review of the victorian ambulatory classification & funding system

Department of Human Services

Review of the Victorian Ambulatory

Classification & Funding System

Enhanced VACS A Reformed Funding and Classification Model

Final Report and Implementation Plan

April 2008

Department of Human Services VACS Funding and Classification Model Options Report

April 2007

Table of Contents

Executive summary 1

1 Introduction 11

2 History and current system 14 2.1 Role of outpatients 14 2.2 Policy objectives and rationale for VACS 15 2.3 Overview of VACS 16

3 Rationale and issues influencing the review 21 3.1 Patient flow collaborative - outpatients 21 3.2 Auditor-General’s report on specialist medical outpatient care 23 3.3 Outpatient Improvement and Innovation Strategy 24 3.4 Preliminary consultations with Victorian health services on

VACS 25 3.5 Strategic directions for outpatient services 30 3.6 The Australian Health Care Agreement and national views on

public hospital outpatient services 32 3.7 Concluding comments 32

4 National and international approaches to outpatient classification and funding 33

4.1 Outpatient classification and funding in other countries 33 4.2 Australian approaches to outpatient classification and funding 34

5 Outpatient activity analysis 39 5.1 Data sources used for the analysis 39 5.2 Trends in outpatient activity 41 5.3 Level of MBS clinics 43 5.4 Outpatient activity for individual health services 44 5.5 Growth in types of outpatient services 46 5.6 Outpatient service distribution across health services 49 5.7 New and review patients 51 5.8 Summary – key findings on outpatient activity 51

6 Outpatient funding and cost analysis 54 6.1 Funding trends under VACS 54 6.2 Relationship between funding and cost of outpatient services 56 6.3 Trends in costs of different types of outpatient clinics 59

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6.4 Cost variations across health services and outpatient clinics 61 6.5 Explaining variations in costs of outpatient services 61 6.6 Variation in the costs of resource inputs 62 6.7 Summary – key findings on outpatient funding and costs 64

7 Analysis of funding and classification model issues 66 7.1 Multidisciplinary care 67 7.2 Assessment, triage and integration of outpatient and

community-based services 74 7.3 Promoting timely discharge and management of patients in the

community 76 7.4 Private MBS clinics 80 7.5 VACS specified grants 81 7.6 Base grant 88 7.7 Teaching grant 89 7.8 Clinical support services under the VACS variable grant 90 7.9 VACS category refinement 96 7.10 Weighted encounters 96 7.11 Funding caps 98 7.12 Extending VACS to other hospitals 98

8 A funding and classification model framework 102 8.1 Approach to developing a funding and classification model 102 8.2 Policy objectives and principles 102 8.3 Funding model options 104 8.4 Classification model options 109

9 A reformed funding and classification model 111 9.1 Overview of model structure 111 9.2 Variable clinical streams payments 114 9.3 Multidisciplinary care and care plan conferencing 121 9.4 Early assessment and linkage services 124 9.5 Fixed grants – base grant 125 9.6 Fixed grants – teaching grant 126 9.7 Specified grants – ambulance 128 9.8 Other specified grants (non-ambulance) 128 9.9 Reform and innovation grant 130 9.10 The non-VACS hospitals 130 9.11 Improving the operational effectiveness of VACS 131 9.12 Comparison of current and proposed model 132 9.13 Comparison of program objectives and proposed model 133

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10 Implementation approach 135

Tables Table 1 Milestones in the development of VACS...............................................16 Table 2 Outpatient categories under VACS and reporting to the Australian

Government, 2006/07........................................................................................18 Table 3 Outpatient improvement issues from the Patient Flow Collaborative....22 Table 4 Trends in public outpatient activity and targets, 2001/02 to 2005/06 ....42 Table 5 Activity in MBS clinics in selected health services, 2005/06 .................43 Table 6 VACS medical & surgical activity by health service ..............................45 Table 7 VACS allied health activity by health service ........................................46 Table 8 Trends in VACS medical & surgical weighted encounters, 2001/02 to

2005/06 .............................................................................................................48 Table 9 Trends in VACS allied health activity, 2001/02 to 2005/06 ...................49 Table 10 Concentration of outpatient activity across health services, 2005/06 ...50 Table 11 New encounters by VACS clinic category.............................................52 Table 12 Trends in VACS funding, 1998/99 to 2006/07.......................................55 Table 13 Comparison of VACS funding and reported costs, 2001/02 to 2005/0658 Table 14 Average cost trends by VACS clinics, 2001/02 to 2005/06...................60 Table 15 Average cost per unweighted encounter by clinic & hospital, 2005/06 .62 Table 16 Input costs by VACS clinic type, 2005/06 .............................................63 Table 17 Multidisciplinary care at three selected health services, 2006 ..............72 Table 18 VACS specified grants for each Health Service, 2006/07.....................83 Table 19: VACS ambulance specified grant and expenditure on ambulances for

outpatient services, 2006/07..............................................................................84 Table 20 Assessment of criteria for splitting medical imaging costs ....................94 Table 21 Non-VACS hospitals – Activity, Revenue and Cost Analysis, 2005/06 .99 Table 22 Non-VACS analysis summary.............................................................101 Table 23 Summary of differences between the current & proposed funding

models 132 Table 24: Summary of Model Objectives and the Proposed Model ....................133 Table 25: Aggregate Costs & Funding for CWS hospitals - 2001/02 to 2005/06143 Table 26: Exclusion criteria for outpatient data, 2005/06 ....................................144 Table 27: Excluded costs by hospital, 2001/02 to 2005/06.................................145

Figures Figure 1 Schematic diagram of the Funding model elements ...............................8 Figure 2 Schematic of Project Methodology........................................................11 Figure 3 Outpatient pathways .............................................................................14

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Figure 4 Schematic diagram of outpatient data sources .....................................40 Figure 5 Trends in public outpatient activity & targets, 2001/02 to 2005/06........42 Figure 6 VACS funding components, 2006/07 ....................................................54 Figure 7 Annual increases in VACS funding, 1998/99 to 2006/07 ......................56 Figure 8 Average cost distribution trend by clinic, 2001/02 to 2005/06...............59 Figure 9 Victoria’s model for multidisciplinary care for cancer services ..............68 Figure 10 Outpatient reform approaches in Western Australia .............................75 Figure 11 Austin Health discharge awareness campaign .....................................78 Figure 12 New model of care for diabetes patients, Princess Alexandra Hospital78 Figure 13 Share of input costs by VACS clinical category, 2006/07 .....................91 Figure 14 Schematic diagram of decision tree framework ..................................102 Figure 15 Schematic diagram of the model elements .........................................113 Glossary of terms

ACG Ambulatory Care Group AHCA Australian Health Care Agreement AIMS Agency Information Management System APC Ambulatory Payment Classification APG Ambulatory Patient Group CPC Care Plan Conferencing CRAFT Casemix Rehabilitation and Funding Tree CT Computed Tomography CWS Cost Weight Study DACS Developmental Ambulatory Classification System DBC Dutch acronym for diagnosis/treatment conditions DCG Diagnostic Cost Group DHS Department of Human Services DNA Did Not Attend DRG Diagnosis Related Group DVA Department of Veterans’ Affairs EAL Early Assessment and Linkage ENT Ear, Nose and Throat GVH Goulburn Valley Health IT Information Technology LRH La Trobe Regional Hospital

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MAPT Management and Prioritisation Tool MAS Metropolitan Ambulance Service MBS Medicare Benefit Schedule MDC Multidisciplinary Care MI Medical Imaging MRI Magnetic Resonance Imaging NACRS National Ambulatory Care Reporting System NHS National Health Service NMDS National Minimum Data Set NSW New South Wales OFRS Outpatient Funding Reform Sub-Committee OWL Orthopaedic Waiting List PbR Payment by Results PBS Pharmaceutical Benefits Scheme PET Positron Emission Tomography SA South Australia SACS Sub-acute Ambulatory Care Services TRG Technical Reference Group UK United Kingdom UR Unit Record (Medical Record) US United States VACCDI Victorian Advisory Committee of Casemix Integrity VACS Victorian Ambulatory Classification & Funding System VAED Victorian Admitted Episode Database VPACT Victorian Policy Advisory Committee on Clinical Practice and Technology WIES Weighted Inlier Equivalent Separation

Disclaimer Please note that, in accordance with our Company’s policy, we are obliged to advise that neither the Company nor any employee nor sub-contractor undertakes responsibility in any way whatsoever to any person or organisation (other than the Department of Human Services Victoria) in respect of information set out in this report, including any errors or omissions therein, arising through negligence or otherwise however caused.

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Executive summary History and current system Outpatient services are an important part of the continuum of care for many patients. They provide pre-admission and post-disch arge care for patients with plan ned admissions, ongoing management of patients with chronic disease or complex health problems, and a referra l and diagnostic service for GPs and specialists for comple x patients.

The Victorian Ambulatory Classificat ion and Funding System (VACS) was introduced in 1997. The introduction of an output-based funding system for outpatients paralleled the use of casemix f or inpatient s. It also allowed Victoria to demonstrate its commitment to public hospital outp atient services in the context of financial penalties that had been imposed by the Commonwealth Government.

VACS is a classification system b ased on 35 weighted medical and surgical clinical specialties and 11 unweighted allied health specialties. It is used for funding outpatient care at 17 h ealth services. As a fu nding mode l, VACS includes variable grants, base grants, teaching grants and specified grants. Health services are funded up to alloca ted targets, with targets being set separately for medical and surgical services, and for allied health services.

VACS has remained largely unchanged over th e last 10 years, so that its review is now timely.

Drivers for the review Many issues are driving the need to reform VACS.

The need to improve ou tpatient service delivery has led DHS to undertake a patie nt flow collab orative on outpatients. It is also undertaking the development o f a comprehensive Outpatie nt Impro vement and I nnovation Strategy, focussing on t he five areas of access and the primary care interface, o utpatient flo w, outpatient experience, outpatient w orkforce and data and performance management. A critical task will be the develo pment of a Strategic Directions fr amework that outline s t he future role and scope of Victorian public hospital outpatient services.

The Auditor-General’s 2 006 report on specialist medical o utpatient care raised so me issues on the funding model and the substitutability of outpatient services and pr ivate MBS clinics in public hospitals. These issu es are particularly crucial given the forthcoming negotiation of the Australian Health Care Agreement.

Victorian he alth service s raised some importa nt ideas for reform of VACS durin g consultation meetings with DHS in late 2006. These included operational issues on the scope and costing of each of th e various funding model elements in VACS. Also discussed were proposals to align fu nding model incentives with emergi ng models of care and other policy drivers such as the need for workforce flexibility.

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December 2007

The state of play in other jurisdictions

Classification systems for ambulatory care ha ve been examined from the United States, Canada, the Un ited Kingdo m and the Netherlands. These sy stems are n ot readily translatable to Victorian pu blic outpatie nt services, given differences in t he organisation of care b etween these countr ies and Aust ralia. Many internatio nal approaches also rely on patient-level data and/o r involve mo re complex classificat ion and management systems that would not achiev e comme nsurate retu rns relative to the level of investment and effort required.

There have been thre e major Australian eff orts to deve lop national ambulatory classification systems, none of which have yet produced an implementable and superior model compared with VACS.

Queensland and South Australia have also introduced output-based classification and funding syst ems for out patient services that are broadly similar to VACS. There is minimal e vidence about the impac t or imple mentation issues associa ted with th e elements of these models that differ from the VACS system.

Understanding outpatient activity This project has involved extensive analysis of outpatient activity, funding and cost s, using data from the Agency Information Management System (AIMS), the annual Cost Weight Studies (CWS) and supplementary d ata provide d by health services. Key findings from this analysis are presented.

The number of patients treated in VACS-funded public hospital outpatient services has been greater than funded activity targets for mo st of the period between 2001/02 to 2005/06. The level of unfunde d public pa tient activity in medical and surgical outpatient clinics ranged from 4.0% in 2001/02 t o 8.8% in 2002/03, averaging 5.2% over the pe riod. The gap between patients tre ated and activity targets was slightly less for allied health services, ranging from 2.5% in 2001/02 to 4.8% in 2002/03.

There are a lso private MBS-billed clinics in many public hospitals th at are provi ding similar services to publicly funded outpatient clinics. MBS clin ics may represent a relatively high share of total medical specialist care in some hospitals. Selected data on MBS-billed clinics indicates th at these clinics are more likely t o be providing medical (rather than surgical) specialist service s. This is consistent with the finding that there has been a much higher level of growth in VACS surgical weight ed encounters (24%) tha n in VACS medical w eighted en counters (1 0%) between 2001/02 and 2005/06.

There is considerable variation in the patterns of growth of different types of outpatient services fu nded under VACS. Moreo ver, individual public ho spitals exhibit considerable variation in the type and range of outpatient services provided.

The majority of outpatient visits are for ongoing treatment of review patients, with on ly 21% of visits for new patients.

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Understanding outpatient funding and costs The majority (68%) of payments u nder VAC S are variable payments for medical, surgical and allied health services. Between 1998/99 and 2 006/07 the VACS funding budget grew at an average annual rate of 8.8%, or 5.6% in real terms.

A comparison of funding and costs of outpatient services (based on data from t he Cost Weight Study) sug gests that VACS fundin g was 3.4% higher than the costs of delivering outpatient services in 2005/06. However this analysis is confounded by the difficulties of correctly adjusting for pharmaceutical costs.

Between 2001/02 and 2005/06 the average cost of an outp atient encounter increased by 28.8%. However the average costs of some allied heal th encounters reduced over this period.

In 2005/06 the average total cost per unw eighted encounter was ~$249. T he standard deviation across all clinics was $110, indicating relatively high cost variation across clinics and health services in the cost of delivering outpatient services.

Almost two-thirds of the costs of outpatient services are staff ing costs, with pharmacy and medica l imaging combined making up a further 27 %. Togeth er, these th ree inputs constitute 93% of all costs of outpatient services.

Many factors can pot entially con tribute to reported diff erences in the co sts of outpatient services, wit h only some of these f actors suita ble for in corporation in a funding model. Cost variation can b e due to diff erences in: the costing systems used and the met hod of cost allocation; t he resource inputs; underlying patient complexit y, models of care; clinica l practice patterns; and the level of public/private provision of relevant services.

Evaluation of issues to inform a new funding and classification model A range of complex issues relating to em erging service models, broa d policy issues and the design of a funding and classif ication system ha ve been e valuated. This assessment has been critical in shaping the recommendatio ns for a ne w model that enhances the Victorian Ambulatory Classification and Funding System.

It is recognised that multidisciplinary care is an important element of effective, patient-centred car e for some patients. Multidiscip linary care involves medical and allied health care professionals working collaboratively as an integrated team to consider treatment options for individual patients. A ref ormed funding and classification model should support the evidence-based use of multidisciplinary care, while allowing clinical practice to evolve.

A new funding and classificat ion model should also suppo rt the timely assessment and triage of patients referred to outpatient services, encouraging more timely access for patients and greater workforce flexibility.

There are currently 37 VACS specified grants – 14 relat ing to ambula nce outpatient charges and 23 other grants.

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December 2007

An analysis undertake n for this project indicated that there was no relation ship between the level of spending on ambulance services an d the size o f the specified grant.

A set of a ssessment criteria ha s been developed to re view the other 23 VACS specified grants and group them into one of two categories. It is reco mmended that Group 1 sp ecified grants be retained on an ong oing basis, but be referred to VPACT for independent assessment of th e clinical ef fectiveness of the servi ces provided under these grants. It is recommended that Group 2 specified grants be translated into existing or new VACS medical and su rgical categorie s or absorb ed into oth er DHS program funding streams, under the supervision of the VACS Clinical Panel.

The contrib ution of clinical suppo rt services (pharmacy, pathology and medical imaging) to explaining variation in the costs of outpatient services between clinics and health services has been examined. PBS and Section 100 pharmaceuticals should be excluded fr om the cost weights a s they are funded thro ugh separat e, non-VACS funding streams. Pathology costs are appro priately included in exi sting variable payments. High medical imaging costs di sproportionately impact on a small number of VACS clinical spe cialties and a range of funding model option s have be en considered to recognise these high costs.

It is recom mended that clinical specialties continue to form the backbone of classification of outpatient services. A dditional categories should be e stablished for multidisciplinary care, care plan conferencing, early assessment and linkage, a nd splits/new categories relating to me dical imaging (subject to further assessment) a nd the translation of existing VACS specified grants.

Allied health services should be weighted as part of a single cost pool within the VACS medical categories, with a sha dowed transit ion to reco gnise the need to improve the robustness of the allied health cost ing data. D HS should set a sing le target acro ss medical and surgical and allied health services.

An analysis was undertaken to co nsider the inclusion o f four non-VACS funde d hospitals into VACS. The analysis indicates that:

The nature and level of reported activity at Casey Hos pital and L atrobe Regional Hospital would suggest that they do not provide a ‘typical’ specialist outpatient service at this time, and would not be suitable for VACS funding;

Maroondah Hospital provides a typical suite of specialist outpatient services and that Maroondah move to VACS funding in t he near future. (This would include the translation o f the current non-admitted patient g rant into VACS targets); and

Goulburn Valley Hospital may be considered for VACS funding over the next few years, with the option of a tran sition grant to enable a smooth transfer to VACS. Thi s may also enable GVH to de monstrate that higher service volumes (and a broader range of clinics) can be provided.

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December 2007

Overview of a funding and classification model framework It is proposed to refresh the principles and policy objectives for VACS.

The principles proposed are:

1. Output driven approach . Funding would be based on actual ser vices delivered, rather than service capac ity, se rvice input s or treat ment processes.

2. Transparency. The allo cation/distribution of fu nding to he alth services must stand scrutiny.

3. Comprehensive means of service categorisation. The classificat ion system needs to ca pture the full range of services provided through public hospital outpatient services.

4. Simplicity and relevance. The funding and classification system needs to be readily understood and make sense to staff in public hospitals.

5. Efficient ser vice delivery. There ar e benchmarks or band s of associated costs within which services are expected to be delivered.

6. Evidence-based models of clinically effective care. The system supports clinical cha nges to improve/enh ance patie nt clinical outcomes and satisfaction with care.

7. Flexibility. The funding model should be able to support (even encourage) dynamic ch anges in service provi sion and innovative, evidence-based models of service.

8. Robust. Th e system needs to be backed up by common definitions and accurate and consistent mechanisms for data capture and retrieval.

9. Ease of i mplementation. This relates to minimising cost s and reporting burden on health services.

10. An auditable service delivery system . Adequate accountability and monitoring mechanisms must be available to ensure th at the syst em is performing in line with its objectives.

