costing report of designated services (an initial experience) · costing exercise for “designated...

IRqeh

September 2017

Report on Costing

of Designated Services

Year 2012/13 to 2015/16

To facilitate analysis under the Refined Population-based Model

to inform Resource Allocation

Report on Costing of Designated Services

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Preface

Preface

The “Steering Committee on Review of Hospital Authority” (SC) was set up by

the Government in August 2013 to conduct an overall review of the Hospital

Authority (HA) to examine its operation in response to the changes in society

such as an expected ageing population. Resource management is one of the

areas being reviewed.

While the Government and HA had agreed on a population-based approach in

year 2000 for territory-wide projection of public healthcare utilisation (the “Basic

Model”), serving as an indicator for the change in HA’s recurrent funding

requirement in response to the evolving healthcare needs arising from changes

in population size and demographics, the SC noted that there were concerns

about a resource allocation model solely based on population size.

Specifically, there were worries that a pure population-based model would not

be able to take into account the territory-wide Tertiary and Quaternary (T&Q)

services provided by certain hospitals in selected Clusters, the demand arising

from cross-cluster movement of patients experienced by certain Clusters and

the special role of certain hospitals. For example, Queen Mary Hospital (QMH)

is the sole hospital in HA providing Liver Transplantation services for patients

throughout the territory.

As such, it was particularly remarked in Recommendation 3 of the report of the

SC1 published in July 2015 which addressed “enhancing equity in resource

management” as below.

HA should adopt a refined population-based resource allocation

model by reviewing the present approach and taking into

consideration the demographics of the local and territory-wide

population. The refined population-based model should take into

1 The report of the SC can be found on the website of the Food and Health Bureau at

http://www.fhb.gov.hk/cn/committees/harsc/report.html.

http://www.fhb.gov.hk/cn/committees/harsc/report.html


Preface

account the organisation of the provision and development of

tertiary and quaternary services, and hence the additional resources

required by selected hospitals or Clusters, as well as the demand

generated from cross-cluster movement of patients; and

HA should develop the refined population-based resource allocation

model and implement through its service planning and budget

allocation process within a reasonable timeframe. To avoid

unintentional and undesirable impact on the existing baseline

services of individual Clusters, HA should consider appropriate

ways to address the funding need of Clusters identified with

additional resources requirement under the new model, while

maintaining the baseline funding to other Clusters.

For the development of the Refined Population-based Model (Refined Model) in

response to Recommendation 3 where knowledge and expertise are required

for building an objective, robust and validated scientific model, HA had

commissioned the Jockey Club School of Public Health and Primary Care of the

Chinese University of Hong Kong (CUHK) in April 2016 as the external

consultant for developing the Refined Model to facilitate resource analysis.

Through the development of the Refined Model, HA aims to develop an

analytical tool to inform resource allocation among Clusters. In this regard, a

costing exercise for “Designated Services (DS)”2 (such as T&Q services that

operates in designated locations) is carried out to enable data cleansing

(through delineating the corresponding resources and activities of DS from

Clusters’ core services) so as to generate a suitable dataset for building the

Refined Model to facilitate a like-with-like analysis of Cluster resource needs for

Clusters’ core services.

2 Please refer to Section IV for definition of Designated Services (DS).


Preface

This report documents the objective and governance structure of the costing

exercise for DS; definition of DS; the guiding principles, vetting and prioritisation

mechanism; the methodology, approaches and results of the costing of DS; as

well as the limitations encountered.

More details of the Refined Model can be found in the Final Report of

“Development of Refined Population-based Model to Inform Resource

Allocation”. The report is available on the Hospital Authority website at

Internet: http://www.ha.org.hk/visitor/ha_visitor_index.asp?Content_ID=229145

Intranet: http://ha.home/fd/w_strategy_planning%20-%20HFP.htm

http://www.ha.org.hk/visitor/ha_visitor_index.asp?Content_ID=229145

http://ha.home/fd/w_strategy_planning%20-%20HFP.htm


Table of Content

Table of Content

Preface .................................................................................................................... 3

Table of Content ........................................................................................................ 6

I. Expenditure Covered by the Refined Model .............................................. 7

II. Objective ..................................................................................................... 14

III. Governance Structure ................................................................................ 15

IV. Definition of Designated Services (DS) .................................................... 17

V. The Guiding Principles and Vetting and Prioritisation Mechanism ....... 18

1. Acquired Immune Deficiency Syndrome (AIDS) Service ....................................... 18 2. Blood Transfusion Service ....................................................................................... 19 3. Bone Marrow Transplantation (BMT) (Allogeneic) ................................................. 19 4,5,6. Cardiothoracic Surgery (CTS), Heart Transplantation and Lung

Transplantation ......................................................................................................... 19 7. Developmental Disabilities Unit (DDU) ................................................................... 20 8. Forensic Psychiatry .................................................................................................. 20 9. Infectious Disease Centre (IDC) .............................................................................. 20 10. Liver Transplantation ................................................................................................ 20 11. Severe Mentally Handicapped Services ................................................................. 21 12. Toxicology ................................................................................................................. 21 13. Teaching and Research Component in Teaching Hospitals ................................. 21

VI. Costing Methodology ................................................................................. 23

VII. Costing Approaches .................................................................................. 27

VIII. Costing Results .......................................................................................... 33

IX. Communication .......................................................................................... 35

X. Limitations .................................................................................................. 36


I. Expenditure Covered by the Refined Model


HA expenditure comprises operating expenditure and capital expenditure.

