likely have a normative effect to return hospital budgets closer to the modelled budgets from the 1997 - 98 activity data.

2.6.2 Target A

The total number of WIES has been set at higher levels than those of 1997 - 98, reflecting growth funding.

In the metropolitan area (including Geelong) the Target A (excluding DVA) is 491,724 WIES6 and in the rural area 169,058 WIES6. Appendix 2 shows the comparison between 1997 - 98 and 1998 - 99 targets for inpatients in WIES5 terms.

Target A WIES will be funded at a rate comprising both notional fixed and variable components. The notional fixed component does not purport to directly relate to the level of irreducible or irremovable cost incurred by an individual hospital or Network. Rather this component is used to differentiate payment for different types of hospitals thereby reflecting varying infrastructure levels and economies of scale.

For major providers the Target A price will be $2,197 for public patients and $1,797 for private patients. Networks and hospitals will subdivide the annual Target A throughput into quarterly targets to aid monitor ing of throughput during the year, and to assist scheduling of cash flows.

2.6.3 Target A Margin

As has operated over the past two years, a margin has been set at 2 per cent of Target A. This margin recognises that it is not always possible for a Network or hospital to precisely meet its Target A volume. Any throughput above the Target A level up to 2 per cent, will be funded, but at marginal rates. Similarly any short fall in throughput below the Target A level up to 2 per cent will result in reduction in payment at marginal rates. The margin for smaller hospitals (with an annual throughput of less than 2,000 WIES) has been set at between 2 and 4 per cent.

2.6.4 Option WIES

Options are additional WIES available to hospitals. They are optional in that providers can choose to accept or decline them. The unit rate has been set at $1,368.

Option WIES are allocated to major providers, and other hospitals on the basis of the Department's assessment of demand, taking into account the Metropolitan Health Services Plan, past achievement of targets and general financial criteria.

There are 41,490 Option WIES6 available for distribution across the State in 1998 - 99. The number of Option WIES for individual providers has been adjusted in some instances to more fairly equalise price per total WIES prior to the bid for Tender WIES.

2.6.5 Tender Pool

Up to 15,000 WIES will be set aside in a Tender Pool. This pool provides the State with the opportunity to provide some throughput at marginal rates by hospitals or Networks who are able to provide additional throughput at lower prices or who have available capacity. The Tender Pool draws on the principles of the National Competition Policy by tendering a small portion (around 2 per cent) of the State's throughput to be provided by any public hospital, providing planning guidelines are met. It is anticipated that most work in the Tender Pool will be undertaken by major providers. However smaller hospitals outside the metropolitan area will also be able to bid for a portion of this pool.

Administrative details of the Tender Pool are set out below:

• Tender WIES will be offered in lots of 200 WIES for major providers (50 for other hospitals);
• Separate prices can be nominated for each lot;
• The tender should not result in throughput being diverted to an extent that Government planning and service guidelines are compromised;
• Hospitals or Networks are required to meet their contracts for their full allocation of Option WIES before they can enter the Tender Pool; and
• No reallocation by Networks or hospitals during the year is allowable.

Hospitals and Networks will be asked to nominate the volume and price at which they are willing to do work from the Tender Pool. Tenders will be required to be submitted by 15 August and will be allocated by 30 August, to enable certainty in hospitals' throughput planning. These tender WIES have been notionally allocated in the modelled budgets.