The proposed strategic objectives of the VACS funding and classifica tion model are to:

Be patient-focused;

Ensure a clinically meaningful classification system;

Ensure a sustainable outpatient service (incl uding reliab ility, efficien cy and accountability in the delivery of public outpatient services);

Promote improved access;

Support best practice evidence-based models of care;

Support workforce substitution;

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December 2007

Ensure a simple and transparent funding model;

Support car e in the co mmunity and an enhan ced role for GPs and other community based service providers in the ongoing management of c linically appropriate patients;

Recognise patient choice and the compleme ntary role o f private specialist services in various settings; and

Recognise the important role of clinical teaching in the outpatient setting.

Three main funding and classification models have been explored.

1. Episodic payment model.

2. MBS-based payment model.

3. Enhanced VACS model.

Each option offers a very different approach and they illustrate the alternative structure of funding outpatients and the different ‘drivers’ and impacts that each model may have on t ype and vol umes of s ervices provide. The three models essentially represent choices on a continuum.

At this stag e in the evo lution of fun ding models for outpatie nt services, an enhanced version of t he current VACS mod el is the mo st feasible. It is able t o meet the key principles and objectives of the funding, with fewer shortcomings and uncertainties.

The elements of the proposed Enhanced VACS model The main features of the ‘enhanced VACS’ model include:

Output-based funding approach combined with a sing le measure and a sing le variable payment (price) for equivalent service outputs.

The weighting of service outputs that broadly reflect service costs.

A classification system that re tains clinica l disciplines/streams at its core, However, it is proposed to extend the current clinic-based classification system to incorporate best practice approaches of:

a. Early assessment and linkage (EAL) ‘clin ics’, which recog nises ‘front end’ costs associated with patient triage, service substit ution and diversion;

b. Multi-disciplinary care (MDC) ‘clinics’; and

c. Care plan conferencing (CPC) ‘clinics’.

It is also proposed to further extend the classification system by ‘splitting’ some existing VACS codes where there is a meaningful differen ce in service costs for discrete cohorts of patients, and where the existing patient profile within a clinic is not of sufficient granularity.

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December 2007

Other new clinics co uld potentia lly em erge following the examina tion of relevant specified grants by the VACS Clinical Panel.

A funding structure based on:

Variable payments for measurable service outputs; and

A small range of fixed grant pa yments wh ere service s are not conducive to variable (output-based) payments.

There are five types of variable payments:

Weighted encounters f or individual patient att endances f or medical, nurse and allied health practitioners;

Weighted e ncounters f or group se ssions, for nurse and allied heal th practitioner led services;

Weighted multi-disciplinary care encounters;

Weighted care plan (case) conference payments; and

Weighted early assessment and linkage payments.

There are three types of fixed grant payments:

Teaching grant;

Reform and innovation grants; and

Specified grants.

A single capped VACS target across all outpatient services.

The model excludes provision of capital/infrastructure funding.

Within this framework, the propose d structure or key ele ments of th e funding a nd classification model is outlined in Figure 1.

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December 2007

8

1

Specialist Clinic or Service

Figure 1 Schematic diagram of the Funding model elements

Weighted paymentPatient specific service by medical specialist, nurse

practitioner, specialist nurse or allied health professional

Multi-Disciplinary Care

Care Plan Conferencing

Weighted PaymentPatient specific service involving three medical specialists

with at least one nurse or allied health practitioner

Weighted (Sessional) PaymentPatient specific Care Plan Conference involving at least 4 health care professionals and including at least 3 medical

specialists

Variable Payment Components

Weighted paymentGroup Session by nurse or allied health professional

Level 2

Weighted paymentPatient specific service involving at least three health care

professionals, one of whom is a medical specialistLevel 1

Weighted paymentPatient specific service by suitable health care professional

involving the assessment/triage and referral of patientsEarly Assessment & Linkage

Teaching Grant A % of Variable VACS Target plus private clinic attendances

Reform & Innovation Grant

Grant for innovative improvements and service reconfiguration consistent with policy objectives, good practice and service quality. Selective availability of

grants.

Fixed Payment Components

Grant where a variable payment is not appropriate or due to the specialised or unique nature of the service.Specified Grant


December 2007

A summary of the main differences between t he current and proposed model a re outlined below.

Current Model Proposed Model

Clinic-based classification system with 35 medical and 11 allied health categories

Clinic-based classification system with additional categories comprising: 1 EAL clinic (new type of clinic); 2 MDC clinics (new type of clinic); 1 CPC clinic (new type of clinic). Patient not required to be in

attendance; and At least three split clinical categories.

Weighted medical and unweighted allied health clinical categories

Weighted medical and allied health clinical categories (including weighted EAL, MDC and CPC clinics).

Two separate VACS targets for medical and allied health clinical categories

One VACS target over all clinical categories.

Fixed payments: Base grant. Teaching Grant on

an historical basis Specified Grants

Fixed payments Discontinue Base Grant. Retain Teaching Grant and fund on % of patient activity. Retain a reduced number of Specified Grants. Introduce Reform and Innovation Grant.

Medical clinical categories requiring attendance/ supervision of medical specialist

Medical clinical categories requiring attendance/ supervision of a medical specialist or a nurse practitioner, with the option of expanding role substitution through enhanced scope of practice of nurses and allied health practitioners.

VACS sites confined to hospital campus Locational flexibility as to where VACS services are provided.

The followin g table iden tifies the re lationship be tween the objectives of the funding and classification model and the proposed model.

Model Objectives Proposed Model

Patient-focused

Retention of output based funding approach. Retention of encounter based approach to funding. Supporting individual patient care planning through MDC & CPC

clinics. Elimination of Base grant.

Clinically Meaningful Classification System

Retention of clinical categories as the backbone of the classification system.

No overlap or duplication of patient categories unlike other systems. Sustainability – reliability, efficiency & accountability

Retention of payments based on weighted encounters. The development of weights based on costs.

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December 2007

VACS funding of services where there is a reliable, high volume of services.

Retention of monitoring and reporting systems that ensures integrity of activity data.

Elimination of Base grant.

Improved Access

More prompt assessment and booking of referred patients through EALs.

Potential for provision of VACS at locations flexibly determined by health services.

Support best-practice evidenced-based model of

care

Introduction of MDC clinic categories. Introduction of Care Plan Conferencing clinic categories. Introduction of Early assessment & Linkage clinic categories.

Support workforce substitution

Inclusion of EAL, MDC and CPC clinics that assist in workforce substitution.

Introduction of Nurse Practitioners for medical clinic categories. Scope for introduction of broader role substitution through expanded

scope of practice.

Simple and transparent funding model

Retention of clear funding components. Simple basis and explanation of how model components might

operate.

Support care in the community

Timely ‘discharge’ of patients through review mechanism (EAL). Introduction of effective substitution and diversion of referrals

though EALs. Inclusion of health care professionals from outside the entity in CPC

and MDC clinics.

Recognise patient choice and complementarity of

private specialist services

Enhanced reporting of private clinic activity. Enabling VACS to operate in conjunction with private ambulatory

clinics.

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December 2007

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1 Introduction The Victorian Department of Human Services (DHS) has engaged Asp ex Consulting to review the Victorian Ambulatory Classification and Funding System (VACS). Th e project team comprises Dr Sharon Willcox (H ealth Policy Solutions), Peter Axten, Jim Swinden and Leo Curran (Aspex Consulting), Simon Rush (SyRis Consulting) and Dr Terri Jackson (Casemix Consulting).

The project objectives set by DHS are to:

Evaluate the existing VACS fu nding syst em and the current fundin g arrangements for the larger non-VACS funded health services;

Make recommendation s on the de velopment of a more refined VACS/output based funding system for outpatient services; and

Provide advice on the suitability of l arger non-VACS hospitals to transi tion to the VACS funding system.

The approach adopted for the review of VACS is shown in Figure 2.

Figure 2 Schematic of Project Methodology

Agency Cost Data Collection

Draft Report


Project Establishment

Develop and Evaluate Funding Reform Options

Develop Analytical Framework

Consultations

Situation Assessment

Methodology for Data Collection and Analysis

Stage A Report (and Work Plan for Stage B)

Analysis of Clinic Structures/Costs

Review of VACS Grant Components(Variable, Base, Teaching & Specified)

Review Non-VACS Hospitals

Assessment Report – Base and Teaching

Assessment Report –Specified Grants

Outpatient Funding Options Report

STAG

E A

STAG

E B

STAG

E C

STAG

E D

Steering Com

mittee &

Technical Reference G

roup

Agency Cost Data Collection

Draft Report


Project Establishment

Develop and Evaluate Funding Reform Options

Develop Analytical Framework

Consultations

Situation Assessment

Methodology for Data Collection and Analysis

Stage A Report (and Work Plan for Stage B)

Analysis of Clinic Structures/Costs

Review of VACS Grant Components(Variable, Base, Teaching & Specified)

Review Non-VACS Hospitals

Assessment Report – Base and Teaching

Assessment Report –Specified Grants

Outpatient Funding Options Report

STAG

E A

STAG

E B

STAG

E C

STAG

E D

Steering Com

mittee &

Technical Reference G

roup


December 2007

This report represents the completion of Stage D and has built upon work in earlier stages. Fo llowing the project commencement in April 20 07, previous stages a nd reports comprised:

Stage A – Situation assessment and development of analytical framework: the Stage A An alytical Framework and Broad Fun ding Model Options Report was completed in June 2007;

Stage B – Data collection and analysis, together with funding model development and evaluation: three reports were prepared:

o the Analysis Progress Report completed in November 2007;

o the Funding and Classification Model Options Report co mpleted in December 2007; and

o the accompanying short VACS Re view Consultation Paper completed in December 2007;

Stage C – Consultations were held from January to March 2008 with o ver 130 participants from 19 h ealth services and with DHS pro gram staff. Healt h service consultation s covered a broad range of participa nts, includin g Chie f Executives, medical, nursing and allied health staff, finan ce, corporat e and planning staff, director s of ou tpatient and am bulatory ser vices, and clinical information managers. The findings were reported in a Consultations Outcome Report in March 2008; and

Stage D – Final report and implementation plan: this report modifies the Stage B Funding and Classification Model Options Report based on the consultation findings to present the Final Report and Implementation Plan.

In addition to the Stage C consult ations, the project ben efited from the input a nd oversight of two commi ttees comprising a mix of health service and DHS staff a s follows:

The Outpatient Funding Reform Sub-Committee (OFRS) had lead oversight for reviewing all deliverables under this project; and

A Technica l Reference Group (TRG) pro vided information and advice specifically in relation t o health se rvice activity and cost data required to support the development of a new classification and funding system.

Further info rmation on these co mmittees is included in Appendix A. Aspe x Consulting wishes to acknowledge the valuab le contribution of health service and DHS staff on these committees. In addition, all health services invested considerable time and effort in providing data on which the analysis was based and in sharing th eir ideas for the reform of VACS during the consultations. This project would not have been possible without the extensive participation and support of health services.

This Final Report and Implementation Plan is organised as follows.

Sections 2 to 4 comprise the situation assessment or first part of this report.

Section 2 provides an overview o f the role o f outpatient services in public hospitals and the establishment and current operation of VACS.

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December 2007

Section 3 explains th e context and issue s influencing t he review. These include the patient flo w collaborative on outpatients, th e Auditor-General’s report on specialist medical outpatient services, the Outpatient Improvement and Innovation Strategy, the outco mes of consultation s with Victorian health services on necessary reforms to improve VACS, the development of a Strategic Directions framework for outpatients, and the forthcoming negotiation of the Australian Health Care Agreement.

Section 4 i dentifies ap proaches to classification and fun ding of outpatient services used internationally and in other Australian states and territories.

Sections 5 to 7 presents the result s of the analysis and evaluation undertaken for this project and comprise the second part of this report.

Section 5 examines trends in outpatient activity including growth relative to targets; the types of outpatient services that are growing most rapidly and the distribution of outpatient services a cross public hospitals; t he mix of n ew and review patients; and the level of substitutable services provided through private MBS clinics.

Section 6 identifies tr ends in f unding of pu blic outpa tient service s under VACS. It also examines the relatio nship between funding levels and the cost of providing public out patient serv ices. Varia tion in the cost of delivering outpatient services between health services is examined. Factors tha t might explain cost variation a re consider ed, together with e xamining the relative contribution of various resource inputs (such as staff ing, diagnostics and pharmacy) to the cost of outpatient services.

Section 7 e xamines a range of co mplex issues relating to emerging service models, br oad policy issu es an d the de sign features of a fund ing and classification system.

Sections 8 to 10 present proposals for the development of reform to VACS an d comprise the third part of this report.

Section 8 outlines a framework for the development of a funding and classification model f or outpatie nt services, includ ing identifying policy objectives and principles that should guide the reform of VACS. It id entifies broad alternative approaches to the developmen t of funding and classification models

Section 9 outlines the elements of the proposed fundin g and classification model – the enhanced VACS model. For each of the model elements, th e report identifies the current situation , the proposal released for consultation, findings fro m the consultation meetings and the final recommendati ons. A comparison of the cur rent and pr oposed model is provided, togeth er with demonstrating how the proposed model meets the policy objectives.

Section 10 presents an outline of a staged approach to implementation of the enhanced VACS model. It identif ies the elements of the model that co uld be implemented in the early stages and other elements which will require further developmental work.

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2 History and current system This section provides an introductio n to the role played by outpatient services in t he public hospital system, together with an overvie w of the purpose and key features of the Victorian Ambulatory Classification and Funding System.

2.1 Role of outpatients

Victorian p ublic hosp ital outpatien t departments provide scheduled non-admitted services to a broad array of patients with differ ent needs. Services provided include: pre-admission and post discharge care for patients with p lanned admissions; ongoing management of patients with chronic disease or complex health problems, particularly for patients in need of affordable specialist and multidisciplinary care; and a referral and diagnostic service for GPs and specialists for complex patients. Services include access to medical spe cialists (for both medical and surgi cal patient s), allied he alth professionals and diagnostic services such as pathology and imaging.

Outpatient services are an important part of the continuum and journey of care for many patients, as illustrated in Figure 3.

Figure 3 Outpatient pathways

Outpatient services are provided at most Victorian public ho spitals. Th e exception is some small rural hospitals that would be classified as ‘local health services’ under the Rural Directions integra ted area-based plannin g framework (DHS, 2005) – these hospitals are historically equivalent to Group D and E hospitals. However, the focus of this project is the outpatient services provided at the 17 VACS funded health services, rather than the 105 smaller metropolitan and r ural hospita ls that provide outpatie nt services funded through non-admitted block grants.

The delivery of outpatient services occurs wi thin the context of a co mmitment by all Australian g overnments (federal, state and territory) to th e principles of Medicare. This includes the choice for consumers as public patients to access free of charge a ll public ho spital service s, including inpatient, outpatient and emergency services.


December 2007

Patients ca n also cho ose to u se private ho spitals and receive tr eatment fro m specialists in the community, with Medicare providing subsidies towar ds the cost of these medical services. Hence, the re is considerable overlap between the service s provided through public hospital outpatient departments and the service s provided by private specialists and allied health professionals in other settings.

2.2 Policy objectives and rationale for VACS

VACS was introduced o n 1 Ju ly 1997, followin g several years of dev elopment. This included studies on alternative approaches to the classification of ambulatory services and the development and testing of resource weights for the clinical specialties.

The context for the introduction of VACS hel ps explain its intended objectives . Victoria was the first Au stralian state to introduce casemix funding in Ju ly 1993 as the basis of paying for inp atient services. The movement away from historical or block grant funding was seen to offer sig nificant advantages in encouraging hospitals t o make better decision s on the optimal use of re sources. It promoted efficiency while ensuring th at clin ical d ecisions ab out the ran ge and use of particu lar services w ere continued to be made by clinical staff in public hospitals. Casemix or output-based funding provided improved accountability to go vernments, through being able to l ink the funding invested in public hospitals to t he delivery of a specified volume of services.

Having pioneered the introduction of casemix in Australia, the Victorian Department of Human Services (DHS) devoted co nsiderable energy to the development of a similar output-based system t o describe and pay for outpatient services. This task w as complicated by the ab sence of a recogni sed and robust classifi cation system for outpatients, either in Australia or internationally, similar to diagnosis r elated grou ps (DRGs) for inpatient services. Section 4 discusses this issue in more detail.

Concurrently, the Australian Government im posed substantial ‘cost-shifting’ penalties on many st ates and ter ritories (including Victoria) commenc ing in 1996/ 97. It argued that higher than average growth in Medi care Benefits Schedule (MBS) expenditure was due to reductions in the level of public ho spital outpatient services provided an d funded by states and territories. The use of an output-based classification and funding system for outpatient services ensured that Vi ctoria was able to argue and publicly justify its o ngoing commitment to the provisio n of free public hosp ital outpatien t services. This differed from some other jurisdictions, which either had historically low levels of public outpatient services or had privatized their outpatient services.

The stated policy objectives of VACS are to:

1. Improve fairness in terms of allocation of funding across hospitals and maintain service efficiencies;

2. Create a profile or bro ad descript ion of services provide d by acute public hospitals;

3. Provide incentives to maintain and restructure hospita l outpatient se rvices to improve services for patients; and

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4. Identify possible ‘gaps’ and duplications and enable more detailed service planning.

There are d iffering views about the extent to which VACS has been succe ssful in meeting each of these objectives. Sections 3 an d 8 examine the issue of what should be the policy objectives to guide a funding and classif ication system f or outpatient services into the future.

2.3 Overview of VACS

2.3.1 History of the development of VACS

Key milestones in the creation an d ongoing development of VACS a re identified in Table 1, as they relate to outpatient services (noting that VACS also partially funds emergency services).

Table 1 Milestones in the development of VACS

Year Milestones influencing VACS

1993 Release of Discussion Paper, Funding for Non-Admitted Patients, canvassing options for funding non-admitted services

1993-1995 Shadow-billing of outpatient services using the MBS and PBS for the Royal Children’s Hospital and Geelong Hospital

1995 Establishment of the Victorian Ambulatory Classification System Advisory Committee 1995-1997 Development and refinement of relative resource weights for non-admitted patients

1997 VACS introduced on 1 July 1997 1998 VACS was introduced for Bendigo and Ballarat health services

2000-01 Two new VACS categories introduced – cardiac rehabilitation (610) and hydrotherapy (611)

2002 Commencement of ‘pharmaceutical reform’ where agreed hospitals could access the PBS and Section 100 (chemotherapy drugs) for admitted patients upon discharge and non-admitted patients including outpatients

2005 VACS clinical verification and activity audit undertaken

2005/06 Outpatient reporting categories to the Australian Government expanded from 9 to 23 categories

2006 VACS clinic schedule moves from annual to quarterly reporting

It can be seen in Table 1 that following its lengt hy 4-year initial develop ment phase, VACS has remained qu ite stable with only relat ively minor changes to the services and hospitals included under VACS over the past 10 years. This is in sharp contrast to the inpatient funding model, where t here have been exte nsive refinements to the elements and operation of WIES (weighted in lier equivalent separations) on a regu lar basis (for example, ‘tender’ WIES, recall policy, same-day medical caps). There have been no similar changes to the broad incentive structure under VACS since its inception in 1997.