Operating expenditure refers to the expenditure to run HA’s day-to-day hospital

services. It covers manpower, drug, consumables and daily maintenance of

equipment and facilities, etc. but is separated from capital expenditure (e.g. for

capital works projects, major equipment acquisition, corporate-wide Information

Technology development).

A Refined Population-based Model (Refined Model)3 was developed in response

to the recommendation of HA Review4 to inform resource allocation. Since the

subject of interest is equity of healthcare expenditure by population

consideration, it is important to perform the following steps on HA expenditure

which can enable data cleansing so as to generate a suitable dataset for

building the Refined Model.

Step 1: Exclude capital expenditure

HA’s capital expenditure is incurred for designated uses and are centrally

planned under a separate mechanism for corporate-wide standards. Capital

3 The Final Report of “Development of Refined Population-based Model to Inform Resource

Allocation” is available on the Hospital Authority’s Internet and intranet (as stated in the Preface).

4 Refers to Recommendation 3 of the HA Review Report which is available on the website at:

http://www.fhb.gov.hk/en/committees/harsc/report.html

http://www.fhb.gov.hk/en/committees/harsc/report.html



expenditure does not directly relate to day-to-day running of core hospital

services and it varies years from years due to the following reasons:

(a) Facilities maintenance and improvement works projects

Capital expenditure on facilities maintenance and improvement work

projects varies between Clusters due to long planning cycles and

different phases for improving the infrastructure to meet service needs.

(b) Medical equipment

The difference in the phasing of replacement cycle for medical equipment

results in variation of capital expenditure incurred among Clusters.

(c) Information Technology (IT) system development

The IT system development in HA are mainly centrally administered. The

corresponding expenditure is separately funded and is not directly

relevant to Clusters’ day-to-day operation.

Hence, capital expenditures should be excluded from analysis to facilitate like-

with-like comparison of resource used for core hospital services between

Clusters as shown below.



Step 2: Carve out of Designated Services

It is common for public healthcare systems to organise highly specialised

services (labelled as DS) and operations in designated locations so as to benefit

from concentration of expertise (not only of healthcare professionals but also

technology setup and facility design, etc.) and economies of scale. This is

particularly relevant in Hong Kong in view of the size of its population and

territory.

As DS are provided in designated institutions for the entire population of Hong

Kong, they serve populations beyond their Cluster boundary and thus are

outside of the scope of the Clustering concept and in turn the Refined Model to

facilitate resource allocation. After deliberation at the Internal Resource

Allocation Model Development Steering Committee (IRAMD SC) (a designated

governance structure set up to oversee the model development and detailed in

Section III) and with the external consultant, it was decided that DS should be

carved out from the Refined Model (as seen in the diagram below) such that the

remaining core hospital and clinic services are more comparable in terms of

scope, nature, and the target population (i.e. within the Cluster’s catchment

locations) intended to serve, which in turn would minimise any potential bias that

may result from the varying provision of DS in different Clusters.



Step 3: Perform other adjustments to facilitate like-with-like comparison

(a) Expenditure not related to day-to-day public services

Resources unrelated to day-today public services are not attributable to

the provision of core hospital services, in which should be excluded from

Clusters’ recurrent resource as shown in the diagram below and

elaborated in following paragraphs:

(i) Private services

Private services are not public services and are not common

across Clusters. Thus, the corresponding costs and activities

should be carved out from the analysis. Costs of private services

are not readily available. For 2012/13, private service income

(extracted from general ledger) was used as a proxy to reflect the

costs of private services. For other relevant years (i.e. 2013/14 –

2015/16), to avoid the distortion arising from 2013 fee revision, the

unit cost of services was based on 2012/13 information and

applied to the private patient activities to come up with the

estimation of cost of private services in each year.



(ii) Alternative Source of Income (ASOI) related expenditure

Since 1991, HA has been initiating different kinds of new activities

which have generated additional income. In 1999, it was agreed

with Government that such income could be classified as ASOI. As

ASOI is not related to core hospital services, those related

expenditures (extracted from general ledger) should be excluded

from the analysis.

(iii) Services to outsiders

Resources and activities for services provided to outsiders (i.e.

Department of Health (DH), Universities, Labour Department,

Correctional Services Department (CSD) and private hospitals) are

not related to core hospital services. To compile Annual Costing

information, hospitals have been reporting these information to

Hospital Authority Head Office (HAHO). These information would

be excluded from Clusters’ resources for like-with-like comparison.

