Public Hospitals Policy and Funding Guidelines 1999 - 2000, Inpatient Classification/Cost Weights

AN-DRG Version 3 was introduced on 1 July 1997 and will continue in 1999 - 2000. The grouping software used is AN-DRG Version 3.1. The decision to continue use of AN-DRG Version 3 has been taken to minimise instability during 1999 - 2000 and has been necessary due to the late release of AR-DRG Version 4.1.

The effect of the move to ICD-10-AM in 1998 - 99 for each hospital has been assessed and hospital specific code mapping adjustment factors used when comparing each hospital’s coded throughput against target. The 1999 - 2000 year will see further development of mapping and refinement of adjustment factors.

AR-DRG Version 4 will be implemented from 1 July 2000 and adjustment factors will no longer be required. For the first time, there will be cost data based entirely on the ICD-10-AM codes and this experience with ICD-10-AM, prior to the introduction of AR-DRG Version 4 means a smooth transition to the latest, mostly clinically-valid Grouper for 2000 - 2001.

The Department engaged Hospital Services Research Group to conduct the 1998 - 99 Victorian Cost Weights Study of 1997 - 98 inpatient, outpatient and rehabilitation activity. A review of all average costs was undertaken and the proposed areas of change were considered both through the Cost Weights Study itself and through formal Departmental consultations.

After reviewing submissions from clinicians and hospitals relating to clinical issues impacting on the cost weights, a small number of DRGs were identified as requiring further investigation. Almost universally issues relating to these DRGs were found to be due to DRG classification issues requiring resolution through the Australian Casemix Clinical Committee or poor cost data. AR-DRG Version 4.1 will address most of these coding and definitional issues.

A full list of weights is given in Section C: Supplementary Information. WIES6 amendments and a full explanation of WIES7 are given in Section C: Calculation of WIES.

The success and fairness of casemix funding is based on accurate and honest reporting of diagnostic information. Two coding audits have been conducted using 1993 - 94 and 1995 - 96 data. The first audit showed that 86.5 per cent of the audited episodes were allocated to the same AN-DRGs; whilst for 1995 - 96 data this figure improved to 88.3 per cent. These results compare more than favourably with the outcomes of recent audits conducted in other States. Importantly, assessment of respective AN-DRG weights indicates that the cases resulting in a different AN-DRG in 1995 - 96 were evenly balanced between ‘overcodes’ (5.0 per cent) and ‘undercodes’ (6.5 per cent).

Results from that audit have recently been back - converted to WIES3 values which showed that overall hospitals’ original WIES3 values were about 1 per cent lower than the level achieved with the audited codes. This is a pleasing result which substantiates the Department’s view of the validity of coding.

It was decided to postpone a third audit planned for 1997 - 98 data due to additional hospital resources required for the introduction of ICD-10-AM coding. An audit on ICD-10-AM codes and resultant AN-DRGs using 1998 - 1999 data is underway. As well as providing a check on the accuracy of codes, the audit will be of great educational assistance to hospital coders using the new classification system.

The current audit contract covers a three year period which provides for annual, follow-up and supplementary audits. A follow-up audit may be conducted where an initial audit identifies hospitals with coding anomalies, that is where the change in WIES6 for 1998 - 99 exceeds plus or minus 2 per cent.

Where a follow-up audit results in a statistically significant result still outside accepted benchmarks, supplementary audits will be conducted. The cost of supplementary audits, VAED data correction and WIES adjustment will be borne by the hospital.

During 1998 - 99 the Department was approached by providers of renal dialysis services at satellite centres regarding the level of the variable/WIES payment and the administration of the block grant paid to parent hospitals. Comments were sought by the Department from the Renal Reference Group and some satellite providers on the proposal that the variable/WIES funding be increased, and on the current administration of the block grant. The responses have been considerable and varied from support for increasing the variable payment to support for the payment for renal services to be made entirely on a capitation or fixed grant basis.

The Department gave consideration to these options. However, due to inconsistencies which were identified in the treatment levels between satellite and in-centre hospitals compared to standard periodic treatment levels as known to the Department, neither of the above options were adopted. The current model is constituted of a case payment and a fixed capitation grant and will remain in 1999-2000. The case payment will remain at approximately $17,182 and the block grant has been adjusted for award increases, CPI and productivity savings.