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2.3.2 Scope of hospitals under VACS

DHS so metimes refers to VACS as covering 1 9 ‘major’ ho spitals acro ss 17 health services (the 14 metro politan health services and the 3 rural health services of Ballarat, Barwon and Bendigo). Th is grouping of 19 major hospitals is arrived at b y separating out Monash Medical C entre and Dandenong Hospital w ithin Southe rn Health and Western Hospital and Sunshine Hospital within Western Health.

This grouping of 19 ‘major’ hosp itals pre-dates the estab lishment of ‘health services under the Health Services Act and is a term th at is no longer frequently used and hence, subject to possible misinterpretation. It implies that VACS fu nding is only available to the 19 largest hospitals. However, this is somewhat misleading as some of these 19 major hospitals include smaller hospitals that also have access to VACS targets (for example, Moorabbin is included under Monash Medica l Centre a nd Rosebud is included un der Frankston Hospital in being able to access VACS funding targets). M oreover, the reference t o 19 m ajor hospitals m asks the fa ct that VACS funded services are provided at different locations or sites for some of these hospitals (for example, some outpatient services under the control and funding of The Alfred are provided at community health centres).

Given these complicatio ns with the use of the ‘major hospital’ groupin g, this repo rt generally presents data at the most aggregate level of the 17 health services.

In addition, DHS has re quested advice on the suitability o f 4 hospital s (Maroonda h Hospital, Casey Hospital, Goulburn Valley Hospital and La Trobe Regional Hospital) to transition to a VACS f unding model. Together with the 17 VACS funded health services, this comprises the scope of hospitals examined in this report.

2.3.3 The ‘classification’ elements of VACS

As a classification or counting system, VACS is based around clinica l specialties, with the system currently comprising 35 weighted and 12 unweighted clinical specia lties. The 35 wei ghted clinical specialt ies generally correspond to medical and surgical disciplines ( with one notable exception being VACS 209 or pre-admi ssion clinics). The unweighted categ ories comp rise allied health services (11 categories) a nd emergency medicine (VACS 550) which, as already noted, is outside the VACS outpatient funding system.

In Table 2, the 47 categories used under VACS are comp ared with the 23 outpatient categories (unweighted encounters) reported to the Australian Govern ment under the Australian Health Care Agreement (AHCA). Refinements to the classification basis of VACS arising from this project must ensure that the Victorian Go vernment is able to comply with its outpatient reporting requirements to the Australian Government.

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Table 2 Outpatient categories under VACS and reporting to the Australian Government, 2006/07

Outpatient categories reported under AHCA VACS clinic categories

1 Allied Health

2 Dental

3 Gynaecolog y

4 O bstetrics

5 Car diology

6 Endocrinolog y

7 Oncolog y

8 Respirator y

9 Gastroent erology

10 Medical

11 General practice/primary care

12 Paediatric

13 Endoscop y

14 Plastic surgery

15 Urolog y

16 Ortho paedic surgery

17 Ophthalmolog y

18 Ear, nose and throat

19 Pre-admission and pre-anaesthesia

20 Chemothe rapy

21 Dialy sis

22 Surger y

23 Paediatric surgery

101 General Medicine 102 Allergy 103 Cardiology 104 Diabetes 105 Endocrinology 106 Gastroenterology 107 Haematology 108 Nephrology 109 Neurology 110 Oncology 111 Respiratory 112 Rheumatology 113 Dermatology 114 Infectious Diseases 115 Developmental Neurological Disability 201 General Surgery 202 Cardiothoracic 203 Neurosurgery 204 Ophthalmology 205 Ear, Nose and Throat 206 Plastic Surgery 207 Urology 208 Vascular 209 Pre-admission 301 Dental 310 Orthopaedics 311 Orthopaedic Applications 350 Psychiatry & Behavioural Disorders 401 Family Planning 402 Obstetrics 403 Gynaecology 404 Reproductive Medicine 405 Dysplasia and Colposcopy 501 Paediatrics Surgical 502 Paediatrics Medical 550 Emergency Medicine 601 Audiology 602 Nutrition 603 Optometry 604 Occupational Therapy 605 Physiotherapy 606 Podiatry 607 Speech Pathology 608 Social Work 609 Other Allied Health Services 610 Cardiac Rehabilitation 611 Hydrotherapy

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The ‘casemix’ nature of VACS relat es to how the patient e ncounter is constructed. Under VACS the patie nt encounter is based on a visit t o a medical or surgical outpatient clinic, with bu ndling in of all re lated services (in cluding ancillary services and diagnostic services) within a 30 day windo w on either side of the clinic visit. By definition, the patient en counter in a medical or surgical specialty involves a patient having a one-on-one encounter with a doctor.

DHS publishes a series of Frequently Asked Questions that cover issues related to the counting of outpatient services under VACS. These show some of the key features of the existing approach to counting activity under VACS including:

Clinics involving multiple health pro fessionals with a sing le patient (whether 2 or more medical clinicians, 2 or more allied health professio nals, or 2 or more medical/allied health professionals) are all counted as the one encounter;

Clinics that are run in a group format are count ed as one occasion of service, irrespective of the number of patients or the number of h ealth professionals involved in the group;

Nurse-led clinics are currently included in t he unweighted allied health categories. The only exception to t his is VACS 402 Obstet rics under w hich a midwife may run the clinic;

Services that do not inv olve the physica l presence of a pat ient (e.g. telephone or electronic contacts) are not counted separately; and

Offsite services are g enerally not included and counted under VACS, which is limited to ‘acute services that ge nerally have to be co nducted wit hin the hospital’. DHS notes th at there may be exceptions for ‘outspoke’ clin ics which are fully staffed and funded by the hospital at a location outside the hospital.

Health services have ra ised signif icant concerns about some of these counting and classification rules under VACS and these will be further considered in Section 3

2.3.4 The ‘funding’ elements of VACS

As a funding model, VACS comprises five main elements, namely:

Variable grant for me dical, surgical and obstetric clinics , determined b y the number of weighted encounters;

Variable grant for allied health clinic occasions of service;

Base grant provided to cover costs associat ed with fixed costs and se rvices provided to patients o utside def ined clin ical categories ( for example, phone consultations and calls, administration of patients etc);

Teaching grant provided to recognise the important role of teaching with in the hospital setting; and

Specified grants provided for highly specialised services and/or services that cannot reasonably be funded by encounters.

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In addition t o these five ‘core’ elements, DHS i ntroduced ‘elective surgery’ varia ble payments in 2005/06. These essentially supplement the existing variable payment s and are int ended to support an increased capacity to assess a nd r eview surgical patients. However, these addit ional VACS targets are n ot ‘tied’ or otherwise audited for their use, so it re mains at th e discret ion of health services as t o the types of services and patients treated using the elective surgery variable payments. As not ed in Section 2 .1, outpatie nt departments treat a broad range of patient t ypes and th e VACS fundi ng model does not in clude any specific ‘purch asing’ ro le f or DHS wit h regard to the types of outpatient services actually provided.

VACS fund ed health services ar e allocated targets a nnually for the ‘variable’ components of VACS – medical and surgical specialty encounters and allied healt h occasions of service. DHS does not fund outpatient activity above the VACS target in each health service’s b udget (except for DVA activity which is fully fu nded by DVA). Where health services do not meet activity targets under V ACS, 100% of any shortfall between act ivity and target is subje ct to re call. The exce ption is that DHS allows health services to ‘con vert’ betwe en their me dical/surgical targets and their allie d health targets.

Funding is available at the price annually determined by DHS for each unit of output up to a maximum, capped level of funding. Medical/surgical encounters are weighted to reflect the relative cost of examining and treating different types of patients, with the weights derived from annual cost weight studies. The ‘standard value’ of a medical/surgical ‘weighted encounter’ – or VACS unit – was $158 in 2007/08. T his means, for example, that a card iology patie nt attendan ce would a ttract variab le funding of $240.16 (based on a weight of 1.52) whereas a reproductive medicine specialty patient would attract variable funding of $115.18 (based on a weight o f 0.729). The price of the outpatie nt service is intended to include all clinical support service staff, diagnostic and pharmacy costs. Allied health occasions of service have a standard flat variable payment (i.e. they are unweighted), which was $56 in 2007/08.

Within VACS funded hospitals, fun ding is on ly available f or clinics th at have been individually approved by the VACS Clinical Panel. The Panel, comprising clinicia ns, health service representatives and DHS staff, meets annu ally. It ass esses whether new clinics meet the criteria for inclusion in VACS, considers applications for specified grants and may also consider policy changes t o the VACS funding model. The fo cus of the VACS Clinical Panel is unde rtaking ‘clinical verification’ of new clinics – that is, how similar the new clin ics are to existing clinics within the 47 category classificatio n system. T he VACS Clinica l Panel does not have any role in decision-making on funding of new clinics, with these decisions being made by relevant DHS branches a s part of the budget and activity target negotiations.

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3 Rationale and issues influencing the review This section identifies th e policy con text and drivers shaping the decision by DHS to review VACS. There have been several streams of activity over the last 1-2 years that have created a heightened awareness of the need to reform the delivery and financing of outpatient services. Initiatives examined in this section include:

The patient flow collaborative on outpatients;

The Auditor-General’s report on specialist medical outpatient services;

The Outpatient Improvement and Innovation Strategy;

The outcomes of consu ltations held by DHS with selected Victorian Health Services on VACS;

The development by DHS of a Strategic Directions Framework for outpatient services; and

The Australian Health Care Agreement renegotiations and national deb ate on the management and funding of public hospital outpatient services.

3.1 Patient flow collaborative - outpatients

In 2006 DHS commenced Stage 2 of the patient flow collaborative with a major project focussing o n outpatient services. Consultations with the health sect or prior to the project’s init iation had r evealed a high level of enthusiasm for improvin g the patien t experience in outpatient departments.

In a 1997 literature revi ew commissioned by DHS (Jackson et al, 19 97), outpatient services we re describ ed as be ing historically the ‘poor cousins’ of the Australia n health system. This was based on a view that the traditiona l organisational structure of outpatient services had remained largely immune from the type of business process redesign th at had be en applied to other components of public hospital care. Moreover, it was suggested that the inadequate customer focus of many outpatient departments represente d a continu ation of the ideology of the pre-Me dicare perio d when outpatient departments provided free specialist care for ‘the poor’.

Since 1997 most policy effort, both in Victoria a nd across Australia, has been directed towards improving the operational efficiency of public ho spitals in tr eating elective surgery patients and p atients in e mergency departments. However, the in tegral nature of o utpatient se rvices and t heir close r elationship with other health services shown in Figure 1 mea ns that outpatient reform is an inte gral element of impro ving service delivery across the continuum of public hospital services.

The Outpatients – Patient Flow Collaborative involved twenty teams from metropolitan and rural hospitals and community health services, with all the VACS funded health services participating in the Collaborative. Table 3 lists the areas for improve ment in outpatient service delivery that were raised during the Patient Flow Collaborative (DHS, 2007a).

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It is eviden t that some of these iss ues are potentially amenable to improvement through enhancements to the classification and funding system for outpatient services. For exampl e, the cla ssification a nd funding model can potentially incorporate incentives around the ra te of discha rge of patie nts or the mix of workforce deliverin g care. This is not to suggest that VACS is the on ly mechanism to achieve these ends. Rather, the intention is to acknowledge that the incentives and operation of VACS will need to alig n with the broad policy directions f or outpatien t services t hat are being distilled from the Outpatients – Patient Flow Collaborative and other sources.

Table 3 Outpatient improvement issues from the Patient Flow Collaborative

Factors impacting on the delivery of outpatient services include:

Access

Triage of referrals Lack of availability of investigation results pre-appointment Lack of functional information prior to appointment Too few discharges from clinics Chronic high failure to attend rate Unsch eduled appointments/overbooking

Referral of patients to other services

Need for clinical referral guidelines Time required to complete paperwork for referral No discharges to primary health Lack of collaboration between community health and acute services Lack of discharge protocols to support safe and appropriate discharge to GP management

Process

Lack of business rules F ixed booking system Manual handling of patient records Multiple contact points Inconsistent process to deliver pathology results

Workforce issues

Lack of role definitions and allocations Lack of standard guidelines for care Under-utilisati on of staff

Other issues

Timely and appropriate access to interpreter Victorian Ambulatory Classification System (VACS) issues Relationship with elective surgery waiting list Traditional consultant-focused model of care

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3.2 Auditor-General’s report on specialist medical outpatient care

In June 2006 the Victorian Auditor-General released a performance audit report on access to specialist medical outp atient care in Victorian public hospitals (Audit or General Victoria, 2006). The three broad areas of perfor mance exa mined in this report were whether:

The funding and target setting process was responsive to service needs;

State-wide planning for outpatient service delivery was effective; and

Sound data was available for planning and performance monitoring.

Some of the issues ra ised by the Auditor-General are outside the direct scope of t his project. Fo r example, issues re lating to: the planning of outpatient services, th e development of clinical prioritisat ion protocols, and ensuring compliance with the Australian Health Care Agreement are not dire ctly in scope. Some issues ( similar to those raise d in the Pa tient Flow Collaborative) ma y be influenced by changes t o VACS, but may primarily be achieved through other means. For example, the Auditor-General suggested improvements to the effe ctive operation of outpatien t clinics and the collection of more comprehensive information on outpatient services.

The Auditor-General also raised th e issue of substitutability between VACS fund ed clinics and MBS billed clinics loca ted within public hosp ital outpatien t departments. The report commented that the dual funding streams (Victorian Government for VACS and Australian Govern ment for MBS billed clinics) “create both flexibility and complexity for health services in making decisions about service delivery”.

The Auditor-General noted that some health services take a business case approach in making d ecisions ab out the est ablishment of new clinics. Fa ctors that may be considered include: the capped nature of VACS funding and whether a health service was expected to be ov er or under their VACS target; the d irect and indirect costs of operating clinics including downstream co sts such as diagn ostic services, pharmaceuticals and allied health; a nd the medical remuneration models in p lace a t the health service. The substitutabi lity of VACS-funded and MBS-billed services has significant implications in the desig n and struct uring of funding incentives for public outpatient services under VACS.

In regard to this current review of VACS (that had been for eshadowed by DHS during the conduct of the audit), the Auditor-General recommended that:

The funding model provide adequate incenti ve and flexibility for health services to consider emerging models of care; and

The activity target setting process take into a ccount the number of people waiting for outpatient care and the length of time they have waited.

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In its respo nse, DHS noted that t he issue of emerging models of ca re would b e considered in the Outpatient Improvement and Innovation Strategy, as well as bein g addressed t hrough the planning fra mework for integrated a mbulatory care, Care in your Community (DHS, 2006). In r egard to tar get settin g, DHS noted that multiple factors con tribute to ta rget setting includ ing community health availa bility, private specialists’ availability and whether the healt h service ha s undertake n any relevant service reviews.

3.3 Outpatient Improvement and Innovation Strategy

Concurrent with the Auditor-General’s inquiry, DHS commenced development in 2006 of the Outpatient Improvement and Innovat ion Strategy. Under this St rategy, DHS has identified short term, medium term and long term opportunities including:

Short term: there is a need to improve the quality and access o f existing services in line with priorities devel oped by the Outpatient Improvement and Innovation Advisory Committee and recommendations arising from the Auditor General’s report;

Medium term: there is an opportun ity to consider options for reform of the outpatient system in the context of the Australian Health Care Agreement; and

Long term: the interface with primary care is a key point of focus and a shift to providing more community based specialist services needs to be explored.

Outpatient funding refor m is one of the six major work areas being adv anced under the Strategy, with the other five areas comprising:

Access and primary care interface;

Outpatient flow;

Outpatient experience;

Outpatient workforce; and

Data and performance measurement.

This work p rogram is being overseen by t he Outpatient Improvement and Innovation Advisory Committee. The Outpatient Funding Reform Sub-Committee is oversighting this current project an d reports to the overarching Outpatient Improvement a nd Innovation Advisory Committee.

Several of the streams of work being unde rtaken thro ugh the ot her five su b-committees are likely to have implications for VACS. For example:

The Access and Primary Care Interface sub- committee is e xamining ways to improve the interface b etween primary care and outpatient services in cluding alternative advice mechanisms such as email and web-based communication. This has implications for the funding model which is largely based on variable payments for visits that are in turn based on the physical presence of p atients and does n ot explicitly recognise t he broader GP support, assessment and triage role of outpatient departments.

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The Outpatient Flow sub-committee is developing and piloting evidence-based patient care pathways, including prioritisation guidance and discharge criteria across a number of clinical specialties. There is potential scope for this work to be reflected in the fu nding model. This could occur both indirectly, through changes to clinical specialty weights flowing from the adopt ion of new models of care, an d directly to the extent that the fun ding model provides sp ecific incentives to encourage the use of patient care pathways.

The Outpatient Workforce sub- committee is examining team-based approaches to care provision, including the role of multidisciplina ry an d multispecialty care. As will be discussed in th e next section, the perceived shortcomings of VACS i n funding multidisciplina ry care are a key concern for health services.

3.4 Preliminary consultations with Victorian health services on VACS Prior to the April 2007 commencement of this project by Aspex Co nsulting, D HS undertook p reliminary consultation s on VACS with a representative sample of 16 health services in November and December 2006. The consultatio ns were semi-structured w ith a strong focus on testing the ad equacy of t he existing VACS model (e.g. basis and adequacy of compon ents such as the base grant and teaching grant ) and identifying barriers to clin ical b est pract ice associated with VACS. DHS also sought information on the use of multidisciplinary clinics and asked health services to more broadly consider what elements of a f unding syst em are important to t he effective delivery of outpatient services.

This sectio n reports on the findings from th ese DHS c onsultations prior to th e commencement of this project. Findings from the consultations undertaken by Aspex Consulting during this project have been reported in the Stage C Consultation Outcomes Report and have also been incorpo rated in the final proposals in Sectio ns 8-10 of this report.

DHS has p osted on its website a summary of the key themes arising from these consultations and ha s also made available to Aspex Consulting the detailed responses from individual health services. Our analysis of these responses suggests that they fall into two main categories as follows:

Operational issues related to the scope and costing of existing funding elements; and

Program de sign issue s as to whet her the funding model creates the ‘right’ incentives.

In general, health services did not use these consultat ion meetings to put forwa rd views on more fundamental cha nges to the organisat ion, delivery or funding of outpatient services. So me of these broad policy issues we re instead raised in the Strategic Directions Workshop conducted by DHS in September 2007.

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3.4.1 Operational issues on scope and costing of VACS elements

Health services raised a variety of issue s rela ting to the adequacy of the existin g VACS elements in recognising the costs incurred in the delivery of outpatient services.