(iv) Hospital commissioning

Expenditures related to hospital redevelopment, expansion and

development are project-based spending and not related to core

hospital services. Such costs should not be counted for as

Clusters’ resources. Such information are also reported by

hospitals during Annual Costing exercise.

(b) Expenditure borne by patients

Self-Financing Drug Items (SFI Drugs) and expenditures related to non-

standard Positron Emission Tomography (PET) services provided by the

Queen Elizabeth Hospital (QEH) and the Pamela Youde Nethersole

Eastern Hospital (PYNEH) are borne by patients. The cost information

can be extracted from general ledger and would be excluded from

Clusters’ resources. Privately Purchased Medical Items (PPMI) are

purchased by hospitals on behalf of patients and do not treated as

hospital expenditure.

http://www.ha.org.hk/pyneh/

http://www.ha.org.hk/pyneh/



(c) Expenditure related to policy directed initiatives

In order to assure like-with-like comparison of expenditure attributable to

the provision of core hospital services, resources relating to policy

directed initiatives should be excluded from Clusters’ resources.

Expenditures (extracted from general ledger) relating to clinical Public-

Private Partnership (PPP) Programme, designated/enhanced services to

Civil Service Eligible Persons, community health call centre (located at

Ruttonjee Hospital and Kwai Chung Hospital) are adjusted. For clinical

PPP programme, as the services rolled out to some districts only,

resources and activities of clinical PPP should be carved out of Clusters’

resources at this stage. This adjustment could be further reviewed with

future development.

Resources relating to support for public crisis (i.e. lead in drinking water

incident), nursing schools and special accommodation ward (located at

Pamela Youde Nethersole Eastern Hospital (PYNEH) and Ruttonjee

Hospital) are also excluded from the analysis. These costing information

are reported by hospitals during the Annual Costing exercise.

(d) Technical adjustments

(i) Electricity

Electricity is charged at different rates by two local electricity

providers covering the Hong Kong Island, Kowloon and the New

Territories. In order to minimise the distortion arising from different

electricity tariff, the lowest unit cost of electricity among Clusters

(estimated by Clusters’ total electricity cost divided by total

consumption unit) is chosen as the base unit cost to adjust the

electricity tariff. In particular, the adjusted electricity tariff of each

Cluster is computed by multiplying the base unit cost with the

respective number of electricity unit consumed and the difference

will be excluded from Clusters’ operating expenditure to facilitate

like-with-like comparison.

http://ha.home/visitor/view_content.asp?content_id=2699&lang=ENG



(ii) Inter-cluster services

Clusters would provide/receive services to/from other Clusters.

Inter-cluster services include staff services, centralised laundry

services 5 , food provision, radiology examination and laboratory

tests. To match cost with activity, inter-cluster services are

reported and mutually agreed by involving hospitals during the

Annual Costing exercise. For the purpose of analysis, these

information agreed by respective hospitals have been adopted in

this costing exercise.

(iii) Resources centrally administrated by HAHO

Expenditure centrally administrated by HAHO that are necessary

for the provision of core hospital services should be allocated to

Clusters to reflect the resources required. Adjustment for Public-

Private Partnership Project of Food Services (PPP food) has been

made in respective years.

After performing the above steps for data cleansing, the resources to be

analysed under the Refined Model are illustrated below (highlighted in red box):

5 In the 7

th IRAMD SC meeting held in February 2016, members opined that centralised

laundry, should be handled as a model adjustment, namely in the form of inter-cluster services, rather than treating it as a DS.


II. Objective

II. Objective

The objective of this costing exercise for DS is to enable data cleansing so as to

generate a suitable dataset for building the Refined Model. To achieve this, the

resource implications of DS (for the years from 2012/13 to 2015/16) need to be

quantified such that the corresponding resources and activities can be

delineated from the resource analysis facilitating like-with-like comparison of

services that are common across Clusters (i.e. recurrent operating expenditure

against core hospital services).


III. Governance Structure


According to the HA Review Action Plan 6 , HA had set up a designated

governance structure to oversee the development of the Refined Model with a

view to building consensus, identifying DS and conducting technical review on

their costing methodologies under the lead of the IRAMD SC, supported by the

Internal Resource Allocation Model Development Working Group (IRAMD WG).

For each DS, a collaboration group namely Costing Subgroup for Designated

Services (CSG DS) represented by Cluster counterparts (such as clinical

frontline, Finance teammates) supported by the Project Team, is responsible to

set out the care model blue print for identifying respective cost components and

propose the methodology/approach to quantify the overall resources (within

HA’s costing framework and available data) used in delivering the DS. The

methodology adopted and costing results would then be reported to the IRAMD

WG and in turn the IRAMD SC for deliberation and endorsement. The overall

governance is summarised in the diagram below.