The Department will further review the funding options during 1999-2000. The payment rates for 1999-2000, adjusted for award increases, CPI and productivity savings, are as follows:

Treatment Modality	1999-2000 Case Payment Per Patient Per Annum (Approx.)	1999-2000 Block Grant Per Patient Per Annum
In-Centre Dialysis	$17,182	$24, 660
Satellite Dialysis	$17,182	$19,624
Home Haemodialysis		$27,961
Continuous Ambulatory Peritoneal Dialysis		$35,183
Intermittent Peritoneal Dialysis		$25,318

For 1999-2000 an additional amount of $3 million will be made available for renal services as well as $4 million provided under the capital equipment pool. The additional $3 million allows for a 6.25 per cent growth in the number of patients and a higher rate of growth if patients can be treated in satellite centres. It is noted that growth in 1998-99 has been disproportionately skewed towards in-centre treatment. The premium introduced in 1998 - 99 of $1,500 per patient per annum for satellite services will remain in 1999 - 2000. This is estimated to cost $1 million.

The Department will also significantly increase funding to the organ donation program. An increase in organ donations has been shown to improve patient outcomes and reduce demand for dialysis.

It has become evident that satellite hospitals provide varying components and levels of the complete service. It is recognised that in some instances the WIES payment may not compensate for all of the components of the service which may be provided by a particular satellite service. The essence of a fair and equitable outcome is a principled negotiation between the parent hospital and satellite. Parties should seek a cost effective service in which quality and patient access to all service components are not compromised.

Key specialist clinical knowledge resides in the tertiary/teaching or parent hospitals who have the prime responsibility to ensure a quality patient outcome. The parent hospital has a responsibility to ensure that satellite services are efficient, effective, patient focused and adequately compensated.

The Department has supported one of the existing parent hospital service providers who will be seeking tender submissions for the provision of routine dialysis services. The proposed purchasing arrangement will involve the successful bidder providing the facility, equipment, consumables, routine dialysis and associated services. This introduces a new direction for the provision of dialysis services in Victoria.

For WIES7 new inlier boundaries were calculated from the 1998 - 99 Victorian Cost Weights Study. For most DRGs the low boundary was set at one third of the average length of stay for the DRG and the high boundary was set at three times the average length of stay for the DRG. Inlier boundaries were converted to integers by truncating the low boundary and rounding the high boundary. The average length of stay was calculated after excluding extreme cases (up to 2.5 per cent of the longest stays and up to 2.5 per cent of the shortest stays). Where more than 2.5 per cent of separations occurred in either the highest or lowest length of stay category, no cases were excluded. For example, in many DRGs more than 2.5 per cent of separations are same day so for these DRGs no separations were excluded under low trimming.

For some DRGs the low boundary was calculated using a multiplier of 2/3 rather than 1/3 and the high boundary was calculated using a multiplier of 3/2 rather than 3. These modifications were based upon clinical discussions during the development of WIES1 to WIES4 and are detailed in Section C. For DRG 939 (Aftercare without secondary diagnosis of history of malignancy) and 942 (Other factors influencing health status, age >79 or with complications/comorbidities) inlier boundaries were retained at the 1998 - 99 level to ensure funding for longer stay patients was largely on a per diem basis.

Where no episodes occurred for a DRG within the Cost Weight Study data base, the WIES6 boundaries were retained. For one DRG (939) the high boundary was set at the WIES6 boundary to maintain the level of per diem payments to long stay patients.

For the purpose of calculating inlier boundaries, same day separations were excluded when calculating the DRG mean for those DRGs that are designated same day DRGs. In such cases, including same day cases would have inappropriately lowered the high boundary point, resulting in a large proportion of non-same day separations being classified as high outliers.

Changes in clinical practice over the last few years has resulted in significant increase in same day cases that necessitated the introduction of same day DRGs. The DRGs classified as same day in 1998 - 99 continue for 1999 - 2000.