3.4.1.1 Base grant The lack of transparency (separate costing and identification) of functions included in the Base Grant was a concern for some health services. Issues included:

Functions t hat were considered t o be inadequately funded were: telephone consultations, patient discharge, management of outpatient waiting lists, scheduling and handling of ‘did not attends’, interpr eting services, and transport.

Health services suggest ed that explicit funding of telephone consultations for pre-admission encount ers could b e used to e ncourage direct subst itution for personal visits, as the latter are funded under VACS variable payments.

While some health services supported greater specification of costs included in the Base G rant (and separation o ut of variab le from fixed elements) , other health services questioned the continued relevance of a separate Base Grant.

This was p articularly t he case w here health services d id not spe cifically allocate the Base Grant to outpatient clinics (with similar issues applying to the VACS Teaching Grant). In this sit uation, som e health se rvices supp orted rolling some or all of the Base Grant into the variable grant.

3.4.1.2 Teaching grant

The appropriate level an d treatment of teaching costs were raised by several health services as follows:

One health service sug gested that while the teaching component represented about 5% o f VACS funding, it was likely that teaching ha d a much g reater impact on increasing clinic times or reducing the number of patients seen.

It was also noted that teaching occurs across multiple sett ings and th at the VACS teac hing grant was not always alloca ted to outp atient clinics. Some health services noted t hat the relationship with universities operate d at a clinical unit level, rather than occurring discrete ly within inpatient or out patient settings.

There were mixed views about the treatment of t he teaching grant, with some health services wanting it to remain separately identified while others proposed rolling it into the Training and Development grant.

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3.4.1.3 Variable payments

Some issues were raised about the ability of the variable payments to adequatel y reflect costs incurred by health services. Issues raised were as follows:

The existing 47 VACS categories may not be sufficiently gr anular to capture differences in the complexity of pati ents treated within individual catego ries. DRGs were viewed as having greater capacity to incorporat e clin ical complexity, due to the inclusion of specific diagnostic and patient demographic factors such as age.

Another possible proxy of complexity is the sch eduled or actual appoin tment time in the outpatient clinic. However, health services noted that time -based payments contained perverse incentives.

The recogn ition of co mplexity in a classification and f unding model was recognised as likely to add to the reporting burden of health services, wit h unclear benefits in terms of direct patient care.

Another factor potentially driving hi gher costs might be ru ral location, noting that WIES incorporates higher payments in rural areas. The outpatient funding model ma y not be sufficiently responsive to the greater reliance on fe e-for-service payments for doctors in rural areas.

3.4.1.4 Allied health payments

Some health services suggested that the existing payment was too low and too blunt. It was considered that t here was significant variation in costs across a nd within the various allied health clinic types. Examples of services that were consid ered by some health services to be more costly were ph ysiotherapy, podiatry, orthotics a nd specialist nurse clinics.

3.4.1.5 Costs of diagnostic services, prostheses and equipment

Several hea lth services raised con cerns about whether th e VACS pa yments were sufficient to meet the costs of associated diagno stic services. This was an issue both for medical/surgical clinics and for allied healt h clini cs. E xamples given by health services included:

The payme nt for an on cology clinic encounter is $220, while some patients may require a CT scan at a cost of $240.

The payme nt for an ob stetric clinic encounter is $129, while the co st of an ultrasound is about $120.

Nuclear medicine an cillary services often exceed the f unded cost s for oncology and orthopaedic clinic patients.

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Some allied health clinics, su ch as speech pa thology, may provide patients with high cost equip ment such as tracheostomy eq uipment and voice prostheses that are in excess of the VACS payment for these clin ics. Another example was the use of compression bandages for lymphoedema patients.

Prostheses, catheters, pegs and dressings used in wound management were considered as inflating the costs of patients in some clinics.

There were also questions raised about whether diagnostic services ordered by nurse pr actitioners and allied health pract itioners (such as ECGs ordered by nurse practitioners) were ad equately captured in current paymen t arrangements. Some of these concerns related to the 30-day window.

Some health services suggested that the f unding model should spe cifically recognise the inclusion or exclusion of diagnostic tests through separate payment arrangements. Other health services were mindful that such a chang e might creat e incent ives for over-ordering of diagnostic tests.

3.4.1.6 Cost of services not funded elsewhere

Health services noted t hat public o utpatient services provided a safet y net role, with some patients referred for particular diagnostic or treatment options that were not adequately funded in a commu nity-based setting. T hese referrals sometimes occurred de spite the ou tpatient dep artment not having primary respo nsibility for the treatment of these pat ients. For example, specialists in private rooms may refer their patients to outpatient d epartments to access certain high cost non-P BS medicines , particularly for paediatric, renal, HIV and dermatology p atients. Similarly, patients were sometimes referred inappro priately by their GP or specia list to outpatient neurology and neurosurgery clinics, simply to access MRI scans with no co-payments.

3.4.2 Program design issues on funding model incentives

Health services also ra ised some issues about whether the funding model contained the right in centives to support and drive the desired role and functions of pub lic hospital outpatient services.

3.4.2.1 Supporting multidisciplinary care

Health services frequen tly expressed concer n that the weighted payments within t he VACS medical/surgical specialty ca tegories pro vided disincentives to g reater use of multidisciplinary care. Some heal th services had reorganised their clinics so t hat patients we re seen se quentially, with each o f these visit s counting as a separ ate encounter under VACS. On a related issue, health services argued that there was no incentive to undertake multidisciplinary team meetings at which multiple health staff would meet to discuss and plan a patient’s care in the abse nce of the p atient. There is currently no explicit payment for this type o f care, with the VACS funding mo del requiring the presence of the patient.

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However, health services also provided some cautionary warnings abo ut whether and how the funding model should be amended in response to this issue, noting that:

The use of multidisciplinary consultati ons varies significant ly between clinics even within individual hospitals;

Some hospitals make greater use of ‘inf ormal’ referrals where health professionals are called in to review patients as required. This may provide more flexibil ity than scheduling formal multidisciplinary sessions that commit significant staff resources; and

Explicit funding may en courage the growth of multidiscip linary care within the hospital setting in the a bsence of clear evidence that this is the right care for the right patient at the right time in the right setting. It was suggested that:

o Multidisciplinary care s hould be selectively used, rather than being applied universally. For exampl e, it was suggested that large multidisciplinary teams did not n ecessarily add value for p articipating health professionals that had no ongoing role in providing treatment for the patient.

o Multidisciplinary care might inhibit the appr opriate discharge and management of patients in the communi ty. An alternative model for some patients might be that a hospital specialist con tributes to multidisciplinary care, but that t his care is largely provided and organised in a community setting.

3.4.2.2 Promoting workforce flexibility

Some health services indicated th at flat allie d health p ayments do not provide sufficient in centives for new models of care in volving an expanded role for allie d health professionals in triage, assessment and non-medical manageme nt of patients. Similar issu es were raised in rega rd to expanding the role of nurse practitioners. Health services proffere d a range of suggeste d refinements to the fu nding model including: boosting the l evel of allied health payments; promoting greater flexibility to convert between medical and a llied health targets; and a llowing access by al lied health prof essionals a nd nurse practitioners to the w eighted medical/surg ical payments.

3.4.2.3 Encouraging the right balance between hospital & community-based care

There were several aspects identified to getting the ‘right balance’ between hospital outpatient services and communit y-based care. One issue was how to promote better integration between hospital-based specialists and GPs. This included how the funding model could b e refined to support ho spital-based specialists taking on a n enhanced role in providing an ‘advisory consult ation’ role to GPs who were managing complex patients in the community. Health services also canvassed the option of GP participation in some o utpatient clinics t o pro mote up-skilling and more appropria te ‘discharge’ or referral of patients back to the community from outpatient departments.

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December 2007

Another issue was th at the existing balan ce of patien ts treated in outpatien t departments was vie wed as too heavily skewed toward s ‘review’ patients with insufficient resources directed to wards ‘new’ patients. In other words, it was suggested that health services were not appro priately ‘discharging’ pa tients back t o the community for ongoing management by t heir GP. This was viewed as negatively impacting on the capacity of outpatient departments to treat new patients.

On the issue of the balance between new and review patients:

It was sugg ested that n ew patients were more timely and resource int ensive than review patients within individual VACS categories. However, it was also noted that t he clin ic category may be a more important measure of re source consumption; for example, onco logy review patients are probably more cost ly than new patients in some other VACS categories.

There is likely to be significant variation in the costs of review patients within any individu al VACS ca tegory. Th ere are no rating tools in regular use to score levels of complexity for ongoing review patients (similar to the urgency or clinical prioritisation t ools used to assess need for new out patient appointments). It is expected that t here is con siderable heterogeneity across review patients.

In terms of funding model refine ments, it was noted th at: targeting growt h funding to new patients would have flow-on implications for elective surgery admissions; incentive payments might be used to en courage app ropriate ‘discharge’ from the o utpatient setting to managemen t by GPs in the community; and it may be possible to apply caps on the number of revie w patients.

3.5 Strategic directions for outpatient services

DHS held a workshop in September 2007 to elicit the views of health services on the future strategic directions for public hospital outpatient services. A Background Paper prepared by DHS for this workshop is available on its website (DHS, 2007b).

Some of the issues and questions raised through this workshop include:

What should be the role and scope of outpatient services provided in Victorian public hospitals?

Are services that are currently provided in public hospital ou tpatient departments able to be provided in other settings?

Why should outpatient services be provided in a public hospital setting?

What should be the key factors determining whether services are provided in public hospital outpatient departments or other settings?

What role does substitu tion of services play in defining the role of out patient services in a public hospital setting?

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December 2007

What types of services (e.g. pre- admission, post discharg e, manage ment of chronic conditions, complex diagno stic and assessment services) sho uld be provided in public hospital outpatient departments? Wh ich of these services could be provided in other settings?

DHS is continuing to w ork with he alth service s in formulating respo nses to the se issues to f acilitate the development of a fi nal Strategic Di rections Framework. DHS has indicated that the Strategic Directions Framework will:

Provide con sistent expectations of stakeholders about delivery of out patient services across Victoria’s public hospitals;

Inform service plannin g for the or ganisation and distrib ution of out patient services including the level, configuration and mix of services provided;

Support efficient and appropriate use of resources;

Position Victoria’s pub lic hospital outpatient services as part of a modern responsive health care system; and

Support improved health outcomes for the Victorian community.

3.5.1 Role of outpatient services – consultation findings The health service con sultations undertaken by Aspex Co nsulting fro m January to March 2008 confirmed the importance of a clear vision or role statement on the purpose of outpatient services. The role o f outpatient services was seen to be evolving and critically linked to factors such as:

The establishment of programs such as HARP was viewed as ‘segmenting’ the core busine ss of outpat ients, with streaming away of so me chronic disease patients to the HARP program;

Significant gaps in th e accessibility and adequacy of community-based services (such as GPs, allied health services, specialists) were seen to create a major barrier to appr opriate ‘discharge’ of some outpatients back to the community;

There was a concern that outpatient departments were increasingly being used for the mos t complex p atients and that the redirection of simpler patients to other services reduced the ability to maintain an effective teaching role for outpatient services; and

There was seen to be considera ble overlap across diff erent government programs and funding streams, such as VACS, SACS, HARP, private specialist service and community-based allied health services.

The overlap and substit utability acr oss ambulatory care services sugg ests that the long-term vision should be to develop an integrated and comprehensive funding model across all ambulatory care services. This would be consistent with th e policy direct ions for ambulatory services articulated in the DHS fra mework, Care in your Community.

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3.6 The Australian Health Care Agreement and national views on public hospital outpatient services

The recent federal election campaign included some discussion on t he roles an d responsibilities for mana gement and funding of public hospital services. Related to this debate, the current Australian Health Care Agreement expires on 30 June 20 08 and its renegotiation will be the vehicle for potentially significant ch anges to th e financing a nd account ability of p ublic ho spitals. Thi s review of VACS must be responsive to these broader policy and intergovernmental dimensions, notwithstanding the fact that specific directions or changes are not yet known.

On the issue of public hospital outp atient services, there has been an ongoing debate over the past 12-18 months about whether the Australian Government sh ould assume financial responsibility for funding o utpatient se rvices through the MBS. This optio n was raised several times by the former Australian Govern ment Minister for Health, in various public spee ches (Abbott, 2007). Essentially, th e argument was that the Australian Government should move to ‘formalise’ alleged cost-shiftin g of outpat ient services to the MBS by legitimising the use of the MBS for these services and making commensurate reductio ns in the AHCA grants to states and territories. It has also been argued that such a move might promote greater accountability with the collection of patient-level data for outpatient services bein g a by-product of a llowing access to the MBS. T he extent to which these arguments might be considered and/or adopted by the new Australian Government is unknown at this time.

Under the 2003-2008 AHCA, the Australian Go vernment Department of Health and Ageing has been working with state and territory departments to establish patient-level outpatient d ata collect ions. One of the contributing fa ctors to this work is t he argument that patient- level data would resul t in greater accounta bility on the performance of public hospital outpatient departments, including on the issue of waiting times to access public outpatient services. Similar views were e xpressed by the Victoria n Auditor-General in his report on specialist medical outpa tient service s. Hence, the renegotiation of the AHCA is like ly to have implication s for the counting, and potentially the funding, of public hospital outpatient services.

3.7 Concluding comments

This review has identified many factors that will need to be considered in developing a new approach to the classification and fundin g of outpatient service s in Victorian public hospitals. Some issu es hav e been clearly articulate d, such as the views of some Victorian health services on concerns with the existing VACS s ystem and the recommendations of the Victorian Auditor-General. However, th ere are ot her developments that are still ‘work in progress’, such as the Strategic Directio ns Framework and the f orthcoming AHCA re negotiations, the impact of which on outpatient classif ication and fundin g is yet to be fully revealed. The se issue s a re examined f urther in Section 8 which seeks to identify the policy objectives and principles that should underpin a new approach to outpatient classification and funding of Victorian public hospital outpatient services.

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December 2007

4 National and international approaches to outpatient classification and funding Having identified the history of the developme nt of VACS and current drivers, this section now turns to th e state of play in other jurisdict ions, internationally and within Australia. The purpose is to identify whether th ere are any developments or lesson s on outpatient classificat ion and fun ding that might be translatable to Victorian pub lic hospitals.

4.1 Outpatient classification and funding in other countries Many of the so-called ‘a mbulatory’ payment systems in use in other countries do not equate to Australian public hospit al outpatient services. Instead, they cover d ay surgery patients or ambulatory care provided in a community-based setting.

For example, the Ambulatory Patient Group (APG) classification was designed f or payment policy for same day surger y in the United States (Jackson 1991), while th is type of care is funded under DRGs in Australia. Following the work on APGs, US health agencies focused on the de velopment of a cla ssification system which can be used for ambulatory services across settings including hosp itals, day sur gery centres and doctors' rooms.

Since 2000, US hospitals have been paid for outpatient se rvices on the basis of t he Ambulatory Payment Classification or APCs (CMS, 2007). This system is described a s a prospective payment syst em, wi th services grouped int o each APC being similar clinically and in terms of the level of resources they require. The 20 08 payment model for AP Cs comprises about 3 70 different categorie s, but requir es access to detailed patient-level data including diagnosis and procedure codes. Since its inception in 2000, the Ambulatory Payment Classification system has been subject to extensive refinement. For exa mple, there are complex rules governing the ‘pass-through’ or separate payment of particular te chnologies and devices. The complexity and reliance on patient-level data of the APC syste m does not make it re adily transferable to Victorian public hospitals.

Canada has recently adopted a National Ambulatory Care Reporting Syste m (NACRS) which entails patient-level reporting across ho spital sett ings (emerge ncy department, day surgery suites, outpatient c linics). Ho wever, this classification system has yet to be adopted by most Canadian provinces (Canadian Institute for Health Information, 2007) and again is based on patient-level data collections.

Policy attention in the United Kingdom (UK) has focused, as in Australia, on waiting times for an outpatient appointment following a 2001 report by the National Audit Office (NAO, 2001). Th e National Health Servi ce's (NHS) Payment by Results (PbR) initiative in cludes a tariff for outpatient services based on 39 outp atient medical specialties (NHS, 2 007) which incorporates splits between adult and child attendances, and a furt her split on first or fo llow-up attendances. Be cause the Pb R system is st ill in development, no f urther published accounts or evalu ations could be found.

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However, prima facie, the UK outp atient categories appear to be less granular than the existing 47 VACS categories, although they do incorporate different splits (age and new/review) that are not used in the Victorian system.

Finally, the Netherlands health system adopted a casemix classificat ion system in 2005 which combines or bundles inpatient and outpatient care (Oostenbrink & Rutten, 2006). The DBC classificat ion (an acro nym in Dutch for diagnosis/treatmen t combinations) attempts to define continuous periods of care which include bo th inpatient an d outpatient treatment. This cla ssification sy stem was created wit h extensive consultation with medical speciali sts, in part, as a reform to the fee-fo r-service medical payments system . As is true fo r other capitation payment systems, i t requires pat ients to be registered with a single provider organisation and it also requires linked patient data for estimating the costs of treatment pathways.

There has been a similar focu s o n risk-ad justment systems for capitation-based managed care in the United States. These risk-adj ustment systems inclu de Ambulatory Care Groups (ACGs ) (Starfield et al. , 1991 ) and Diagnostic Cost Groups (DCGs) (Ash et al., 2000). Although these would provide improved incentives for continuity of care and better management of resources, the y entail some compromise in terms of patient ch oice (Jackson, 1996), and would require major changes to the funder and provider roles of the public health care system in Australia.

In the short-term, none of the international approaches to classification and funding of outpatient services offer an immediate way forward. There are no systems (similar to DRGs for classifying a nd funding inpatients) t hat provide an obviously superior o r preferable approach to VACS that could be re adily adopted and translated to th e Victorian public hospita l context wit hout substa ntial investment in pati ent-level data systems.

4.2 Australian approaches to outpatient classification and funding

4.2.1 National initiatives on outpatient classification

Since the e arly 1990s, there have been three waves of work to devise a nationally-agreed outpatient cla ssification for statistical reporting, and potentially for funding of services.

The first was the 'National Ambulatory Casemix Project', supporte d by the then Commonwealth Department of Health and Family Services. This proje ct recommended a 79-class outpat ient modul e (of a lar ger non-admitted patient classification), with 60 medical/surgical categories and 24 allied health. In addition to standard allied health disciplines (8 classes), the classification recommended classes for 'non-doctor' clinics in 16 clinical areas (Lagaida & Hindle, 1992). This was n ot implemented and was partly overtaken by another Australian Government project.