6 The HA Action Plan on Implementation of the Recommendations of the SC can be found on

the website of the HA at http://www.ha.org.hk/visitor/ha_visitor_index.asp?Content_ID=229145.

http://www.ha.org.hk/visitor/ha_visitor_index.asp?Content_ID=229145


IV. Definition of Designated Services (DS)

IV. Definition of Designated Services (DS)

As remarked in the Report of the SC, T&Q services may serve as a convenient

starting point for defining DS. After reality checking, the IRAMD SC noted that

some T&Q services are available in most Clusters (e.g. autologous bone

marrow transplantation), and hence, does not require delineation from other

core services in the analysis. Whereas, some non-T&Q services (not limited to

clinical services) are limited to specific location(s) (e.g. Blood Transfusion

Services) and should be properly addressed. Through discussing with

stakeholders and deliberating with frontline, the IRAMD SC had endorsed the

following definition for DS.

Designated Services mainly follow corporate direction when setting out

corresponding service delivery models, and are:

(a) highly complex in nature with respect to skill, technology

and/or expertise that are only adequately available in specific

Cluster(s) to serve populations beyond its Cluster boundary,

or

(b) being centralised at specific Cluster(s) to serve populations

beyond its Cluster boundary on operational reasons or

economy of scale.


V. The Guiding Principles and Vetting and Prioritisation Mechanism

V. The Guiding Principles and Vetting and

Prioritisation Mechanism

Guiding Principles

To facilitate the costing work, the IRAMD SC has laid down two guiding

principles as below:

(a) Costing scope should reflect those resources attributable to the provision

of DS (that otherwise would not have incurred to the serving Cluster).

That is, what has “actually incurred” and not what “should be”.

(b) A vetting and prioritisation mechanism for DS should be set up with due

consideration on materiality and data availability.

Vetting and Prioritisation Mechanism

Following the guiding principles, the IRAMD SC had endorsed a vetting and

prioritisation mechanism to identify and shortlist DS for costing based on

materiality and data availability. Clusters had agreed on the mechanism and

submitted their proposals on DS. By April 2016, the IRAMD SC had shortlisted a

total of 13 DS for costing. Below paragraphs briefly describe the background

information of each DS and a summary table of the 13 DS is also appended.

1. Acquired Immune Deficiency Syndrome (AIDS) Service

AIDS service is being managed by service networking between HA and

Integrated Treatment Centre (ITC) of Centre of Health Protection (CHP).

In HA, comprehensive AIDS service provided by Princess Margaret

Hospital (PMH) and Queen Elizabeth Hospital (QEH) included inpatient

and outpatient services, partners screening, nurse counselling,

compliance assessment, Post-exposure Prophylaxis (PEP) and

counselling for needle stick injury, etc.



2. Blood Transfusion Service

Blood Transfusion Service is responsible for ensuring that sufficient

supplies of safe and high-quality blood and blood components are

available for local transfusion therapy patients. One of the service’s most-

important tasks is to motivate the community to make regular blood

donations. The blood donations are then tested for blood groups and

mandatory infection markers before they are processed into various blood

products. Finally, these blood and blood products are distributed to public

and private hospitals for clinical transfusion, which make them available

to patients.

3. Bone Marrow Transplantation (BMT) (Allogeneic)

Bone Marrow Transplantation (Allogeneic) services were provided by

Queen Mary Hospital (QMH) and Prince of Wales Hospital (PWH). The

diseased bone marrow would be removed and replaced by a healthy one.

The scope of services included entire transplantation activities of all

clinical care paths involved (such as transplant coordinator office, workup

for potential recipients/donors, follow-up in subsequent years, etc.) and

other supporting services/overheads (e.g. pathology and radiology

services, etc.) incurred.

4,5,6. Cardiothoracic Surgery (CTS), Heart Transplantation and Lung

Transplantation

In HA, a comprehensive range of CTS services were supported by three

centres namely QMH, PWH (with a Thoracic Surgery satellite site in New

Territories West Cluster (NTWC)) and QEH including adult cardiac

surgery, paediatric cardiac surgery, thoracic surgery, intrathoracic (i.e.

heart and lung) organ transplantation with advanced mechanical

circulatory support.



7. Developmental Disabilities Unit (DDU)

DDU at Caritas Medical Centre (CMC) is the sole centre that provides

medical, educational and rehabilitation services to children with severe

developmental disabilities and complex medical needs in Hong Kong in a

home-like environment.

8. Forensic Psychiatry

Department of Forensic Psychiatry of Castle Peak Hospital (CPH) of

NTWC provides territory-wide mental health services to people who have

both a mental disorder and a history of criminal offence (or who present a

serious risk of such behaviour). The department works closely with the

CSD and other law-enforcing agencies to provide clinical assessment and

treatment to individuals with serious mental illness presenting in the

criminal justice system in Hong Kong.

9. Infectious Disease Centre (IDC)

The IDC at PMH was founded as an aftermath of the outbreak of Severe

Acute Respiratory Syndrome (SARS) in 2003. It is the tertiary referral

centre for mapping infectious diseases in Hong Kong.

10. Liver Transplantation

Liver Transplantation services were only provided by QMH. The diseased

liver would be removed and replaced by a healthy one. The scope of

services included entire transplantation activities of all clinical care paths

involved (such as transplant coordinator office, workup for potential

recipients/donors, follow-up in subsequent years, etc.) and other

supporting services/overheads (e.g. pathology and radiology services,

etc.) incurred.



