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Section A - Policy

3. Hospital Activity & Throughput Targets

3.1 Activity Trends

Over the past four years throughput in public hospitals has continued to increase. Increases have occurred across all services provided by hospitals. This includes not only inpatient services-the major service type-but also outpatient services, which are now able to be measured using the Victorian Ambulatory Classification System (VACS), renal dialysis, breast care, radiotherapy and organ donation.

A summary of recent activity trends and 1999-2000 projections are presented in table 2 below.

Table 2: Activity Trends, 1995-96 to 1999-2000 (estimated)

Source: Department of Human Services and Victorian Budget Papers.

Notes:

1. 1998-99 preliminary figures for end of year. Separations and WIES are the total number funded from all revenue sources, including business units and once off AHCA funds directed to waiting list patients. These funding sources have allowed achievement of activity above targets for 1998-99.
2. Budgetted amounts for 1999-2000.

New funding arrangements for the treatment of Department of Veterans' Affairs (DVA) patients in public hospitals came in to place from 1 July 1998. The new Agreement will continue in force until 30 June 2004 and is subject to annual review.

The new agreement funds a majority of public hospital services on the basis of outputs and the price paid by the Department of Veterans' Affairs allows the Department to pay a premium for a range of services provided to veterans. The new arrangement reimburses the State for the actual work done, which means veteran throughput is uncapped. For those items where a throughput payment is made, hospitals will be allocated capped public targets, and separate uncapped veteran estimates. Where veteran estimates are not reached, funds will be recalled. Any shortfall cannot be backfilled with public activity.

Final payment for treatment of veterans will only be authorised after confirmation that

• The veteran's eligibility has been confirmed by the Department of Veterans' Affairs; and
• The veteran's unique number and veteran details reported on the Victorian Admitted Episodes Dataset (VAED) formerly called the Victorian Inpatient Minimum Database (VIMD) reported on the V1 record exactly match those held by the Department of Veterans' Affairs for each eligible patient.

Hospitals that do not pay sufficient attention to these requirements and make assumptions about eligibility for patients who are rejected by DVA will need to reclassify these patients to reflect the preferences indicated by the patient on the form of election for admission. The Department will not accept any risk for this "assumed" revenue.

Public Hospitals are assigned a Tier One status by DVA-no prior financial approval is required to treat an eligible veteran. From 1 July 1999, the Department of Veterans' Affairs will considerably enhance veterans' ability to access the private sector by granting Tier One status to selected private hospitals. Tier Two and Tier Three private sector hospitals will continue to require prior financial approval from DVA to admit eligible veterans. Hospitals should contact DVA to seek prior approval and to confirm patient eligibility.

Principles and clauses in the Australian Health Care Agreement mean public hospitals may provide preferential access for veterans provided care of public patients is not impaired. This will ensure the ability of public providers to compete on an equitable basis with the private sector in terms of access. The premium price paid for treating veterans under casemix will ensure the ability of public providers to compete on at least an equitable basis with the private sector in terms of quality.

In line with the principles of the new Agreement, public hospital model budgets include funding at the current full variable plus notional fixed rate for all DVA patients. For the purpose of these calculations, DVA estimates have been identified based on the numbers targetted during 1998-99 from historical VIMD data. DVA patients will be separated from and not counted towards the Target A allocation which has been adjusted following removal of DVA patients.

Hospitals are strongly advised to develop service quality and marketing plans to attract and retain veterans.

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 1999-2000 the unit of measure for casemix adjusted throughput will be formally known as WIES7. For more details and a formal definition see Section C-Calculation of WIES.

The total number of WIES has been set at higher levels than those of 1998-99, reflecting growth funding. In the metropolitan area (including Geelong) the Target A (excluding DVA) is 502,695 WIES7 and in the rural area 170,720 WIES7. Chapter 15 shows the comparison between 1998-99 and 1999-2000 targets for inpatients in WIES6 terms.

AN-DRG Version 3 was introduced on 1 July 1997 and will continue as the basis for throughput funding in 1999-2000. The grouping software used is AN-DRG Version 3.1.

From 1 July 1998, all hospital admissions have been coded to ICD-10-AM. Analysis has shown that for a hospital undertaking exactly the same work there are differences between the WIES calculated under ICD-9-CM (the previous system), and that calculated under ICD-10-AM. These differences vary depending on the particular casemix of each hospital. Due to these expected differences, a code mapping adjustment factor was developed for each hospital. Mapping WIES adjustment factors were also developed for each DRG.

The mapping adjustment factors have been applied to WIES after grouping on the mapped ICD-10-AM data to AN-DRG Version 3.1 and WIES6 calculations at the hospital and Network level. The mapping factors applicable to each hospital and Network for 1999-2000 will be reviewed and reissued during September 1999 based on the 1998-99 casemix profile.

Target A WIES includes both notional fixed and variable components. The notional fixed component does not purport to 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.

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.

Options are additional WIES available to hospitals. They are optional in that providers can choose to accept or decline them. 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 43,192 Option WIES7 available for distribution across the State in 1999-2000. The number of Option WIES for individual providers has been adjusted for large providers to more fairly equalise price per total WIES prior to the bid for Tender WIES.

3.3.3 Tender Pool

Up to 15,000 WIES will be set aside in a Tender Pool. Any Option WIES not taken up will be added to the 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 and 50 WIES 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 13 August and will be allocated by 27 August, to enable certainty in hospitals' throughput planning. These tender WIES have been notionally allocated in the modelled budgets.

In 1999-2000, Tender WIES will be preferentially allocated to hospitals and Networks who can apply them to shortening waiting times, and reducing total number of people waiting for elective surgery.

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