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The secon d of the Australian Govern ment’s outp atient projects was the Developmental Ambulatory Classification System (DACS) (Cleary, et al, 1998). It was an amb itious project which was premised on collection of individual patient-level clinical data . The DACS was de signed arou nd five axe s: hospital type, Major Diagnostic Category, c linical discipline of th e provider, encounter type (1 to 1, telephone, telemedicine, etc.) and a new/review/procedure variable. Potentially, every major diagnostic category clinic type could be further characterised by the medical or allied health discipline providing treatment, whether the encounter was face to face or over the telephone, whether it entailed a procedure or, for consultativ e encounter s, was for a n ew or review patient. The combination of the se elements resulted in a classification with between 255 and 879 classes.

DACS was tested for resource homogeneity using detailed outpatient data from South Australian a nd Tasmanian hospita ls (Cleary, et al, 1998) . This stu dy found that hospital type was the largest driver of variation in average cost, with clin ic type (in the absence of major diag nostic categ ory-level diagnosis info rmation) the next large st contributor to explaining variation in costs. Further splits of encounters by patient age, visit type and the presence or absence of a procedure were found to be inconsistent in the effects of these variables acro ss hospital strata, and were not further considere d. The study found that only 0.5% of encounte rs were group encounters, and the average per-patient cost for these was 70% of the costs of a 1-to-1 encounter.

This very complex eval uation study was reported at great er length by the princip al investigators (Michael & Piper for Coopers & Lybrand, 1998). They concluded t hat: 'DACS, in its current fo rm, be viewed as an in appropriate classification system fo r hospital b ased ambulatory services'. This con clusion was based primarily on the burden of collecting pat ient-level diagnosis dat a, and the good performance of clin ic-type variables in explaining cost variation.

The third wave of work is the ongo ing development of a national minimum dataset (NMDS) on non-admitted services under the Australian Health Care Agreement. The Australian Government has provided funding to individual states and territories to undertake projects relat ed to the d evelopment of patient-level data collection s fo r outpatient services. While there h as been pr ogress on t he emergency department component of the non-admitted NMDS, it has been more di fficult to reach agreement on the introduction of patient-level data collect ions for outpatient services. Reporting on outpatient services under the AHCA is still based on o ccasions of service, which are grouped up into 23 clinical categories (previously listed in Table 2 of this report).

4.2.2 Outpatient classification and funding in other states

A review of the status of outpatien t data colle ctions in e ach state an d territory was commissioned by the Commonwealth Department of Health and Ageing in 2002 (Jackson 2002). This fo und that only three states – Victoria, Queensland and South Australia – had adopt ed classif ications for output-base d payment of outpatient services. The following is a brief descrip tion of the current statu s of outpat ient classification and funding for Que ensland, South Australia and New South Wales, based on review of their websites and discussions with relevant contacts.

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December 2007

Queensland has introd uced data collection guidelines to support their introduction of casemix funding in the current financial year (Queensland Health, 2007). The non-admitted patient collection comprises 58 pairs of clinic types, with a split to report ne w and 'repeat' patients. Of these primary classe s, 6 overlap with activities classed as inpatient in Victoria, 9 report allied health singl e-discipline encounters, 8 report o n clinical activities like ly to be delivered as multi-disciplinary services (alt hough this is not explicit in the classification), and 34 are conventional medical/surgical clinics. New and repeat general practice patients are also reported. The categories comprise:

Same-day/inpatient classes: chemotherapy, radiotherapy, dialysis, endoscopy, rehabilitation, and hyperbaric medicine;

Single allie d health discip lines: audiology, nutrition, OT, physiotherapy, podiatry, prosthetics, psychology, social work and speech pathology;

Possible multi-disciplin ary services: aged care , alcohol an d drug, dementia, diabetes, falls, pain management, palliative care, wound management;

Conventional medical/surgical clinics: allerg y, cardiac surgery, cardiology, clinical hae matology, dermatology, ENT, endocrinology, gastroente rology, general paediatrics, g eneral surg ery, geront ology, geriatrics, gynaecology, immunology, infectiou s diseases, internal medicine, maternity, neonatal, neurology, neurosurgery, oncology, ophthalmology, ort hopaedic surgery, paediatric surgery, plastic surgery, preadmission, psychiatr y, renal me dicine, rheumatology, thoracic medicine, transplants, urology, vascular surgery; and

General practice.

Within each of these categories, one-to-one consultations are recorded separately as face-to-face, telemedicine/telehealt h, or telephone. Group sessio ns are also separately counted, a nd for six clinical cat egories (ag ed care, d ementia, falls, gerontology, geriatrics, and rehabilit ation) the number of attendees in each group is required to be reported.

The Casemix Funding Model uses a common unit of measurement, the Weighted Activity Unit or 'WAU' across a ll ho spital a ctivities. Thus, weights for admitted and non-admitted services are expressed on the same scale, and hospita ls are free t o allocate their activity targets between different service types. Only 36 of the 58 primary classes have been assigned cost weights. These comprise:

29 medical/surgical classes;

1 undifferentiated Allied Health class;

2 'multi-disciplinary' classes (Pain Management, Diabetes);

1 'inpatient' class (Oncology/Radiation);

1 'Primary Care' (presumably 'General Practice' as above);

1 Dental class; and

1 'Other' class (presu mably cove ring the 5 omitted me dical/surgical clinic types).

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December 2007

Separate weights for n ew and review patients have been assigned for only 14 of t he primary classes, with the remaining 22 classes assigned the same weight for both new and review consultat ions. It is not clear whether all con sultation types (one-to-one , telephone, groups, etc.) are funded through the Casemix Funding Model, or only those reported as face-to-face.

South Australia has funded outpatient service s on an output basis since 1994/9 5, prior to the introductio n of VACS in Victoria. The cla ssification component of t he South Australian model is comprised of 79 ca tegories cov ering specia list outpat ient clinics and allied health services. The funding model used by South Au stralia has the following features (South Australian Department of Health, 2006):

The weights for outpatient services are derived from a multi-site study undertaken in 1997/98. Each of th e 79 clin ical categories – medical/surgical and allied health – are weighted on a single scale;

The weights differ a ccording to th e type of h ospital, with five catego ries of hospital: te aching, oth er metropolitan, spe cialist, large country and small country. There is not a consiste nt loading or relative value across these hospital categories; inst ead the level of the weights acro ss the five hospital categories varies for each of the 79 clinical categories;

The weights and payments for each of the 79 clinical cate gories cover both one-to-one encounters (with the patient present) and telephone calls/telemedicine encounters. Separate cost weights exist for group encounters;

The benchmark price for metro politan outp atient clinics was $118.26 i n 2006/07, while the benchmark price for all coun try non-admitted service s was $110.40.

In its 2006/ 07 Casemix Funding f or Hospitals Policy G uidelines, S outh Austra lia announced that it would introduce a populatio n-based resource alloca tion model in 2007/08 (South Australian Department of He alth 2007). The extent to which t his impacts on the use of output-base d funding for outpatients at the level of individual hospitals is unclear at this time.

New South Wales is of ten discussed as having led other jurisdict ions in undertakin g significant p rivatisation of its ou tpatient services. However, its fund ing model for public outpatient services relies much less on o utput-based classifications than those of Victoria, Queensland or South Australia. The NSW funding model comprises a two-stage process (New South Wales Department of Health, 2005):

First, the NSW Depart ment of Health funds its Area Heal th Services using a Resource Distribution Formula that asse sses the rela tive need f or health services of different populations and the cost of delivering those services. The population-based approach to resource allocation is used to determine the split of funding to each Area Health Service by the NSW Department of Health.

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Second, each Area Health Service then allo cates funds to individual ag encies, including public hospita ls, on the basis of what is known by NSW Hea lth as ‘episode funding’. (It should be noted that the NSW usage of this term does not conform to more common usage, where episode fun ding is gen erally interpreted as involving the bundling together of all cost s for patien ts over different service settings and an extended perio d of time). The NSW ‘episode funding’ model is a variation on ca semix or o utput-based systems u sed in other jurisdictions. It involves fun ding based on the cost of the expected workload, rather than retrospectively reimbursing for work already performed. That is, area health services determine budgets for each agency based on the expected activity of vari ous outputs (including inpatients and outpatients), with the expected costs being containe d in annual Cost of Ca re Standards (Ne w South Wales Department of Health 2007). In an important distinct ion from true output funding, NSW Health notes that “budg ets ca lculated using e pisode funding are agreed in advance and do not change throughout the year”, unlike the situatio n in Victoria and othe r jurisdictio ns where funding levels are adjusted based on actual outputs delivered.

In terms of its classification of outpatient services, NSW uses the National Health Data Dictionary classification with Tier 1 comprising 11 classes of non-admitted services. It has then developed its own Tier 2 classification comprising:

15 allied health &/or clinical nurse specialist categories;

33 medical categories;

5 obstetrics and gynaecology categories;

5 paediatric categories; and

17 surgical categories.

The cost w eights that are used fo r these cate gories are not NSW-specific, but a re based on 162 sites across Australia contributing to the 2004-05 National Hospital Cost Data Collection, escalated to reflect 2006/07 prices.

In conclusion, there is no na tional co nsensus on an optimal approach to classification and funding of outpat ient services. While th ere has bee n considerable national work on the development of classifi cation systems, focus h as now shifted to the introduction of patient-level mi nimum data sets for outpatient se rvices. Some other states have implemented output-based funding models for ou tpatient services that are sim ilar to VACS, albeit wit h individual variations (such as n ew/review splits, weights varying by hospital type, payments f or telephone and group encounters). However, t here is minimal evidence available about the impact and re al implementation issues associated with the different output-based funding models used by other states.

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5 Outpatient activity analysis Given that VACS is a classif ication and a funding system, this sect ion examines what VACS tells us about outpatient activity in Victorian public hospitals. It seeks to answer the following questions:

What has been the growth in outpatient activity over time?

How does this compare with outpatient targets set by DHS?

What is the level of private MBS-billed clinics in public hospitals?

What types of outpatient services are growing most rapidly?

What is the distribution of types of outpatient services across public hospitals?

What is the mix of new and review patients in public hospital outpatient clinics?

Before examining these question s, a brief overview is provided of the data sources that support the analysis in this report.

5.1 Data sources used for the analysis

The analysis undertake n in Section s 5-7 of th is report is based on d ata from three main sources comprising:

DHS Cost Weight Stud y (CWS) da ta provided by health services to D HS fo r costed outpatient activity (covering the period 2001/02 to 2005/06);

DHS AIMS (Agency Information Management System) data reported t o DHS by health services (covering the period 2001/02 to 2005/06); and

Specific health service data returns provided by health services to the project team as part of this project (2005/06 data only).

2005/06 data were used as this was the most recent period available at the project’s commencement in April 2007. The overlapping nature of these data sources is shown diagrammatically in Fig ure 4. The CWS data were provi ded at an episode level (similar to AIMS that reports data at the level of encounters and occasions of service), while the health service data returns collected for this project were based at the clinic level.

39

Department of Human ServicesVACS Funding and Classification Model Options Report

December 2007

40

Figure 4 Schematic diagram of outpatient data sources

The project’s Technical Reference Group oversighted the specification and collection of new data specifically for this project. New data that would not otherwise have beenavailable through AIMS or the CWS included the following:

Data Returns

VACS targetby site.

Clinic Code & clinical activity

Clinic level data includingappt. duration, staffing,

new/review/pre admit/post ward breakdown of

attendance.

Hospital VACS targets nd revenue, 2001/02 to

2005/06.a

Hospital Activity Data by VACSCode:1. CWS – count of episodes2. AIMS Data – aggregate data

provided.3. Data Returns – sum of activity

by clinic funding source.

Patient level cost information,by cost categories and

overhead and direct costs,2001/02 to 2005/06.

Cost Weight Study

AIMs Data

The mix of new and review patients;

The number and type of staff prese nt in each clinic (e.g. th e multidisciplinary nature of some clinics);


December 2007

The relationship between clinics (e.g. whether p atients are routinely scheduled to see staff in a sequence of clinics); and

Information on clinics fu nded from other sources, includ ing outpatient clinics funded thro ugh other DHS progra ms and private clin ics f unded throu gh the MBS.

Appendix 1 provides more detailed information on the data sets used for this project.

5.2 Trends in outpatient activity

DHS sets annual targets for each VACS-funded health service for:

the number of public VACS weighted encounters (the 35 weighted medical and surgical outpatient clinical specialties); and

the number of publ ic a llied hea lth occasions o f service (th e 11 unwei ghted allied health groupings).

Targets are also set for outpatient services funded by DVA. However, given that this project is a bout reforming VACS, t he following activity analysis is restr icted to pub lic patient targ ets and act ivity under VACS. Fro m 2005/06 these target s were furth er disaggregated for ‘sta ndard’ and ‘elective surgery’ units. These categories of ‘standard’ and ‘electiv e’ surgery’ outpatient s have been rolled u p to assist in understanding trends in total activity over time.

Figure 5 and Table 4 show trends from 2001/ 02 to 2005/06 in actual activity and targets for VACS-funded public patient weighted encounters a nd allied h ealth occasions of service. They indicate that:

For VACS-funded medical and surg ical clinics, actual activity was in excess of targets for each of the last five years. Unfunded public patient activity i n medical and surgical outpatient clinics ranged from 4.0% in 2001/02 to 8.8% in 2002/03;

Targets for medical and surgical weighted enco unters grew most stron gly with an annual increase of 6.7% in 2003/04, following the growing disparity (6.3%) between targets and activity in the previous year, 2002/03. In addition, targets grew at a higher rate than actual activity in 2003/04 and 2004/05;

For VACS-f unded allie d health occasions of service, actual activity was in excess of t argets for f our of the f ive years (the exception being 20 05/06). However, the gap or level of un funded allied health services was smaller than for medical and surgical outpatien t clin ics. T he level of unfunded activity ranged from 2.5% in 2001/02 to 4.8% in 2002-03; and

The largest growth in ta rgets for a llied health occasions of service occurred in 2003/04, corresponding to a similar large increase in the target for VACS weighted encounters in that year.

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42

Figure 5 Trends in public outpatient activity & targets, 2001/02 to 2005/06

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

2001/02 2002/03 2003/04 2004/05 2005/06

VACS medical & surgical targets VACS medical & surgical actualsAllied health targets Allied health actuals

Table 4 Trends in public outpatient activity and targets, 2001/02 to 2005/06

In summary, these data highlight t he disparity between VACS funded activity a nd actual delivery of outpatient service s. This d isparity would be greater in the absen ce of MBS-billed clin ics tha t are providing sim ilar services to p ublicly funded outpatient clinics in m any health services. counts onl y activity in VACS-funde d public clinics. The level of private activity occurring in MBS-billed clinics is not routinely collected and represents additional ‘unfunded’ act ivity over a nd above the unfunded public pat ient activity identified above.

Year Target % growth in target

Actual % growth in actual

Actual vs target (%)

2001-02 1,095,211 1,139,258 4.0%2002-03 1,113,167 1.6% 1,211,100 6.3% 8.8%2003-04 1,187,382 6.7% 1,240,292 2.4% 4.5%2004-05 1,215,468 2.4% 1,267,614 2.2% 4.3%2005-06 1,237,849 1.8% 1,294,407 2.1% 4.6%

Target % growth in target

Actual % growth in actual


2001-02 489,019 501,044 2.5%2002-03 500,196 2.3% 524,018 4.6% 4.8%2003-04 540,272 8.0% 564,066 7.6% 4.4%2004-05 536,962 -0.6% 557,462 -1.2% 3.8%2005-06 558,199 4.0% 529,844 -5.0% -5.1%

Allied health occasions of service

VACS medical & surgical weighted encounters


December 2007

5.3 Level of MBS clinics

As part of this project, health services were requested to provide activity data for MBS clinics that were integrated with, and providi ng similar spe cialist medical services t o, public outpatient clinics. Data were obtaine d on 270 MBS clinics from 7 he alth services. However, these data should be treated very cautiously as:

Not all hea lth services with MBS clinics were able to pro vide data o n their clinics. Accordingly, it cannot be assumed that the health services sub mitting MBS clinic data are representative of all health services;

The 7 con tributing he alth service s may have over-estimated or under-estimated their level of MBS clinics. Over-estimation could have occurred if health services provide d data on co-located GP type clinics and/or privat e consulting r ooms. Under-estimation could have occurred if health se rvices were not able to obtain data on all their MBS clinics;

The comparability of M BS and VACS-funded activity data is uncertain. It is unknown whether ‘encounters’ re ported in MBS clinics are equivalent to encounters in VACS-funded clinics. By definition, VACS en counters bundle in the costs o f associate d ancillary services and theoretica lly involve ‘ more’ services tha n if health services rep orted visits or MBS ite ms as the activity basis in these clinics; and

Health services may not necessarily have provided MBS clinic data fo r the same time period requested (2005/06) as the comparison VACS clinic data.

Given these major limitations with th e data, health services have been de-identified in the following analysis. Table 5 indicates that there were sig nificant differences across health services in the level of thei r use of MBS clinics. Two healt h services had comparatively high levels of a ctivity occurring in MBS clinics, while the other five health services had co mparatively low levels of MBS activi ty. Howe ver, this analysis may overst ate the level of MBS a ctivity, give n that VACS encounters are likely to bundle in more services than MBS visits.

Table 5 Activity in MBS clinics in selected health services, 2005/06

Health Service Encounters in MBS clinics Encounters in MBS clinics as

a share of total VACS and MBS encounters

A 801 2% B 4,268 4% C 9,787 6% D 4,130 11% E 4,554 13% F 44,410 33% G 54,025 54%

Total 121,975 20%

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December 2007

Health services a lso pr ovided clinic names or descriptors of the types of services provided in MBS clinics. Review of these d escriptors suggests tha t MBS clinics predominantly provide ‘medical’ ra ther than ‘surgical’ sp ecialist ser vices. For example, Health Service ‘F’ (which had a hig h share of activity occurring in MBS clinics) had identified or mapped th ese clinics t o the comp arable VACS clinic cod es. The MBS clinics in Health Service ‘F’ comprise d about 74% medical, 12% surgical, 6% paediatr ic, 3% gynaecology and 5% other. A similar pattern of concentration of MBS clinics in medical specialties was observed for He alth Service ‘G’, the other health service with relatively high activity in MBS clinics.

Health services provided data on the funding so urce for individual patients within b oth VACS-funded and MBS clinics. T his indicate d that there was some ‘leakage’ o r blurring of funding sources within both VACS and MBS clinics. Hence, 3.1% of encounters in predominantly VACS-funded clin ics were billed against t he MBS, wh ile 5.3% of encounters in predominantly MBS clinics were actually publicly funded.

5.4 Outpatient activity for individual health services Section 5.2 indicated th at actual public outpatie nt activity was greater than outpatient targets for both medical & surgica l clinics and allied healt h services at a state-wide level. The extent to which this is also the case for in dividual health service s is examined in Table 6 for VACS medical & su rgical act ivity and in Table 7 for VACS allied health services. Both tables provide information on two issues:

The extent to which individual health services have activity over or under target in 2005/06; and

The trend in growth o f actual activity and targets between 2000/01 an d 2005/06.