11. Severe Mentally Handicapped Services

Siu Lam Hospital (SLH) is the only hospital in Hong Kong serving patients

with severe intellectual disability aged 16 or above. It provides

comprehensive rehabilitative and infirmary services exclusively to adult

patients with severe intellectual disability in Hong Kong.

12. Toxicology

Toxicology service comprises four clinical units: the Hong Kong Poison

Information Centre (HKPIC) at United Christian Hospital (UCH), the

Poison Treatment Centre (PTC) at PWH, the Toxicology Reference

Laboratory (TRL) at PMH and the Chief Pharmacist’s Office at HAHO,

with support provided by the Infection, Emergency & Contingency

Department (HAHO).

13. Teaching and Research Component in Teaching Hospitals

According to Section 24 of the Hospital Authority Ordinance (Chapter

113), “Teaching Hospital means the Prince of Wales Hospital or the

Queen Mary Hospital where such hospital is a public hospital” and; also

the main clinical education and research centres in Hong Kong. It was a

common understanding that Teaching and Research (T&R) Component

in the Teaching Hospital has all along been recognised to incur additional

cost to the Teaching Hospitals. Although it is not strictly within the

definition of DS, it is necessary to understand the impact of T&R and

should be addressed along with DS in the Refined Model as far as

practical.



Designated Services (DS) Cluster(s)

1. AIDS Service Kowloon Central Cluster (KCC) Kowloon West Cluster (KWC)

2. Blood Transfusion Service Kowloon Central Cluster

3. Bone Marrow Transplantation (Allogeneic)7 Hong Kong West Cluster (HKWC)

4. Cardiothoracic Surgery8 Hong Kong West Cluster Kowloon Central Cluster New Territories East Cluster (NTEC)

5. Heart Transplantation Hong Kong West Cluster

6. Lung Transplantation Hong Kong West Cluster

7. Developmental Disabilities Unit Kowloon West Cluster

8. Forensic Psychiatry New Territories West Cluster (NTWC)

9. Infectious Disease Centre Kowloon West Cluster

10. Liver Transplantation Hong Kong West Cluster

11. Severe Mentally Handicapped Services New Territories West Cluster

12. Toxicology Kowloon East Cluster (KEC) Kowloon West Cluster New Territories East Cluster


Hong Kong West Cluster New Territories East Cluster

7 For Bone Marrow Transplantation: New Territories East Cluster only provides paediatric

services. In view that some of these paediatrics services would be translocated to the Hong Kong Children’s Hospital, it was not included under the Refined Model and resource analysis for the time being.

8 For Cardiothoracic Surgery: New Territories West Cluster is the Thoracic Surgery satellite site

of New Territories East Cluster.


VI. Costing Methodology


The main objective of this DS costing exercise is to quantify all resources

attributable to the provision of DS that would otherwise not be incurred to the

serving Cluster. Given the diversity of DS, there is no one-fit-for-all methodology

to cost all DS. Instead, each DS would be assessed individually to determine the

appropriate costing approach with due consideration of materiality and data

availability.

Costing Process

To ensure key cost components of the entire care path are being included and

that their resource utilisation would be properly accounted for, the costing

process for DS would generally involve the following steps:

1. Define scope of services

The first step is to seek inputs from clinical professionals for identifying

care pathway and the corresponding patient care services to be included

in the DS costing scope. CSG DS have been set up with members from

frontline, Cluster Finance and HAHO. Each CSG DS has to define and

build consensus on the scope of services for each DS.



2. Identify activities

The next step is to identify activities associated with the care delivery

process / workflow of DS so as to facilitate estimation of the resources

used for DS. It is obvious that alternative ways of delineating an

organisation’s activities or services for costing will yield different sets of

cost information, which will shed light from different perspectives. As such,

it is important to identify the activities which will impact on the meaning of

the ensuing cost information. Clusters should suggest and provide clinical

throughput reference (e.g. Bed Days Occupied (BDO), number of

surgeries, etc.) with supports from frontline and IT.

3. Identify costing components

The next step is to determine relevant costs incurred by hospitals in

delivering the DS. CSG DS will identify the respective cost components

based on the scope of DS defined and propose the

methodology/approach to quantify the overall resources (within HA’s

costing framework and available data) used in delivering DS. Costs of DS

should include operating expenditure incurred by the hospitals in the

provision of DS and, hence, the following costing components of DS have

been identified:-

(a) Direct cost for clinical specialties (e.g., Personal Emoluments (PE),

other charges)

(b) Clinical patient support services (e.g., anaesthetics and Operating

Theatre (OT), pharmacy, radiology, etc.)

(c) Non-clinical patient support services (e.g., portering & domestic

services, catering, etc.)

(d) Hospital overheads (e.g., utilities, repairs and maintenance, etc.)



4. Analyse costs

The next step is to analyse nature of service costs, such as in terms of

fixed costs (e.g. designated team) and variable costs (e.g. non-

designated team, radiology, laboratory tests, etc.).

