New funding scheme for hospitals

Next year the HSE was looking at taking hospitals off the block grants and creating a new model of care, which over time should result in better patient care and better outcomes, Ms. Maureen Cronin, HSE Assistant Chief Finance Officer and Head of the HSE Healthcare Pricing Office told a HMI Forum in Cork last Friday. Maureen Browne reports.

Maureen Cronin
Maureen Cronin

Activity based funding was “moving from financing hospitals through block grants, to funding episodes of care based on their volume and complexity,” Ms. Maureen Cronin, HSE Assistant Chief Finance Officer and Head of the HSE Healthcare Pricing Office told a HMI Forum in Cork last Friday.

She said Activity Based Funding (ABF) or Money Follows The Patient was “linking” money with patients, not “following them.” It involved breaking up grants into itemised payments and payment for weighted units of care. ABF stood alone, it did not need Universal Health Insurance to allow its implementation.

She said that under the current financing arrangements the number of “cases” with which the hospital would deal was specified but this was not linked to the complexity of the cases involved. It did not differentiate between caring for “toenails” or doing liver transplants. “It’s a bit like saying you are going on holidays but not whether it will be Butlins or the Bahamas.

We are providing blocks of money without knowing if it will be sufficient or indeed too much for the work involved.

“We are providing blocks of money without knowing if it will be sufficient or indeed too much for the work involved. We want to remove this budget, create a price and volume relationship and pay for episodes of care.”

Taking Fair Deal as an example she said that up to 2011 the HSE did not know how many clients they had in public long stay residential units, how many were in each unit or the relative value they were getting from each unit.

The HSE had identified 5,500 public long stay clients by name, and created prices for each unit. Now public and private operators must bill the HSE by client each month and if a unit has an unoccupied bed, the home does not get paid for that bed.

“The current situation is that we know the cost for each home, the number of clients in each home and the number of individuals we can support with our budget. Fair Deal controls the spend and is in a position to “creates queues”. While this has service implications there is never a deficit and the price/volume relationship makes it clear how many clients can be supported. Fair Deal is relatively straightforward in that it just consists of one “product” – long term care – although we will need in future to look at complexities depending on levels of dependency within this product.”

The hospital system was not straightforward in that it had 1,048 “products” in terms of the range of types of care to be funded – and service “queues” were much more difficult.

Prices must reflect the appropriate staffing levels to deliver safe care and it is vital to incentivise best clinical practice.

Ms. Cronin said the effects of ABF on hospitals would be quite significant. Under the block budget payment system you could have two hospitals with the same block budget, but when you broke down the services into units based on volume and complexity one hospital could be doing 20,000 cases consisting of 34,000 “weighted units” of care and the other 17,000 cases consisting of only 11,000 “weighted units of care”. This was because weighted units of care were linked with money rather than cases. “The result is that the new weighted model of care can show that a hospital which you thought was spending more money, relative to another facility, was actually providing better value and that some hospitals which are exceeding their budgets would actually be receiving considerably more revenue under ABF than they are budgeted to spend in the existing system.”

The cost of a unit of care included all fixed costs of the hospital so it was obviously expensive to have many hospitals each with their own fixed costs.

She said delayed discharges were very expensive in terms of unit costs – because they involves the input of high-cost staff (for example a CNM2 employed in the unit) to care for patients with no output for that skills level.

Ms. Cronin said that in modelling, some hospitals were showing substantial losses if they were on the new ABF funding system. This related to many factors – one of which was poor quality charts and/or coding, where coders were inexperienced. In that scenario, some hospitals were carrying out complex work and providing care for patients with co-morbidities but not recording this work adequately. Therefore when their funding was modelled under an ABF scenario they would not be paid for it.

She said ABF required a sophisticated needs assessment which would give a sense of the volume of work which could be anticipated for a budget year. It would take into account demographic trends, chronic conditions and acceptable waiting times.

In the longer term within hospital groups, ‘commissioning’ of services based on need would also look at how services might be best arranged within the group.

Next year the HSE was looking at taking hospitals off the block grants and creating this new model of care. Over time the new system should result in better patient care and better outcomes.

ABF was not primarily about money, it was about getting better quality care for patients, better outcomes and releasing resources through efficiency (for example appropriate day care work, shorter length-of-stay etc).   Outcome measurements and quality indicators would need to be built in. “Prices must reflect the appropriate staffing levels to deliver safe care and it is vital to incentivise best clinical practice.”

She said that in time an ABF model would be developed for emergency care and the whole area of “hospital avoidance” would need to be addressed to maintain incentives for this approach.

She said that the HSE would negotiate with funders for resources, based on a model showing the amount of work which could fit within the ‘envelope’ of funding – linking weighted units with money.