First, Table 6 shows that:

In 2005/06 VACS medical & surg ical act ivity was under target for 2 health services. Activity was: between 0.1% to 2.0% in excess o f target for 5 health services; between 2.1-10% in exc ess of target for 6 he alth services; and greater than 10% in excess of target for 4 health services.

There had been considerable variation across health services in the level o f growth of actual outpat ient activity between 2000/01 and 2005/06 (r anging from 2.5% to 59.3%). Similarly, growth in outpatient targets ranged from 1.8% to 46%.

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December 2007

45

Targets - VACS medical & surgical

weighted encounters

Actuals - VACS medical &

surgical weightedencounters


Growth in Target VACS

medical & surgical weighted

encounters

Growth in Actual VACS medical & surgical weighted

encounters

94,083 100,953 7.3% 14.6% 15.9%

104,252 104,818 0.5% 11.6% -15.7%

46,287 53,123 14.8% 5.6% 17.9%

127,003 131,957 3.9% 17.3% 20.1%

56,772 63,856 12.5% 17.6% 14.3%

38,920 36,049 -7.4% 37.6% 24.6%

23,627 26,107 10.5% 46.0% 54.0%

24,633 30,330 23.1% 24.3% 59.3%

70,047 71,042 1.4% 20.2% 24.3%

69,499 70,758 1.8% 24.2% 28.3%

113,167 111,354 -1.6% 8.6% 5.4%

138,329 143,797 4.0% 9.9% 14.6%

84,310 85,882 1.9% 1.8% 2.5%

110,507 118,625 7.3% 24.0% 39.7%

38,089 41,213 8.2% 13.7% 17.5%

65,469 71,168 8.7% 23.4% 15.7%

32,855 33,373 1.6% 11.4% 3.2%

1,237,849 1,294,407 4.6% 15.4% 14.7%

St Vincent's Health

Grand Total

Royal Women's Hospital

Ballarat Health Services

Barwon Health

Bendigo Health Care Group

Mercy Health

Southern Health

Western Health

Royal Children's Hospital

Peninsula Health

Peter MacCallum Cancer Institute

Melbourne Health

Royal Vic Eye and Ear Hospital

Austin Health

Bayside Health

Easterm Health

Northern Health

2005/06 Trends between 2000/01 and 2005/06

Health Service

Table 6 VACS medical & surgical activity by health service

Next, Table 7 shows that:

In 2005/06 VACS allied health activity was under target for 9 health services, 7 of which recorded activit y that was at least 1 0% lower than target. The other 8 health services had allied health a ctivity in excess of targ et, with 6 o f these health services recording activity up to 5% above target.

Similarly, there was considerable variation in allied healt h targets b etween 2000/01 an d 2005/06, ranging fro m a reduction of -17.9 % to a gro wth of 184.1%. Actual activity patterns were equally varied, rangin g from a reduction of -37.5% to a growth of 102.8%.


December 2007

46

Targets - VACS allied health occasions of

service

Actuals - VACS allied health occasions of

service


Growth in Target VACS allied health occasions of

service

Growth in Actual VACS allied

health occasions of service

54,595 56,899 4.2% 46.8% 27.3%

38,615 37,219 -3.6% 1.8% -3.7%

11,133 6,360 -42.9% 45.2% -37.5%

26,287 19,543 -25.7% 35.0% -32.5%

27,727 23,630 -14.8% 1.9% -16.4%

21,565 24,112 11.8% 38.4% 102.8%

17,762 15,145 -14.7% 15.8% 0.6%

23,793 24,634 3.5% 22.9% 49.2%

62,143 63,581 2.3% 60.9% 46.1%

67,521 65,746 -2.6% 7.6% -4.7%

25,251 25,517 1.1% -17.9% 23.2%

62,738 56,466 -10.0% 17.9% -0.9%

22,246 22,831 2.6% 6.9% 1.6%

33,882 36,109 6.6% 17.4% 52.4%

10,973 11,109 1.2% 50.0% 27.1%

33,500 25,922 -22.6% -13.1% -2.1%

18,468 15,021 -18.7% 184.1% 100.4%

1,237,849 1,294,407 4.6% 15.4% 14.7%

Bendigo Health Care Group

Grand Total

St Vincent's Health

Western Health

Ballarat Health Services

Barwon Health


Royal Victorian Eye and Ear Hospital


Southern Health

Mercy Health

Northern Health

Peninsula Health

Peter MacCallum Cancer Institute

Austin Health

Bayside Health

Easterm Health

Melbourne Health

2005/06 Trends between 2000/01 and 2005/06

Health Service

Table 7 VACS allied health activity by health service

Another observation in examining these tables is that some health services are above target in me dical & surg ical activity, but below target in allied health activity (or vi ce versa). This has implications for the process of target setting and target management, which will be discussed in Section 9.

5.5 Growth in types of outpatient services Section 5.4 indicated considerable variation between health services in the level of growth or contraction o f VACS me dical & su rgical an d allied health activity. Th is section examines a similar issue, identifying the relative growth across different types of outpatient activity.


December 2007

VACS provides information on 35 medical & surgical cate gories and 11 allied he alth categories. Table 8 demonstrates that there has been a much higher level of growth in VACS su rgical weigh ted encount ers (24%) compared to VACS medical weighte d encounters (10%). This is consistent with the f inding in Section 5.3 that MBS clinics provided predominantly medical specialist ser vices, rathe r than surgical specialist services. This sugge sts that he alth se rvices have directed any growth in VACS targets to surgical out patient clinics, while medical sp ecialist ser vices may be increasingly being provided through MBS clinics.

Table 8 also indicates the very different patterns of growth o r contraction in activity for individual VACS categories, as follows:

Specialties with relatively high gr owth in act ivity include d: allergy ( 69%), respiratory (49%), general surgery (43%), neurosurgery (76%), plastic surgery (40%), paediatric surgery (40%) and paediatric medical (148%);

Specialties with relatively large contraction in a ctivity included: dental (- 32%), orthopaedic applications (-66%), psychiatry and behavioural disorders (- 37%), family planning (-22%) and reproductive medicine (-32%).

Table 9 shows trends in VACS allied health o ccasions of service fro m 2001/02 to 2005/06. Optometry services have grown si gnificantly (740%), as have hydrotherapy (51%). So me other all ied health services have contracted over this period, namely, audiology (-48%), social work (-24%) and cardiac rehabilitation (-46%).

In interpreting these tables, it is important to note that i mprovements or changes to data colle ction and rep orting over time may al so have co ntributed to some of th e observed variation. That is, not all the c hanges over time may reflect real changes in outpatient service delivery. It is ge nerally recognised that allied health data reporting is more reliant on manual data collections and is therefore less robust (and potentially less complete) than data on medical and surgical outpatient services.

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48

Code Speciality 2001/02 2005/06 % change101 General Medicine 40,736 36,181 -11%102 Allergy 3,857 6,529 69%103 Cardiology 26,673 25,182 -6%104 Diabetes 20,782 28,275 36%105 Endocrinology 17,417 21,101 21%106 Gastroenterology 25,733 22,463 -13%107 Haematology 17,161 20,812 21%108 Nephrology 40,101 38,637 -4%109 Neurology 20,864 27,138 30%110 Oncology 84,094 95,039 13%111 Respiratory 17,961 26,724 49%112 Rheumatology 14,972 17,371 16%113 Dermatology 22,717 26,863 18%114 Infectious Diseases 42,700 40,839 -4%115 Develop neuro disability 5,730 7,114 24%

101-115 Total Medical 401,498 440,268 10%201 General Surgery 65,975 94,503 43%202 Cardiothoracic 10,048 13,462 34%203 Neurosurgery 13,881 24,493 76%204 Ophthalmology 60,143 74,868 24%205 Ear, Nose and Throat 33,325 31,949 -4%206 Plastic Surgery 39,712 55,737 40%207 Urology 33,423 37,779 13%208 Vascular 15,393 17,527 14%209 Pre-admission 102,190 112,158 10%

201-209 Total Surgical 374,090 462,476 24%301 Dental 15,880 10,800 -32%310 Orthopaedics 106,758 118,309 11%311 Orthopaedic applications 8,594 2,950 -66%350 Psych & behaviour disorder 7,524 4,703 -37%401 Family Planning 8,469 6,590 -22%402 Obstetrics 166,947 182,320 9%403 Gynaecology 34,328 32,900 -4%404 Reproductive Medicine 12,925 8,736 -32%405 Dysplasia and Colposcopy 6,491 7,197 11%501 Paediatric surgical 9,203 12,898 40%502 Paediatric Medical 6,175 15,299 148%

Total 1,158,880 1,305,444 13%

Table 8 Trends in VACS medical & surgical weighted encounters, 2001/02 to 2005/06


December 2007

49

Code Category 2001/02 2005/06 % change

601 Audiology 16,184 8,355 -48%

602 Nutrition 35,270 35,549 1%

603 Optometry 895 7,520 740%

604 Occupational Therapy 62,363 72,436 16%

605 Physiotherapy 142,197 155,477 9%

606 Podiatry 12,110 12,370 2%

607 Speech Pathology 19,589 18,301 -7%

608 Social Work 88,350 67,380 -24%

609 Other allied health services 152,715 176,215 15%

610 Cardiac Rehabilitation 4,415 2,399 -46%

611 Hydrotherapy 4,096 6,184 51%

Total 538,184 562,186 4%

Table 9 Trends in VACS allied health activity, 2001/02 to 2005/06

5.6 Outpatient service distribution across health services Given the differential gr owth across types of o utpatient se rvices, it is also usefu l to understand the ‘market share’ of the various outpatient specialty clinics undertaken by each health service. shows the distribution of each of the VACS clinical spe cialties across ea ch health se rvice, demonstrating th e highly co ncentrated distribution of some outpatient services In part this reflects t he concentration of activity in specialist health services. For example:

The Royal Children’s Hospital undertakes 38% of total activity in VACS funded paediatric surgical clinics and 36% of activity in paediatric medical clinics;

The Royal Women’s Hospital unde rtakes 93% of total act ivity in VACS funded reproductive medicine clinics and 68% of activity in family planning clinics; and

The Royal Victorian Eye and Ear Hospital unde rtakes 66% of activity in VACS funded ophthalmology clinics and 36% of activity in ear, nose and throat clinics.

Other patterns observed in this table might indicate that health services either provide different patterns of care or use the VACS clinic categorie s somewhat differently fro m each other, (although the latter is theoretically meant to be avoided through the use of the VACS Clinical Panel that assesses whether a clinic ‘fits’ into the specific VACS clinical category).


December 2007

50

Code VACS clinic Aus Bay East Melb Merc North Penin PMCI RCH RVEE RWH MMC St V West Ball Ba

Table 10 Concentration of outpatient activity across health services, 2005/06

r Bend Total101 General medicine 21% 10% 0% 14% 8% 4% 1% 1% 0% 2% 4% 2% 15% 10% 5% 0% 3% 100%102 Allergy 2% 14% 0% 5% 0% 0% 0% 0% 43% 0% 0% 2% 19% 15% 0% 0% 0% 100%103 Cardiology 1% 8% 2% 31% 0% 0% 0% 1% 5% 0% 0% 9% 12% 5% 11% 13% 2% 100%104 Diabetes 4% 9% 1% 15% 0% 0% 8% 0% 3% 0% 6% 20% 9% 15% 1% 10% 0% 100%105 Endocrinology 2% 19% 3% 16% 0% 0% 2% 2% 2% 0% 10% 21% 12% 8% 0% 0% 2% 100%106 Gastroenterology 24% 9% 4% 13% 0% 0% 0% 1% 1% 0% 0% 5% 24% 13% 1% 0% 7% 100%107 Haematology 22% 26% 1% 0% 0% 0% 0% 8% 2% 0% 5% 14% 13% 0% 8% 0% 0% 100%108 Nephrology 0% 9% 0% 35% 0% 4% 1% 0% 1% 0% 0% 28% 12% 6% 1% 0% 2% 100%109 Neurology 15% 20% 2% 22% 0% 3% 0% 1% 8% 11% 0% 0% 11% 6% 0% 0% 1% 100%110 Oncology 9% 10% 3% 6% 15% 0% 5% 8% 0% 0% 3% 10% 6% 7% 3% 13% 1% 100%111 Respiratory 31% 11% 1% 12% 0% 2% 0% 4% 3% 0% 0% 0% 9% 21% 2% 1% 3% 100%112 Rheumatology 20% 17% 0% 26% 0% 0% 0% 0% 0% 0% 0% 13% 18% 6% 0% 0% 0% 100%113 Dermatology 19% 14% 0% 15% 0% 0% 0% 6% 16% 0% 0% 10% 15% 6% 0% 0% 0% 100%114 Infectious diseases 6% 32% 2% 23% 0% 0% 2% 0% 3% 0% 2% 17% 7% 6% 0% 0% 0% 100%115 Dev neuro disability 0% 0% 0% 0% 0% 0% 0% 0% 92% 0% 0% 8% 0% 0% 0% 0% 0% 100%201 General surgery 9% 10% 6% 12% 0% 5% 4% 8% 0% 0% 1% 0% 7% 17% 7% 7% 8% 100%202 Cardiothoracic 10% 42% 1% 4% 0% 3% 0% 1% 0% 0% 0% 16% 10% 6% 0% 7% 0% 100%203 Neurosurgery 9% 15% 1% 26% 0% 0% 0% 3% 3% 0% 0% 16% 16% 11% 0% 1% 0% 100%204 Ophthalmology 5% 4% 0% 5% 0% 1% 0% 0% 9% 66% 0% 4% 0% 0% 1% 3% 1% 100%205 ENT 6% 11% 1% 4% 0% 0% 0% 0% 13% 36% 0% 8% 5% 6% 3% 6% 2% 100%206 Plastic surgery 10% 6% 2% 8% 0% 11% 4% 6% 17% 0% 0% 12% 6% 13% 1% 4% 0% 100%207 Urology 15% 8% 8% 10% 5% 6% 0% 1% 0% 0% 10% 13% 8% 6% 2% 5% 4% 100%208 Vascular 15% 12% 5% 12% 0% 0% 0% 0% 0% 0% 0% 10% 11% 12% 9% 12% 2% 100%209 Pre-admission 10% 4% 5% 12% 2% 4% 2% 2% 0% 6% 11% 13% 7% 7% 4% 9% 2% 100%301 Dental 11% 20% 0% 27% 0% 0% 0% 10% 0% 0% 0% 27% 3% 0% 0% 2% 0% 100%310 Orthopaedics 9% 4% 8% 10% 0% 8% 2% 0% 14% 0% 0% 14% 7% 8% 4% 9% 4% 100%311 Ortho applications 0% 0% 1% 0% 0% 44% 0% 0% 46% 0% 0% 9% 0% 0% 0% 0% 0% 100%350 Psych & behav dis 37% 1% 0% 0% 15% 0% 0% 20% 0% 0% 28% 0% 0% 0% 0% 0% 0% 100%401 Family planning 0% 0% 0% 0% 3% 0% 3% 0% 0% 0% 68% 9% 0% 17% 0% 0% 0% 100%402 Obstetrics 0% 0% 9% 0% 18% 1% 2% 0% 0% 0% 29% 15% 0% 10% 5% 7% 4% 100%403 Gynaecology 0% 0% 5% 0% 28% 0% 2% 1% 1% 0% 39% 4% 0% 6% 3% 6% 5% 100%404 Reproductive med 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 93% 7% 0% 0% 0% 0% 0% 100%405 Dysplasia & colp 0% 0% 1% 0% 0% 3% 0% 0% 0% 0% 58% 15% 0% 19% 0% 0% 6% 100%501 Paediatric surgical 0% 0% 1% 0% 0% 0% 6% 0% 38% 0% 0% 4% 0% 51% 0% 0% 0% 100%502 Paediatric medical 0% 0% 4% 0% 0% 4% 1% 0% 36% 0% 6% 16% 0% 27% 8% 0% 0% 100%601 Audiology 0% 0% 0% 4% 0% 0% 0% 0% 5% 54% 0% 15% 0% 3% 8% 8% 4% 100%602 Nutrition 26% 16% 2% 4% 2% 3% 5% 7% 8% 0% 7% 4% 6% 3% 2% 6% 0% 100%603 Optometry 0% 0% 0% 1% 0% 9% 0% 0% 90% 0% 0% 0% 0% 0% 0% 0% 0% 100%604 Occupational therapy 32% 8% 2% 6% 0% 7% 6% 2% 5% 0% 0% 14% 5% 7% 2% 5% 0% 100%605 Physiotherapy 23% 8% 2% 4% 2% 6% 3% 1% 6% 0% 2% 15% 5% 16% 3% 2% 3% 100%606 Podiatry 11% 12% 0% 14% 0% 0% 0% 0% 0% 0% 0% 12% 13% 10% 0% 21% 7% 100%607 Speech pathology 21% 6% 0% 4% 0% 1% 17% 3% 18% 3% 0% 10% 4% 2% 2% 8% 0% 100%608 Social work 11% 8% 1% 4% 3% 2% 1% 18% 5% 1% 29% 7% 3% 2% 2% 3% 1% 100%609 Other allied health 3% 3% 0% 1% 11% 4% 0% 4% 20% 34% 0% 7% 3% 0% 1% 4% 3% 100%610 Cardiac Rehab 0% 0% 0% 8% 0% 2% 0% 0% 0% 0% 0% 0% 6% 0% 0% 12% 72% 100%611 Hydrotherapy 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 16% 27% 0% 31% 27% 100%

Total 10% 7% 3% 7% 5% 3% 2% 3% 8% 9% 9% 11% 5% 8% 3% 5% 3% 100%


December 2007

For example Table 10 suggests that:

Some healt h services are much h igher users of pre-admission clinics than other comp arable health services – for exa mple, Bayside Health Service appears to have a rela tively small share of t otal state-wide activity i n pre-admission clinics.

Bendigo Health undertakes 72% of all state-wide activity in VACS 602 (Cardiac rehabilitation). This pr esumably reflects di fferent use of the VACS clini cal codes rathe r than real patterns in relation to where cardiac rehabilitation services are provided in the state.

5.7 New and review patients Section 5.5 provided information on the types of public outpatient se rvices that are growing most rapidly. However, this does not necessarily equate to improved ac cess for new pat ients if the growth in t hese outpatient services largely re flects patien ts receiving multiple review visits.

Data on the mix of ne w and revie w patients was collected f or the first time as part of this project. Health serv ices indicated whether services were new, review, post-ward or pre-admission, u sing their own definitions which may not be con sistent a cross hospitals. For the purposes of this analysis, the categories of review, post-ward and pre-admission have be en grouped together as ‘review’, on the basis that all th ese services would have been preceded by a previous outpatient visit.

The share of new patients for ea ch of the VA CS medical and surg ical categories is shown in Table 11. Data are not presented o n the share of new patients for allied health services, given the low response rate by these services on this data element.