5. Estimate costs over the activities

The next step is to quantify the cost of resources consumed for the DS. In

this regard, it is important to examine the care delivery process / workflow

to identify the cost drivers contributing to the costing components. A cost

driver is simply a measure to proportionately distribute the cost of

activities to costing component. The choice of cost driver is an important

design issue as it will impact on the meaning of the ensuing cost

information. Considerations for determining cost driver include

meaningfulness, measurability and availability. Once the cost drivers are

identified, one should look to existing systems (not limited to finance

systems) for cost driver measurements. General ledger is a good starting

point especially for direct expenses such as the cost of drugs dispensed,

expensive medical device used, and costs of labour directly linked to the

activity being costed and tracked in systems. On the other hand, support

service expenses (e.g. imaging, pathology services) and overhead

expenses whereby service unit cannot be directly linked to input, one

needs to employ some proxies as a top-down approach (e.g. workload

statistics for radiology) to allocate resources to the respective activities.

With due consideration on the data availability and materiality, resources

of each costing component consumed for the DS can be quantified.



6. Review costing results by stakeholders

The final step is to seek clinical and relevant stakeholders’ review on the

costing results to ensure the accuracy and reasonableness of the costing

results. The costing results would be reviewed by Cluster Finance and

HAHO costing team and clinical input have been sought on the

reasonableness of the costing results. The results would be further

adjusted after review if necessary.


VII. Costing Approaches


Costing was performed following the costing process as stated in “Section VI –

Costing Methodology”, where key cost components of the entire care path were

being included and their resource utilisation were properly accounted. From the

initial experience, costing approaches for the 13 DS could be summarised as

below:

1. Distinct and separate expenditure records

For Blood Transfusion Service and Severe Mentally Handicapped

services, distinct and separate expenditure records from 2012/13 to

2014/15 are maintained. Costing is based on general ledger of respective

years.

2. The cost for delineated workforce, facility, equipment and

consumables that could be separately identified and measured

For Developmental Disabilities Unit, Forensic Psychiatry and Infectious

Disease Centre, costing is based on Specialty Costing results of

respective years (from 2012/13 to 2014/15) with appropriate adjustments

of patient support services costs and overheads.

Similarly for Toxicology, the cost represents cost of designated team

and/or laboratory cost at the PWH PTC, TRL at PMH and HKPIC at UCH

plus costs of clinical and non-clinical patient support services, overheads

of inpatient and outpatient services which were calculated based on

Specialty Costing information.



3. Identify patient activities associated with delivering the patient care

and quantify cost over the activities

For AIDS Service, Bone Marrow Transplantation (Allogeneic),

Cardiothoracic Surgery (including Heart Transplantation and Lung

Transplantation) and Liver Transplantation, clinical activities that cut

across multi-discipline and multi-dimension (from 2012/13 to 2014/15) are

involved.

Cost of DS mainly comprises (i) cost of designated team; and (ii) non-

designated team and other costs. Detailed costing of designated team

has been performed with reference to actual number of full time

equivalent and staff cost by staff type/rank involved. For the cost of non-

designated team and other costs, patient activities associated with patient

care path which cut across multi-discipline would be identified. Supports

have been sought from IT to perform activity data extraction (e.g., number

of patient days, value of drugs dispensed, radiology workload, number of

attendances for specialist outpatient services etc.) based on the

extraction criteria provided by Clusters. The resources consumed for

each activity will be estimated accordingly.

Broad brush approach for 2012/13 and 2013/14 costing

In view of the time constraints, for Bone Marrow Transplantation (Allogeneic),

Liver Transplantation, Cardiothoracic Surgery (including Heart Transplantation

and Lung Transplantation) of Hong Kong West Cluster, the costs of designated

team and non-designated team in 2012/13 and 2013/14 were estimated by

deflating the 2014/15 cost with relevant Annual Pay Adjustment (APA)

composite rates; whereas other costs are estimated by deflating the 2014/15

cost using relevant corporate key assumptions for 2013/14 and 2014/15 budget

plan % change.



Broad brush approach for 2015/16 costing

In March 2017, the IRAMD SC endorsed to adopt a broad brush approach of the

above (paragraphs 1, 2 and 3 above) for 2015/16 costing and elaborated in the

following paragraphs.

For Blood Transfusion Services, Infectious Disease Centre, Developmental

Disabilities Unit, Forensic Psychiatry and Severe Mentally Handicapped

Services, 2015/16 costing information are readily available. Costing is based on

2015/16 Specialty Costing results or general ledger.

For the remaining seven DS (including AIDS Service, Bone Marrow

Transplantation (Allogeneic), Cardiothoracic Surgery, Heart Transplantation,

Liver Transplantation, Lung Transplantation and Toxicology), cost mainly

comprises (i) cost of designated team; and (ii) non-designated team and other

costs which are quantified based on the following:-

(i) Cost of designated team

The cost of designated team will be uplifted using APA composite rate for

2015/16 unless there are significant changes (e.g., filled vacancy, new

initiatives, etc.). In such case, detailed costing of designated team will be

performed.