For these DRGs the same day weight is based on the actual cost of same day patients rather than costs modelled from the inlier weight. In 1999 - 2000, all same day weights were allowed to vary, depending on the costs reported in the 1998 - 99 Victorian Cost Weights Study. This differs from earlier years when many DRGs were given an "average" same day weight. The same day and one day DRGs are listed in Section C.

Weights were calculated from the average costs of inliers based upon the new inlier boundaries. Trimming was undertaken according to the criteria used for the 1998 - 99 Victorian Cost Weights Study. In calculating weights a number of adjustments were made.

The weights for DRGs with a high proportion of costs associated with intensive care (over 10 per cent) were reduced by 1.38 per cent. This was done to fund increased specified grants to hospitals with designated level 3 Intensive Care Units (ICUs). Hospitals with more costly level 3 ICUs are disproportionately represented within the Victorian Cost Weights Study, potentially leading to over-estimates of intensive care costs for other types of hospitals. However, most DRGs receive mechanical ventilation co-payments in recognition of the higher case complexity, resulting in a degree of double payment (once in the weight and once through the co-payment). Specified grants were paid in recognition of differences in the underlying clinical conditions of DRG 003 patients and part compensation for the higher costs of running level 3 ICUs.

Where there were fewer than 150 inliers in 1996 - 97 and where 1996 - 97 average cost differed by more than 20 per cent from the 1995 - 96 average cost, data were combined for 1996 - 97 and 1997 - 98. This process was undertaken to reduce statistical variation due to small numbers.

Weights showing a greater than 20 per cent change which resulted in either an increase or decrease of 500 WIES across the State and weights showing a greater than 40 per cent change which resulted in either an increase or decrease of 250 WIES across the State were averaged against the 1998 - 99 weights. This was done to provide increased stability when converting the Network/hospital 1999 - 2000 WIES6 targets into WIES7 targets.

Based on industry requests the 1998 - 99 policy of incorporating the 1997 - 98 specified grant for cochlear impacts (DRG 148) into the WIES7 weights was reversed, resulting in a significant decline in the 1999 - 2000 weight for the DRG;

In order to provide additional funding for high cost ICU cases the weight for DRG 003 was reduced by 15 per cent to compensate for the mechanical ventilation co-payment rather than 20 per cent as in 1998 - 99. Conversely for complicated craniotomy (DRG 023) the average cost from the Cost Weight Study was increased by 20 per cent; and

All weights were subjected to rebasing to maintain state wide WIES equivalence between WIES versions. This was done by calculating both WIES6 and WIES7 on the same twelve months VIMD dataset and then scaling all WIES7 weights by the ratio of total WIES6 to total WIES7. Agreed target WIES6 levels were adjusted by similar hospital specific indices. Hospital specific indices were also adjusted for inaccuracies in mapping between ICD-9-CM and ICD-10-AM. This was necessary as slightly more than half of the VIMD data used to model the 1999 - 2000 budgets were reported using ICD-10-AM and subject to mapping prior to allocation to Victorian DRGs.

High outlier weights have been adjusted to ensure that, when using Network payment rates, variable payments for high outlier days are at least $126 per day (equivalent to the nursing home rate) and no more than $496 per day. As for WIES5 and WIES6, high outlier weights were calculated using the specific high outlier adjustment factor. Surgical DRGs were allocated a high outlier factor of 0.7, medical DRGs were allocated a high outlier factor of 0.8 and some specialist DRGs were allocated a high outlier factor of 1.0. The higher outlier factors of 1.2 for the neonate DRG 718 and 1.3 for the neonate DRG 725 have been retained for 1999 - 2000.

As the costs associated with prostheses and theatre are usually incurred early in a patient’s stay these costs are excluded when calculating high outlier WIES for DRGs with significant theatre and prosthesis costs.

In 1999 - 2000, the WIES7 formula will continue to provide an additional payment for Aboriginal and Torres Strait Islander (ATSI) patients. All ATSI patients will be funded at 10 per cent higher than the usual WIES7 payment.

The introduction of additional funding provides an added incentive for hospitals to provide appropriate, high quality care and to ensure that these patients are identified in reporting to the VAED. The Department is committed to improving the recording of Aboriginality in its health data collections. In accordance with this commitment, the Department will monitor the accuracy of recording Aboriginality in the VAED and any increases in the reporting of Aboriginal and Torres Strait Islander admissions following the provision of increased funding.