Table 11 indicates that the majority of outpatient encounters were review (79% review and 21% new). There were very low shares of new patients in clinics that specialised in treating patients wit h chronic diseases (ne phrology – 9%, diabete s – 10%, a nd oncology – 12%). Th e specialtie s with the highest sha re of new patients were reproductive medicine (70%), family planning (48%) and paediatric medical (36%).

5.8 Summary – key findings on outpatient activity The key findings from this analysis of outpatient activity are:

The number of patient s treated in VACS-fund ed public h ospital ou tpatient services has been greater than fun ded target a ctivity set b y DHS for most of the period between 2001/02 to 2005/06. The level of unfunded public patient activity in medical and surgical outp atient clinics ranged from 4.0% in 2 001/02 to 8.8% in 2002/03, averaging 5.2% over the period.

The gap bet ween patients treated a nd funded t argets is sli ghtly less fo r allied health services, ranging from 2.5% in 2001/02 to 4.8% in 2002/03. However in 2005/06 public hospi tals did not reach their allied healt h service targets, providing services equivalent to 94.9% of their allied h ealth target activity levels.

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101 General Medicine 23,682 20%102 Allergy 2,734 32%103 Cardiology 12,159 23%104 Diabetes 18,000 10%105 Endocrinology 18,319 19%106 Gastroenterology 22,900 24%107 Haematology 17,244 19%108 Nephrology 24,225 9%109 Neurology 18,415 27%110 Oncology 39,762 12%111 Respiratory 13,570 24%112 Rheumatology 15,580 18%113 Dermatology 21,605 29%114 Infectious Diseases 25,137 17%115 Develop neuro disability 345 32%

101-115 Total Medical 273,677 19%201 General Surgery 73,134 21%202 Cardiothoracic 4,433 26%203 Neurosurgery 18,370 26%204 Ophthalmology 87,749 20%205 Ear, Nose and Throat 35,325 31%206 Plastic Surgery 57,037 21%207 Urology 35,396 28%208 Vascular 15,448 24%209 Pre-admission 63,141 0%

201-209 Total Sur

In addition, there are al so private MBS-billed clini cs in many public hospitals that are pro viding similar services to publicly funded outp atient clinics. This represents additional activity that is not funded through VACS. So me public hospitals m ay have a relatively high share (between 30-50%) of medical specialist care provided in MBS-billed clinics.

Table 11 New encounters by VACS clinic category

gical 390,033 19%301 Dental 8,951 16%310 Orthopaedics 92,598 24%311 Orthopaedic applications 2,450 8%350 Psych & behaviour disorder 3,145 31%401 Family Planning 7,350 48%402 Obstetrics 178,348 18%403 Gynaecology 22,798 31%404 Reproductive Medicine 11,513 70%405 Dysplasia and Colposcopy 9,222 26%501 Paediatric Surgical 6,970 19%502 Paediatric Medical 8,249 36%

Total 1,015,304 21%

Code Clnic Type Total % New


December 2007

Selected data on MBS-billed clinics indicates that these clinics are more like ly to be provi ding medical (rather t han surgica l) specialist services. This is consistent with the finding that there has been a much higher level of gro wth in VACS surgi cal weighte d encounter s (24%) tha n in VACS medical weighted encounters (10%) between 2001/02 and 2005 /06. It sug gests that public hospitals have directed growth in VACS targets to surgical outpatient clinics, while growt h in medi cal specialist services has been met through a combination of VACS and MBS-billed clinics.

There is co nsiderable variation in t he patterns of growth of different types of outpatient services funded under VACS. So me VACS categories have had major growt h in activity, including several of th e surgical categories, a llergy, respiratory, paediatric medical a nd surgica l, optometry and hydrotherapy services. However, th ere has been a reduction in the number of s ervices provided under other V ACS categories in cluding reproductive medicine and family plan ning, dental, psychiatry and beha vioural disorders, orthopaedic applications, cardiac re habilitation and audiolo gy. While there is no data readily available on the range of services pro vided by MBS-billed cli nics or private specialists in the communit y, it is likely that some of the services that have contracted in th e public sector have transferred t o private funding sources.

Individual public hospitals exhibit considerable variation in t he type and range of outpatient services provided. This reflect s both the specialist role s of some public hospitals, plus the historical development of services.

The majority of outpatient visits ar e for ongoin g treatment of review patients, with only 21% of visits for new patients. Some outpatient clinics focussing on the treatme nt of patients with chronic disease s (such as cancer, dia betes or kidney disease) have very low shares of new patients (about 10% or less).

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6 Outpatient funding and cost analysis This section examines data on tre nds in fund ing under VACS, before analysing the relationship between funding and costs of outpatient services. It seeks to examine the following issues:

What is the composition of funding elements in the VACS model?

What have been the tre nds in growth of fundin g for outpatie nt services under VACS?

What is the relationship between VACS budget levels and th e costs to h ealth services of providing public outpatient services?

How much have costs increased for different types of outpatient services?

What is the variation in costs between health services for different types of outpatient services?

What are the factors that might explain variation in costs?

What are the input cost s contributing to the ove rall cost of outpatient services and how do these vary across the different VACS clinical categories?

6.1 Funding trends under VACS

Figure 6 pr ovides a br eakdown of the relat ive level of the various fun ding elements that comprise VACS.

Figure 6 VACS funding components, 2006/07

Base Grant

Variable Grant - Medical

Teaching GrantVariable Grant - Allied Health

Specified Grants

Elective Surgery Grant


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It indicates that in 2006/07:

58% of funding was provided as a Variable Grant for medical/surgical clinics;

18.4% was provided as a Base Grant;

9.8% was provided as a Teaching Grant;

9.5% was provided as a Variable Grant for allied heath clinics;

3.9% was provided as specified grants; and

0.3% was provided as part of the elective surgery initiative.

In total, 67. 8% of fund ing was pro vided on a variable grant basis (medical/surg ical, allied health and elective surgery variable payments).

Table 12 shows trends in funding for VACS from 1998/99 to 2006/07. It indicate s that there has been an overall increase in funding, in nominal terms, of 70% over the past nine years, which represents appro ximately 45 % growth in real terms. The annu al average growth in funding is 8.8% (or approximately 5.6% in real terms).

Table 12 Trends in VACS funding, 1998/99 to 2006/07

1998/99 1999/2000 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07$('000s) $('000s) $('000s) $('000s) $('000s) $('000s) $('000s) $('000s) $('000s)

Austin Health 19,649.0 21,944.6 22,792.8 24,156.5 26,501.9 25,209.3 30,687.3 32,440.8 33,649.9 8.9%Ballarat Health Service 5,359.1 5,620.0 5,958.2 6,156.7 6,640.2 7,603.8 8,027.8 8,480.7 8,850.1 8.1%Barwon Health 9,088.2 9,696.8 10,541.9 11,125.8 12,364.3 13,385.7 14,538.7 15,228.6 16,078.0 9.6%Bayside Health - The Alfred 20,477.1 24,103.5 24,625.1 25,767.5 27,800.5 29,621.2 29,292.6 30,597.7 32,477.6 7.3%Bendigo Health 3,897.9 4,490.8 4,704.3 5,085.3 5,483.1 5,942.5 6,498.8 7,173.3 7,670.8 12.1%Eastern Health - Box Hill 5,866.9 6,615.8 7,755.9 7,930.1 8,557.5 9,324.3 9,863.7 10,359.2 10,961.7 10.9%Melbourne Health - RMH 18,982.5 20,322.3 20,207.1 20,968.6 22,615.1 25,077.9 27,446.4 28,909.2 30,060.5 7.3%Mercy Public Hospital 7,968.6 7,723.4 8,474.2 9,242.7 10,025.8 10,711.4 12,058.9 12,590.2 13,216.3 8.2%Northern Health 5,582.9 5,987.8 6,449.9 6,556.3 7,400.0 8,671.0 9,865.7 10,741.0 11,136.5 12.4%Peninsula Health 4,147.7 4,507.5 4,917.4 5,057.7 5,557.1 6,079.4 6,741.8 7,460.2 8,240.3 12.3%Peter MacCallum Cancer Institute 5,821.5 6,012.8 6,207.5 6,343.5 6,979.6 7,273.8 8,121.3 8,794.7 9,185.1 7.2%Royal Victorian Eye & Ear 9,362.2 10,555.5 11,692.4 11,846.0 13,113.1 15,344.5 16,311.4 17,018.5 17,695.2 11.1%St Vincent's Public Hospital 15,183.7 16,255.8 16,673.7 17,089.6 18,482.1 19,214.9 20,498.9 21,629.3 22,575.4 6.1%Southern Health - MMC 19,672.2 21,809.6 22,355.4 23,054.7 24,867.2 26,937.8 28,991.8 30,525.7 32,224.1 8.0%Southern Health - Dandenong 3,419.6 3,810.3 4,104.4 4,186.2 4,515.4 5,131.5 5,416.5 5,639.2 5,861.0 8.9%Western Health 13,658.1 15,206.1 15,950.5 18,518.9 19,968.2 21,793.5 24,118.1 25,419.3 26,633.9 11.9%Royal Children's Hospital 12,239.4 13,378.5 13,931.1 14,703.7 18,497.8 19,859.9 21,512.8 22,879.9 23,781.4 11.8%Royal Women's Hospital 15,005.8 15,808.0 16,627.1 16,889.2 18,203.5 19,675.8 20,945.8 22,073.7 22,702.1 6.4%

Total 195,382.4 213,849.1 223,968.9 234,679.0 257,572.4 276,858.2 300,938.4 317,961.3 332,999.9 8.8%Year-on-Year Trend 9.5% 4.7% 4.8% 9.8% 7.5% 8.7% 5.7% 4.7%

Health ServiceFunding Average Annu

Variance (%)


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Figure 7 indicates that the year-on-year increases have vari ed from a lo w of 4.7% in each of 1999/2000 and 2006/07 to a high of 9.8% in 2002/03. The va riability in the annual rate s reflect s t he level of growth fun ding availa ble, the re lative priorit y o f outpatient services within the acute health sector, and the impact of EBA arrangements. The rat e of increa se in funding for VACS has declined over the past two years, notwithstanding the int roduction of additional f unding for VACS variable ‘elective surgery’ in 2005/06 and 2006/07.

Figure 4 Annual increases in VACS funding, 1998/99 to 2006/07

Year-on-Year Trend

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

1998

/99

1999

/200

0

2000

/01

2001

/02

2002

/03

2003

/04

2004

/05

2005

/06

2006

/07

6.2 Relationship between funding and cost of outpatient services Analysis of how much funding is received by public hospit als for outpatient services relative to how much they spend is not a st raightforward exercise. While VACS funding levels are known, accurate information on public hospital expenditure on outpatient services is more difficu lt to derive. Data on the costs of outp atient services are obtained from annual cost weight studies. Appendix 1 includes an assessment of some of the limitations and issues in using cost weight study data.

Some of the limitations that need to be particularly considered when comparing VACS funding with the cost of delivering outpatient services include:

The Cost Weight Study includes outpatient costing dat a from a sample of public hospitals, rather than all public hospitals. The number and mix of public hospitals p articipating in the CW S varies from year to year, mea ning that annual movements in cost data may reflect differences in cost structure s of the participating hospitals, r ather than real trends in outpatient costs acro ss the system.


December 2007

There are significant issues with both the accuracy and t he interpretation of CWS data. The CWS data may over-estimate or under-estimate the real costs of delivering public hospital outpatient services for a number of reasons.

The CWS data may over-estimate the cost of public hospital out patient services due to factors such as:

o The cost of pharmaceuticals funded under the PBS and Section 100 are sometimes includ ed in the CWS data. In deriving the VACS weights for outpatient services, DHS excludes these phar maceutical costs as th ey are legitimately fun ded from a nother funding source under the AHCA pharmaceutical ref orm arrang ements. T he analysis below follows this approach and excludes the cost of PBS and Section 100 pharmaceuticals. (However, because some hospit als did not clearly separate out PBS, Section 100 and other pharmaceuticals, the analysis excludes the costs of all pharmaceuticals, re sulting in a potential under-estimate of outpatient costs).

o Outpatient costs may be artificia lly inflated to the extent that the full costs of private MBS clinics hav e not been excluded from the da ta submitted b y public ho spitals. To the extent that there are public subsidies of MBS clinics, this would overstate the real costs of public outpatient clinics as costs are not fully aligned with matching public outpatient activity in VACS-funded clinics.

The CWS data may under-estimate the co st of public h ospital ou tpatient services due to factors such as:

o It is likely that not all t he costs re lating to sp ecified gran ts are fully captured within the reported CWS data. Information provided by health services as part of the review of specified grant s indicates that some, but not all, costs associated with specified grant functions are reported through the CWS.

o There ma y be under-reporting of costs of some services, particularly those that rely more heavily on manual data collection s. This is understood to be particularly the case for allied health services.

In the context of these qualificat ions, Table 13 compares VACS fu nding again st reported costs of outpatient services between 2001/02 to 2005/06. The VACS funding levels in this table have been adjusted so that they onl y include funding for the particular hospitals contributing to the CWS in e ach year. T hat is, the VACS fundin g levels in Table 13 are not equivalent to the total VACS budget each year.

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Table 13 Comparison of VACS funding and reported costs, 2001/02 to 2005/06

Cost Type 2001-02 2002-03 2003-04 2004-05 2005-06 Number of CWS Submitting Health Services 9 7 13 12 12 Actual VACS Funding to CWS Health Services $162,060,000 $140,319,300 $241,118,300 $237,646,193 $250,631,465Reported Total CWS expenditure $136,758,895 $151,029,593 $244,709,079 $278,632,985 $289,232,769Pharmacy costs included in CWS $23,618,165 $27,312,063 $29,399,690 $58,794,321 $47,087,762Revised CWS expenditure removing pharmacy $113,140,730 $123,717,530 $215,309,389 $219,838,664 $242,145,006

Variance (VACS funding – Revised CWS expenditure) ($) $48,919,270 $16,601,770 $25,808,911 $17,807,529 $8,486,459

Variance (%) 30.2% 11.8% 10.7% 7.5% 3.4%

Table 13 in dicates that after adjust ing cost s to remove ph armaceutical expenditure, there was a positive variance, with f unding levels being in e xcess of expenditure fo r each year between 2001/02 and 2005/06. However, the size of the positive variance has reduced from 30.2% in 2001/02 to 3.4% in 2005/06.

It also needs to be note d that this a ssessment is unlikely to provide a totally accur ate picture of the relationship between outpatient costs and funding.

First, it is evident that p harmaceutical costs are a major confounding f actor in interpreting the relat ionship betw een VACS funding levels and costs of outpatient services. Table 13 clear ly demonstrates the sig nificant gro wth in pharmaceutical costs between 2003/04 and 2004/05, corresponding to greater uptake of ‘pharmaceutical reform’ under the AHCA. Although the health services contributing data to the C WS may no t be the sa me in 2003/04 and 2004/05, the data for the samp led hospita ls suggests a doubling of pharmaceutical expenditure between these years. The varia ble rate of u ptake in implementing pharmaceutical re form by he alth service s complicat es the adjustments and interpretation applied to Table 13. For exa mple, although all pharmaceutical costs have been exc luded in the early years , not all hospitals had access to PBS and therefore carried legitimate pharmaceutical costs. This means that the high levels of posit ive variance in 2001/02 to 2002/03 are likely to be an artefact, rather than representing a true excess of funding over costs.

Second, the apparent finding of funding levels in excess of reported costs is not consistent with the analysis in Section 5 that found tha t activity in VACS medical an d surgica l clinics was r unning at a bout 5% in excess of VACS targets over the past five years. For both these appare ntly contradictory findings to be true, the unit price paid by DHS fo r each VACS encounter would need to be higher than the average cost of each VACS en counter. W hat is more likely is that Table 13 understates the r eal costs of operating public outpatient services.

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6.3 Trends in costs of different types of outpatient clinics Table 14 examines trends in the average cost per unweighted encount er for each of the different VACS clinic categories between 2 001/02 and 2005/06. T he previously mentioned limitations of the CWS also app ly to this table. That is, changes in t he number and mix of hos pitals participating each year in the CWS ma y account fo r some of the annual cha nges in reported average costs, while the reported costs may over-represent or under-represent actual costs.

Table 14 indicates that the average cost per un weighted encounter has increased by 28.8% over the period from 2001/02 to 2005/06. In 2005/06 the average total cost per unweighted encounter was about $249 (including pharmaceutical costs).

The costs of some VACS clinical categories have grown more sharply, while for some clinical categories costs per unweighted encou nter appear to have act ually reduced. This is further illustrated in Figure 8 which shows the d istribution of cost increases by VACS clinics grouped into seven broad categories.

Figure 8 Average cost distribution trend by clinic, 2001/02 to 2005/06

0

2

4

6

8

10

12

14

<-50% -50% to -26%

-25% to0%

0% to25%

26% to50%

51%to75%

76% to100%

101% to125%

> 125%

Percentage Change

No.

of C

linic

s

Medical Surgical Orthopaedics PsychiatryObsetrics & Gynae. Paediatrics Allied Health

This analysis suggests:

The majority of clinic types have exper ienced an increase in costs of between 0% and 50%.

It is estimated that there this is at least a 35% real increase in average costs;

11 of the clinic types report a decline in actual costs and t here were another four clin ic types where cost s in creased at lower than the estimated in flation rate. The majority of these were allied health clinics; and

The majority of allied health clinic types reported a decrease in average cost.