(ii) Non-designated team and other costs

The cost of non-designated team and other costs will be quantified based

on the projected 2015/16 unit cost multiplied by the 2015/16 activity of the

services. The projected unit cost will be based on 2014/15 DS unit cost

(i.e. cost per patient day / cost per attendance) uplifting by relevant

service cost growth rates of relevant hospitals. For the activity data, IT

performed activity data extraction (e.g., number of patient days / number

of attendances / number of visits) based on the extraction criteria

provided by Clusters.



4. Fall back on costing framework & methodological approach as laid

down in the report published jointly by the University Grants

Committee (UGC) and HA in 1998 and make relevant updates with

latest available information with respect to growth in volume and

associated costs

The Consultant and IRAMD SC both noted that the T&R Component has

all along been recognised to incur additional cost to the Teaching

Hospitals. Although T&R is not strictly within the definition of DS, it was

agreed that its impact should be treated similarly with other DS when

building the Refined Model as far as practical.

The Costing Subgroup on T&R Component in Teaching Hospitals

recognised the complexity of the undertaking as no discrete

financial/activity information for T&R is readily available as for other DS.

Therefore, the IRAMD SC had endorsed the Subgroup’s suggestion to

fall back on the strategy on the costing framework and methodological

approach as laid down in the report published jointly by the UGC and HA

in 1998 titled “The Impact of Teaching, Research and Development on

Teaching Hospitals” and make relevant updates with the latest available

information with respect to the growth in volume and associated costs.

Rather than targeting for a precise costing figure for funding purpose, the

exercise aims to analyse the impact and arrive at a reasonable proxy for

the additional cost on T&R incurred by the Teaching Hospitals. A high-

level estimate was made on the extra efforts relating to the following

components:-

(a) Research;

(b) Development of new tests, standards, and references;

(c) Medical records management;

(d) Undergraduate teaching; and

(e) Overhead costs of accommodation occupied by University staff on

hospital premises.



Updates to the various components would be made with respect to the

growth in volume and associated costs. Such approach was supported by

the IRAMD SC, and the Committee on Teaching Hospitals (THC).

Resource estimations for 2014/15 and 2015/16 were derived using the

aforementioned methodology. To arrive at the resource estimations for

2012/13 and 2013/14 (to facilitate time trend analysis on Cluster

resources), the HA service cost growth rates were applied to the 2014/15

results.



The above costing approaches were summarised in the table below.


VIII. Costing Results


By July 2017, the costing results of 13 DS (from 2012/13 to 2015/16) were

completed by the Costing Subgroups with total cost in 2015/16 amounting to

around HK$ 3.4 billion as summarised in the table below (i.e. around 70% of the

total cost of all submitted DS proposals and around 6% of HA’s total operating

expenditure – shown in the diagram below).

Designated Services Cluster 2012/13 ($million)

2013/14 ($million)

2014/15 ($million)

2015/16 ($million)

1. AIDS Service

KCC KWC

112 28

121 37

137 50

152 67

2. Blood Transfusion Service KCC 252 278 299 323

3. Bone Marrow Transplantation (Allogeneic)

HKWC 133 142 145 174

4,5,6. Cardiothoracic Surgery, Heart Transplantation and Lung Transplantation

HKWC KCC

NTEC NTWC

285 157 118 28

301 164 120 31

319 178 139 30

349 192 156 32

7. Developmental Disabilities Unit KWC 61 61 61 60

8. Forensic Psychiatry NTWC 127 131 140 143

9. Infectious Disease Centre KWC 135 152 142 153

10. Liver Transplantation HKWC 209 220 226 236

11. Severe Mentally Handicapped Services

NTWC 185 198 214 222

12. Toxicology KEC KWC NTEC

20 23 25

23 24 16

26 26 21

29 35 22


HKWC NTEC

509 463

529 481

563 512

565 502

Total cost 2,870 3,029 3,228 3,412



The relative magnitude of the resources in 2015/16 for DS, other adjustments,

and core hospital services for the seven Clusters as well as the HA are

summarised in the figure below.

Note

HKEC Hong Kong East Cluster

HKWC Hong Kong West Cluster

KCC Kowloon Central Cluster

KEC Kowloon East Cluster

KWC Kowloon West Cluster NTEC North Territories East Cluster NTWC North Territories West Cluster


IX. Communication

IX. Communication

Throughout the development of the Refined Model (including the costing of DS)

stakeholders were engaged including HAHO (such as Information Technology

and Health Informatics (IT&HI) Division and Strategy & Planning (S&P) Division)

& Clusters’ counterparts with a view to aligning the understandings on data

requirements (e.g. extraction criteria for patient lists, data specification, etc.),

defining roles and responsibilities and working out the master schedule for the

purpose of estimating the activities and associated resources of each DS.