A comparison of numbers of ATSI patients for the first six months of 1997 - 98 and 1998 - 99 was undertaken to assess the impact of the introduction of the higher payment. In 1998 - 99, the number of ATSI patients comprised 0.68 per cent of total hospital admissions, a slight decrease from 1997 - 98 (0.71 per cent ). The proportion of ATSI patients increased in 31.8 per cent of hospitals, decreased in 44.5 per cent of hospitals with a further 20 per cent of hospitals that did not treat any ATSI patients in either year.

Historically, prostheses costs have been poorly allocated to patients within hospital information systems. In many cases, costs associated with prosthetic devices are recorded under operating room costs and allocated accordingly. Consequently, under WIES4 and WIES5, adjustments were made to increase the reported average price for a number of DRGs where prosthesis costs were known to be significant. Data collected from the National Costing Study Service Weight Study and data from two Victorian Hospitals were used as a basis for making these adjustments. Extra costs were part balanced by reducing theatre costs across most surgical DRGs.

The adjustment for prostheses were recalculated for WIES7. While ten hospitals allocated prostheses costs for the 1998 - 99 Victorian Cost Weight Study, not all hospitals allocated costs appropriately across all DRGs. Consequently, the hospitals used to determine average prostheses costs by the consultants differed depending upon the DRG. This emphasises the need for costing systems to be universal and consistent.

Average costs for a number of DRGs were adjusted to ensure that the average cost included a fixed prosthesis contribution from all patients, including those patients admitted to hospitals that were unable to allocate prostheses costs appropriately. Prosthesis contributions were set using either the estimated average prosthesis cost from the Study or the 1998-99 estimated prosthesis cost, whichever was higher. The average prosthesis costs used to adjust average DRG costs in calculating the 1999 - 2000 weights are given in Section C.

The mechanical ventilation co-payment was introduced in 1996 - 97 as a sound and clinically valid surrogate for patient severity. In some DRGs, mechanical ventilation is inherent to the episode of care and therefore only selected DRGs attract the additional payment. These arrangements continue for 1999 - 2000. All DRGs, including DRG 003, attracting the co-payment are listed in Section C.

The extension to DRG 003 (Tracheostomy except for mouth, larynx or pharynx, age > 15) introduced in 1998 - 99 will continue for 1999 - 2000. In addition, a number of hospitals with Level 3 Intensive Care Units will receive specified grants in recognition of the higher costs and increased complexity of patients within Level 3 Units.

Funding for intensive care has occupied more time and technical effort than any other casemix issue during 1998 - 99. This has been because of industry representation and the acknowledged complexity of this issue. The experience has been rewarding for all parties - even though some concern has been based on marginal cost analysis in the absence of adequate hospital-wide costing systems. The Department accept that ICU funding will continue to require a combination of specified grants, co-payments and underlying DRG payments. Before further adjustment is contemplated, however, the Department will require that hospitals raising ongoing issues have adequate underlying hospital-wide costing systems in place and will no longer accept argument based exclusively on limited marginal cost analysis in the absence of such systems. This general principle will be progressively applied to all casemix issues into the future.

Thalessaemia cases were demonstrated by costing data to require more resources than other patients within relevant DRGs. For 1999 - 2000?each thalessaemia case in DRGs 760 and 761 will continue to receive a co-payment of 0.2648 WIES. These WIES will be part of the hospital’s WIES target and general funding arrangements.

In 1999 - 2000 specified grants will continue to be paid to compensate hospitals for services which do not fall neatly into inpatient or outpatient service arrangements, and for classes of hospital care which DRGs do not measure well. The following specified grants will be retained with some modifications in 1999 - 2000:

For many small hospitals annual variations in casemix and cost weights resulted in significant fluctuations in WIES Targets. This is an effect that a relatively small number of patients can have on hospitals with very low WIES numbers. In 1999 - 2000, budgets for Group D and E hospitals will be adjusted where necessary through the provision of specified grants to address this variation. It should be noted that this is not intended to compensate for a long term continuing decline in the average severity of cases.