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“Price & Tariff Setting: Considerations for Ireland”

John Armstrong

Presentation at RCSI, Dublin

4th September 2012

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CONTENTS

1. Introduction

2. Objectives in Price and Tariff Setting

3. The Building Blocks for Price Setting

4. Setting the Price

5. Our Initial Challenges

Discussions points are outlined throughout

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INTRODUCTION

Key reasons why price setting is an important topic

1. Procedure based pricing project is under development

Initial findings expected to be issued by year end

2. Work on introducing Universal Health Insurance has commenced

Being able to trace patient services and contract central to it

Discussion point: If we want a competitive provider contracting model then we need the ability of each medical provider to determine prices for each service.

3. Need to get more out of scarce resources within health system

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GROWTH IN HEALTH EXPENDITURE 1998-2003The growth we have had in health expenditure per capita compared to the rest of the EU, combined with our economic position means changing what how we reimburse to drive incentives is fundamental to real health reform,

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Source: OECD Data File (2010)

Growth in per capita expenditures across Europe

1993-2008

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OBJECTIVES IN PRICE SETTING

Key Objectives (Summary)

1. To allocation resources

Effective price setting can reallocate resources between providers based upon the needs of their patients leading to down-stream efficiency benefits

2. Method of Reimbursement

Key part of this is being able to trace individual patient services and determine base price

3. To Improve Efficiency

Studies from many countries suggest that there is both a direct and indirect efficiency gain from moving to case-mix based payments (activity based payments), e.g. UK 2% reduction in length of stay from same treatment as result of PbR, Australia similar estimates

Indirect benefit as with more data comes better decision making

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OBJECTIVES IN PRICE SETTING

Key Objectives (Summary)

4. Improve Quality

Price setting mechanism can be used as basis for quality improvement

E.g. Quality based payments – Pay for Performance

Growing evidence that league tables influence quality outcomes

Discussion points:

1. How can we develop quality outputs within our price setting mechanism that will encourage the provision of quality care

2. Could we deliver the same efficiency benefits in Ireland?

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HIGH LEVEL PRINCIPLES UNDERPINNING PRICE ANDTARIFF SETTING

• All part of price setting should be transparent including the data and the methodology used

Promoting

Quality

Efficiency

Patient-Based

International practice

Transparency Key strategic Questions

1. How can we improve transparency in our current system?

2. How can trace individual patients throughout the system?

3. Do we need to price per episode of illness (per diagnosis) or per episode of treatment?

• Any system should encourage the efficient use of resources

• Quality should be encouraged as general concept with good quality providers being rewarded & poorer quality providers being penalised.

• Price setting should be based upon patient level characteristics rather than provider based

• Methodology adopted should reflect best international

standards as far as possible

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KEY PRINCIPLES UNDERPINNING PRICING

Public Private Neutrality

Scope of Benefits

Competition

Price Harmonisation

Key strategic Questions

1. Do we need to integrate public and private providers in terms of determining national prices?

2. If so, how should it be done?

3. How can we facilitate competition between providers

• Prices should encourage best practice care

• Prices should encourage best practice care

Pricing should not change incentive for patients to be

treated public or private

• Competition should be encouraged

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BUILDING BLOCKS OF PRICE SETTING

Patient Classification

Reliable Cost Data

Activity Based Costing

Standards

Pricing Basis

Pricing Methodology

Adjustments

Principles & Objectives

The framework for determining prices and outputs starts with a clear understanding of the objectives and then having sufficiently robust data to determine an adjusted base price and other outputs

Key strategic Questions

1. Do we want a national tariff or individual prices?

2. Do we use sample data or the entire picture?

3. How do we develop coding standards for non-hospital treatment, e.g. Mental health?

4. Is there a need to introduce national ‘Chart of Accounts’ for hospital cost accounting to allocate resources?

5. Who undertakes this analyses and what is the Governance structure to support such a system?

6. What are the other outputs?

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SETTING THE PRICE

Key Issues (Summary)

1. Scope of Services

Hospital: Use of DRG good starting but not suitable for all treatments

Emergency: Urgent Care Pathways

Non-Hospital Care

2. High Cost Areas

How should how cost items be handled, e.g. Prosthesis, High cost drugs

Discussion points:

1. Given that DRG system is not used in private hospital system how can we get a system-wide view?

2. What treatments are absolutely essential to price in the first instance and can a broad approach be used for other treatment?

A crucial question for consideration is what services are within the scope of any pricing system?

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AT WHAT LEVEL SHOULD THE PRICE BE SET?

Key Issues (Summary)

Average – Does not encourage efficiencies?

Best practice

Below average, e.g. Trimmed by percentile

Discussion points:

1. We need to be consistent with the best clinical pathways for care in determining prices?

2. By using the average current in-efficiencies are being replicated into future periods

To determine a national tariff it will be important to choose a basis that is realistic but does not encourage inefficient use of resources. It should be also consistent with appropriate medical practice.

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ADJUSTMENTS TO DETERMINE THE BASE PRICE

Key Issues (Summary)

1. Change in mix of case

2. Indexation for growth in utilisation rates

3. Indexation for cost increases

4. Changes in the population profile including ageing

Any base price will need to be adjusted to allow for changes going forward

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OTHER ISSUES TO CONSIDER

Key Issues (Summary)

1. Allowance for Capital Costs

2. Medical Education

3. Coding of certain types of care, e.g. Mental Health Care

There are many other issues that need to be considered as part of the calculation process.

Discussion points:

1. Given that medical education is both a significant cost to the health system and a source of cheap labour how it is treated in the calculations must be carefully considered

2. This is particularly relevant to large teaching hospitals

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OTHER ISSUES TO CONSIDER

Key Issues (Summary)

4. Frequency of data collection, e.g. Quarterly or Annually

5. Validation of data

6. Use of many different accounting / patient systems in hospitals

7. Differences in distribution of costs

By Length of Stay

By Hospital

By Patient – Cherry Picking needs to be discouraged

There are many other issues that need to be considered as part of the calculation process.

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INITIAL CHALLENGES – KEY MILESTONES

Key milestones

1. Generate National Health Accounts

2. Identify Scope of Benefits to be Included akin to establishing National Standardised Benefit Package

3. Create National data set

Discussion point: Identify all primary sources of data within the health system & consolidate into central repository

4. Extend coding beyond ICD / DRG System, e.g. Primary care, National Drugs Coding & Formulary

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INITIAL CHALLENGES – KEY MILESTONES

Key milestones

5. Establish Cost Accounting Standards at National Level

Discussion point: Potential to standardise the accounting systems within all hospitals

6. Identify sample ‘Proof of Concept’ hospitals & other providers

7. Introduce Patient Costing Software within these institutions

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INITIAL CHALLENGES – KEY MILESTONES

Key milestones

8. Develop a ‘Pay for Performance’ framework with identification of key output measures

Should be extend to pricing setting – Bonus payment

Discussion point: Could be similar to Quality & Outcomes Framework (QOF) for GPs in United Kingdom based upon clinical, organisational, patient experience & additional services

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OUR INITIAL CHALLENGES – KEY MILESTONES

Key milestones

9. Establish National Pricing Authority for Health

10.Determine national efficient price

11.Consider extension beyond central tariff

12.Individual contracting for each public hospital as key part for introduction of provider competition under UHI model