From 2015 to 2017, a total of around 30 working level meetings mentioned

above were conducted. Besides, views and feedback were also solicited from

Cluster management and frontline through Cluster senior management

meetings, 9 hospital visits, 28 staff forums and release of an interim report.

The HA Board and relevant functional committees such as the Executive

Committee, Medical Services Development Committee, Finance Committee and

Administrative and Operating Meeting have been kept informed of the key

development milestones. Media workshops and briefings were also made to the

public and Food and Health Bureau whenever necessary.


X. Limitations

X. Limitations

Being an initial experience, limitations exist in the aforementioned costing of

various DS. Nevertheless, these ground work could serve as the starting point

for further refinement through subsequent costing and continuous review if

necessary. Below summarises the major limitations encountered during costing

exercise (from 2012/13 to 2015/16).

Bottom-Up Costing

Bottom-up costing approach has been adopted to cost AIDS service, Bone

Marrow Transplantation (Allogeneic), Cardiothoracic Surgery, Heart

Transplantation, Lung Transplantation and Liver Transplantation. Bottom-up

costing approach quantifies resource utilisation at the patient or individual

service level, and aggregate patient/ service level utilisation data to identify the

type of resources used and to calculate the costs of specific services. This

approach breaks down the patient’s care process into discrete activities, which

is necessary to deliver a particular service. Cost measurement is performed

separately for each activity. Inputs from clinical professionals are sought for

identifying care pathway and the corresponding patient care services to be

included in the DS costing scope.

The adoption of bottom-up costing requires each costing component along care

pathway to be costed. Hence, the accuracy of the costing result of DS largely

depends on accuracy of the costing of each and every possible expenditure and

their completeness. Significant time and manpower are required to retrieve /

collect the information regarding the activities of each costing component and to

calculate the cost of each component so as to derive the total cost of a DS.

In contrast to top-down costing where the departmental cost is disaggregated

into units of services, the costing of DS under the bottom-up approach is based

on the activities and their associated costs identified throughout the care


X. Limitations

pathway, which leads to the difficulty in reconciling the calculated DS costs with

the departmental cost. In addition, while bottom-up costing is generally regarded

as more comprehensive and accurate, it should be noted that the costs of some

component (those other than designated team) are derived based on unit costs

calculated as an average cost per unit of output, which may over or

underestimate the real cost of resource consumption.

Broad Brush Approach Adopted

In view of the complexity and time constraint of the costing exercise, costing of

certain DS for 2012/13, 2013/14 and 2015/16 were performed under a broad

brush approach (e.g. uplifting 2014/15 costing result by APA composite rate for

designated team and relevant growth rates for other costs to derive 2015/16

estimated cost). This costing approach was deliberated in IRAMD WG and

endorsed in IRAMD SC meetings. For details of broad brush approach adopted,

please refer to “Section VII – Costing Approaches”.

As mentioned above, bottom-up costing approach is time-consuming and

labour-intensive while broad brush approach may be less accurate but it is

easier to perform. Under broad brush approach, the accuracy of costing results

depends on the validity of key assumptions made, such as insignificant change

in DS service scope, mode of service delivery, designated team and cost profile

of services in the years concerned. These assumptions have been reviewed and

the adoption of broad brush approach is considered as acceptable to facilitate

the analysis under Refined Model.

Costing of Pathology Services

Given the nature and operation of pathology services, they involve a varying

degree of automation, clinical judgment and even some pathology tests require

a higher level of professional inputs from pathologists (e.g. chemical

pathologists, haematologists, immunologists and anatomical pathologists, for


X. Limitations

data analysis and interpretive reporting). Costing of pathology services is

complex and it has always been a challenge to assign pathology cost to better

reflect the resources deployed. In August 2016, the issue on the lack of

objective basis for apportioning cost among different types of pathology tests

was discussed in the IRAMD WG which advised that the Project Team should

work with representatives from Coordinating Committee (COC) (Pathology) to

identify an appropriate proxy for costing pathology services and need to come

up with an interim approach.

In February 2017, IRAMD SC supported the WG suggestion and endorsed to

adopt using the percentage of pathology cost over total hospital cost for

estimating the pathology cost of DS provided by respective hospitals. Under this

interim approach, for DS involving pathology tests which are complicated and

require more resources, the cost of pathology services of the DS may be

understated. However, for HA overall, pathology cost is insignificant as

compared to total service cost, it is of the view that the costing of pathology

services will not adversely impact the overall DS costing result.

Scope of DS included in this Costing Exercise

The DS proposals were submitted by Clusters and 13 DS were included in this

costing exercise under the Vetting and Prioritisation Mechanism as mentioned in

“Section V – The Guiding Principles and Vetting and Prioritisation Mechanism”.

These 13 DS represent around 70% of all submitted DS proposals (based on

initial cost estimates from Clusters).

Prepared by:

Finance Division

Hospital Authority Head Office

Hospital Authority Building

147B Argyle Street

Kowloon, Hong Kong

Copyright © 2017

All rights reserved. No part of this publication may be reproduced, stored in a

retrieval system, or transmitted in any form without the prior permission of the

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