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Average Cost per unweighted encounter ($)2001/02 2002/03 2003/04 2004/05 2005/06

101 - General medicine 186.5 263.0 301.5 352.4 337.6 81.1%102 - Allergy 244.5 314.2 348.7 278.5 215.6 -11.8%103 - Cardiology 266.3 271.9 288.8 336.7 416.5 56.4%104 - Diabetes 177.8 200.6 217.4 247.7 258.0 45.1%105 - Endocrinology 251.6 250.6 243.3 338.1 332.7 32.3%106 - Gastroenterology 232.4 221.3 214.2 300.7 291.3 25.4%107 - Haematology 260.2 270.4 251.9 441.6 583.5 124.3%108 - Nephrology 294.0 411.9 321.1 597.6 645.8 119.7%109 - Neurology 240.2 289.8 330.7 356.6 328.4 36.7%110 - Oncology 279.8 331.4 299.5 367.7 471.5 68.5%111 - Respiratory 263.5 361.7 370.3 460.5 369.3 40.2%112 - Rheumatology 202.9 231.5 221.3 290.6 322.4 58.9%113 - Dermatology 203.5 218.1 198.8 260.9 287.6 41.4%114 - Infectious diseases 345.2 452.6 334.3 842.6 787.0 128.0%115 - Dev neuro disability 312.1 279.3 295.9 327.2 253.9 -18.6%201 - General surgery 187.7 255.9 244.5 236.1 297.9 58.7%202 - Cardiothoracic 231.1 324.6 326.2 450.0 466.3 101.8%203 - Neurosurgery 216.7 240.5 254.1 326.7 377.7 74.3%204 - Ophthalmology 160.6 140.9 120.9 142.8 151.6 -5.6%205 - ENT 160.6 151.3 127.3 148.7 164.7 2.5%206 - Plastic surgery 145.1 148.7 146.1 165.5 166.1 14.5%207 - Urology 172.9 181.7 177.8 216.0 231.0 33.6%208 - Vascular 211.0 179.1 229.3 265.0 276.7 31.1%209 - Pre-admission 318.8 260.4 251.0 256.6 248.5 -22.0%301 - Dental 279.2 279.9 258.5 283.2 297.7 6.6%310 - Orthopaedics 177.2 165.9 189.9 256.1 254.5 43.6%311 - Ortho applications 149.0 154.2 117.6 56.8 -61.9%350 - Psych & behav dis 276.7 203.4 195.8 326.3 385.8 39.4%401 - Family planning 164.9 120.6 87.2 244.2 225.0 36.4%402 - Obstetrics 122.9 128.7 147.6 175.8 158.7 29.2%403 - Gynaecology 150.4 124.7 152.2 209.5 151.5 0.7%404 - Reproductive med 127.0 117.1 154.9 147.3 157.1 23.7%405 - Dysplasia & colp 156.8 110.2 144.8 169.1 158.7 1.2%501 - Paediatric surgical 319.2 217.7 114.8 118.0 179.5 -43.8%502 - Paediatric medical 254.8 184.6 178.8 198.8 317.9 24.8%601 - Audiology 127.7 222.7 205.6 442.0 246.2%602 - Nutrition 79.7 47.5 72.9 81.0 102.5 28.6%603 - Optometry 20.6604 - Occupational therapy 85.1 59.2 78.2 77.7 73.0 -14.2%605 - Physiotherapy 57.0 43.3 54.8 59.1 64.1 12.4%606 - Podiatry 157.1 115.7 108.1 177.4 140.5 -10.5%607 - Speech pathology 188.3 46.1 99.4 110.0 112.9 -40.0%608 - Social work 113.2 29.9 44.0 52.4 75.9 -32.9%609 - Other allied health 165.9 173.9 154.9 126.7 140.7 -15.2%Total 193.3 203.4 187.9 238.7 248.8 28.8%Number of health services submitting data to CWS

9 7 13 12 12

% change in ave costs

VACS Category

Table 14 Average cost trends by VACS clinics, 2001/02 to 2005/06


December 2007

6.4 Cost variations across health services and outpatient clinics

The data also suggests that there can be considerable variation between the reported costs of the same clinic type betwe en health services. Table 15 demonstrates th is variation in cost s, sho wing the a verage cost for each VACS clinical category b y hospital, together with the total a verage cost s and the standard de viation. The hospitals included in this table are those reporting data to the CWS in 2005/06.

This analysis shows that:

There are relatively few clinics where the standard deviation between hospitals is small. T he smallest cost variation is for Re productive Medicine (st andard deviation of $10). Other relatively low variations are for Physiotherapy an d Obstetrics, both of which have a standard deviation of less than $50.

The clinics with the highest cost va riation include allergy, infectious d iseases and cardiothoracic, all of which exceed a standard deviation of $300.

The standard deviation for costs across all clinics is $110.

There is potential to further examine clinics with high standard deviations with a view to differentiating types of care/clients that would provide for greater cost homogeneity if clinics were ‘split’.

There is a cluster of clin ics where the highest average costs are at either The Alfred or St Vincent’s. This lend s weight to t he argument that the costing method may be a significant a factor in determining costs.

6.5 Explaining variations in costs of outpatient services

Understanding the reasons for variation in costs is important in the development of a new funding model. Ta ble 15 indicates that there is considerable variation across both individual hospitals and across different VACS clinical categories in the avera ge cost of outpatient services.

However, many factors can pote ntially contr ibute to ob served diffe rences in t he reported costs of outpa tient services. These can include differences in: the costing systems used and the method of cost allo cation; the re source inputs; underlyin g patient co mplexity, models of care; clinica l practice patterns; and the level of public/private provision of relevant services. Only some of these factors represe nt differences that might legitimately be included in a new funding model. In addition, an inherent and significant amount of ‘noise’ in co sting data is apparent once it is drilled down to the level of individual hospitals and individual VACS categories. Not all of this variation should be recognised in a funding model, particularly if the objective is to encourage efficiency by individual hospitals t hrough funding on an output basis. Moreover, even the most robust funding models explain less than half of the observe d variation in costs.

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Table 15 Average cost per unweighted encounter by clinic & hospital, 2005/06 VACS Alfred Aus Ben Box H Dand Mercy MMC PMCI RCH RMH RVEE RWH St V's Ave SD101 - General medicine 573 180 215 251 204 259 413 331 444 158 517 338 143102 - Allergy 1,037 291 199 135 479 204 216 338103 - Cardiology 731 267 222 135 333 220 656 240 345 417 205104 - Diabetes 352 145 113 310 215 231 135 296 258 89105 - Endocrinology 351 228 186 129 536 316 296 288 263 354 333 111106 - Gastroenterology 253 333 147 150 343 268 334 280 392 291 85107 - Haematology 930 374 245 475 830 813 191 503 584 281108 - Nephrology 591 172 298 484 473 696 763 882 646 238109 - Neurology 466 387 160 166 375 425 288 178 330 328 117110 - Oncology 683 444 642 406 125 351 510 545 394 187 302 572 471 172111 - Respiratory 576 324 211 198 541 350 355 492 369 143112 - Rheumatology 387 328 180 134 481 255 316 322 119113 - Dermatology 399 246 92 389 228 251 356 204 288 105114 - Infectious diseases 1,184 343 290 813 686 211 671 126 513 787 337115 - Dev neuro disability 264 258 25 254 136201 - General surgery 333 246 133 172 209 295 336 196 255 770 298 180202 - Cardiothoracic 1,187 334 242 504 199 182 377 466 352203 - Neurosurgery 569 257 177 479 480 355 284 298 378 134204 - Ophthalmology 229 192 203 106 55 272 278 112 211 145 139 152 71205 - ENT 253 218 162 98 249 111 208 133 155 165 58206 - Plastic surgery 168 203 61 134 252 220 191 115 137 156 166 56207 - Urology 214 272 187 168 105 303 315 146 323 129 206 231 78208 - Vascular 202 328 197 245 290 131 282 324 277 69209 - Pre-admission 612 298 119 252 209 58 310 324 273 192 140 212 249 140301 - Dental 495 526 349 471 170 299 209 298 142310 - Orthopaedics 329 174 143 207 297 481 369 250 172 297 255 105311 - Ortho applications 173 41 57 93350 - Psych & behav dis 701 61 452 223 60 358 386 248401 - Family planning 53 239 229 225 105402 - Obstetrics 174 95 220 137 209 162 159 46403 - Gynaecology 372 114 92 132 128 279 273 174 151 100404 - Reproductive med 153 173 157 157 10405 - Dysplasia & colp 164 37 115 199 159 70501 - Paediatric surgical 97 191 185 180 53502 - Paediatric medical 74 193 258 334 274 318 99601 - Audiology 33 66 479 442 248602 - Nutrition 74 71 98 191 124 304 102 90603 - Optometry 21 21 0604 - Occupational therapy 73 100 107 39 180 73 52605 - Physiotherapy 54 98 43 99 94 64 27606 - Podiatry 222 37 73 188 141 89607 - Speech pathology 107 128 41 278 113 100608 - Social work 49 22 52 121 294 76 111609 - Other allied health 75 381 82 101 46 268 166 115 155 303 141 112Total 514 179 162 158 244 133 347 223 280 305 152 166 347 249 110

6.6 Variation in the costs of resource inputs

While many of the f actors cont ributing to cost variation cannot be objectively measured, the costs of resource inputs can be identified. Table 16 provides a detailed breakdown of the major resour ce inputs contributing to the average cost per unweighted encounter by VACS clinic type for the CWS participating hospitals.


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Salary - Direct

Salary - Indirect Imaging Pathology Pharmacy Other Total

101 General Medicine 194.24 62.11 32.13 25.20 23.42 0.53 337.63102

Table 16 Input costs by VACS clinic type, 2005/06

Allergy 127.48 39.17 3.83 25.69 19.05 0.33 215.56103 Cardiology 206.23 59.40 33.84 7.62 109.01 0.42 416.52104 Diabetes 132.32 43.14 8.81 30.72 42.67 0.37 258.02105 Endocrinology 142.26 46.96 31.48 36.96 74.76 0.31 332.72106 Gastroenterology 98.29 31.46 31.46 31.91 97.67 0.50 291.28107 Haematology 222.05 79.69 53.45 63.99 163.87 0.46 583.51108 Nephrology 182.18 69.14 21.81 65.72 306.59 0.32 645.76109 Neurology 183.38 53.63 40.02 7.75 43.31 0.32 328.42110 Oncology 192.16 63.97 90.13 26.52 98.29 0.43 471.49111 Respiratory 206.02 44.63 43.91 16.29 57.78 0.64 369.27112 Rheumatology 134.32 40.90 53.98 29.39 63.22 0.57 322.38113 Dermatology 111.25 41.64 8.41 37.18 88.74 0.42 287.65114 Infectious Diseases 186.34 50.72 20.58 58.44 470.71 0.23 787.04115 Developmental Neuro. Dis. 152.13 41.09 26.17 8.43 25.73 0.34 253.89201 General Surgery 162.69 49.21 57.84 13.04 15.06 0.07 297.91202 Cardiothoracic 240.28 86.71 78.06 13.19 47.84 0.20 466.29203 Neurosurgery 182.26 56.25 114.76 3.37 20.96 0.12 377.73204 Ophthalmology 96.84 34.34 2.83 2.20 15.34 0.04 151.58205 Ear, Nose and Throat 97.60 31.66 14.64 4.52 16.21 0.06 164.70206 Plastic Surgery 102.84 38.73 12.37 4.90 7.18 0.04 166.06207 Urology 109.76 36.46 47.72 13.00 24.03 0.06 231.04208 Vascular 146.69 42.60 57.55 6.02 23.73 0.09 276.67209 Pre-admission 122.83 37.79 39.10 37.63 11.00 0.19 248.55301 Dental 149.06 51.49 26.17 14.05 56.90 0.07 297.75310 Orthopaedics 123.12 52.58 71.41 1.93 5.25 0.24 254.52311 Orthopaedic applications 31.37 7.40 15.67 0.60 1.74 0.03 56.81350 Psychiatry & Behavioural Dis. 243.85 81.92 40.89 4.30 14.66 0.23 385.85401 Family Planning 116.47 42.58 7.45 30.84 27.54 0.14 225.01402 Obstetrics 88.33 31.57 15.27 21.97 1.30 0.25 158.69403 Gynaecology 85.71 17.61 22.76 20.38 4.87 0.15 151.48404 Reproductive Medicine 86.70 28.65 3.97 29.79 8.01 0.01 157.13405 Dysplasia and Colposcopy 80.37 25.39 2.31 49.05 1.55 0.02 158.68501 Paediatric surgical 118.36 29.02 27.14 2.85 2.07 0.08 179.52502 Paediatric Medical 229.55 51.91 10.25 12.10 13.56 0.58 317.95601 Audiology 296.03 143.35 0.68 0.24 1.68 0.00 441.98602 Nutrition 72.60 18.64 1.30 1.71 8.18 0.05 102.48603 Optometry 16.54 4.04 0.00 0.00 0.00 0.00 20.57604 Occupational Therapy 60.99 11.55 0.28 0.02 0.17 0.00 73.01605 Physiotherapy 48.02 13.03 1.81 0.19 0.94 0.07 64.06606 Podiatry 76.70 31.50 9.42 5.64 17.13 0.13 140.52607 Speech Pathology 95.00 14.30 2.81 0.14 0.61 0.01 112.87608 Social Work 55.41 19.53 0.10 0.04 0.83 0.01 75.91609 Other allied health services 91.22 36.23 6.19 3.38 3.61 0.07 140.69

122.79 40.29 27.97 17.10 40.50 0.20 248.8549.3% 16.2% 11.2% 6.9% 16.3% 0.1% 100.0%Total % of Cost Per Encounter

Clinic TypeAverage Cost Per Encounter ($)

VACS

Grand Total


December 2007

The cost data in Table 16 represent total co sts and the refore do not necessar ily ‘match’ the relative weights derived by DHS for each of the VACS clinical categorie s. As outlined in Appendix 1, DHS excludes some costing data in the development of the weights, including the costs of pha rmaceuticals and the costs of ‘hig h cost’ outlier encounters (where cost s are in ex cess of $30 00/encounter even after exclusion of section 100 pharmaceuticals).

The analysis indicates that:

The average total cost per unweighted encounter is $249.

The average input costs are:

o $122.79 for direct salary costs (49.3%);

o $40.29 for indirect employment costs (16.2%), which mean s that total employment costs are $163.08 (65.5%);

o $27.97 for medical imaging (11.2%);

o $17.10 for pathology (6.9%);

o $40.50 for pharmacy (16.3%); and

o $0.20 for other unspecified costs (0%).

Almost two-thirds of th e cost s are employme nt related with pharmacy and medical imaging combined makin g up a furt her 27%. These thre e inputs constitute 93% of all costs.

The range of total costs across clinic types is diverse, ranging from around $20 for optometry to $787 for infectious disease.

The average costs for some clinics such as infectiou s diseases ($ 787), nephrology ($646), haematology ($ 583) and neurosurgery ($377) are skewed by the high clinical support costs, such as medical imaging and pharmacy, and to a lesser extent pathology.

The issue with any fu nding model is the extent to which the variat ions in cost s ‘balance out ’ across individual services and ho spitals. Section 7 examines in more detail some issues that ma y contribute to cost variation including diffe rences in the models of care and th e extent to which some cost driv ers are disproportionat ely influencing the costs of selected outpatient services.

6.7 Summary – key findings on outpatient funding and costs The key findings from this analysis of outpatient funding and costs are:

About two-thirds of fun ding (68%) currently received by health services under VACS is made on the basis of v ariable payments for providing medical, surgical an d allied health outpatient services. The remaining funding comprises the base, teaching and specified grants.

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Between 1998/99 and 2006/07 the VACS fundi ng budget grew at an a verage annual rate of 8.8%, or 5.6% in real terms. The rate of growth in VACS funding has declined over the pas t two years, with an i ncrease of 4.7% between 2005/06 and 2006/07.

A comparison of fundin g and costs of outpatient services (based on data from the Cost Weight Study) suggests that VACS funding was 3.4% higher than the costs of delivering outpatient services in 2005/ 06. However this analysis is confounded by the diffi culties of correctly adjusting for pharmaceutical cost s (the majority of which are funded through sep arate non-VACS sources) and other issues that limit the representativeness and accuracy of costing data.

In 2005/06 t he average total cost per unweighted encount er was about $249 (including pharmaceutical costs). Over the period from 2001/02 to 2005/06 the majority of the 46 VACS clinical categories have experienced an in crease in average costs of between 0-50%, equivalent to a 35% real increase in average costs. However, 15 of the VACS clinic cat egories (mainly allied health services) reported a decline in average costs.

There is considerable variation between the reported costs of the same VACS clinic categ ory betwee n health se rvices. The average standard deviation across all clinics is $110, indicating relatively high cost variat ion in the context of an average cost/encounter of $249.

Almost two-thirds of th e costs of outpatient services are staffing co sts, with pharmacy and medical imaging combined making up a further 27%. To gether, these three inputs constitute 93% of all costs of outpatient services.

Many factors can poten tially contribute to reported differen ces in the costs of outpatient services, with only some of these factors suitable for incorporation in a funding model. Co st variation can be due to differen ces in: the costing systems used and the method of cost allocation; th e resource inputs; underlying patient complexity, models of care; clinica l practice patter ns; and the level of public/private provision of relevant services.

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7 Analysis of funding and classification model issues While Sections 5 and 6 have identif ied the major trends in outpatient activity, funding and costin g, the development of reforms to VACS requ ires addit ional analysis. Accordingly, Section 7 comprises analysis and evaluation of issues that influence VACS and the suitability of existing and potential new funding and classification model components.

This analysis is in three broad tranches comprising:

1. Service model and broad policy issues potentially impacting on VACS

The questions that are examined in this section include:

What infor mation is available a bout multidisciplinary care provided in outpatient clinics? What are the implications for developing a classification and funding model?

What are the emerging service models to improve assessment and triage and to ensure more timely treatment of patients referred to outpatient services? What are the implications of these models for VACS?

How are hospitals e ncouraging timely and appropriate discharge of outpatients to GPs for ongoing communit y-based care? Is there a role for funding incentives?

Should the existence of MBS clinics, that may provide a substitute for public outpatient services, be recognised in the VACS funding model?

2. Elements of the existing or future funding model

The questions that are examined in this section include:

What is the distribution of VACS specified grants and how does funding under these grants re late to act ual expenditure by health services? What criteria shou ld be used to assess th e appropriateness of existing and/or new specified gr ants now and into the future? How can these assessment processes be strengthened?

What are the argument s for and against retain ing the VACS base grant and should this be included in a reformed funding model?

What are th e arguments for and a gainst retain ing the VACS teaching grant and should this be included in a reformed funding model?

What is the distribu tion of co sts fo r clinical support services (phar macy, pathology and medical imaging) that are currently bundled under VACS variable grants and h ow should these be tr eated in a reformed funding model?

What refinement should there be to the VACS clinical categories?

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Should weights apply to both medical/surg ical services and allied health services? What are the options an d issues in applying weights to allie d health services?

Should targets be se t separately for medical/surgica l services an d allied health services?

3. Extending VACS to other hospitals

Should VACS be e xtended to selected hospitals, namely, Case y Hospital, Latrobe Regional Hospital, Goulburn Valley Hospital and Maroondah Hospital?

These issues are now examined in the following sections.

7.1 Multidisciplinary care Multidisciplinary care is increasin gly being recognised as an important component of effective, patient-centred care across many settings and par ticularly for patients with chronic or complex conditions. For example:

The Medicare Benefits Schedule has be en expanded to su pport multidisciplinary care th rough the introduction of the Enhan ced Primary Care items, the Chronic Disease Management items, the Better Access psychologist items and the Practice Incentive Program payments covering practice nurses.

The new Commonwealth Government has committed to a focus on integrated, multidisciplinary health care team s “to come together in the one p lace and provide bett er services to patients outside hospitals” (Aust ralian Labor Party, 2007). This is to be achieved through the establishment of GP super clinics t o provide a greater focus on chronic disease prevention and manageme nt and facilitate multidisciplinary team work.

In Victoria multidiscip linary care h as been recognised as one of the f our key priority areas for service improvement in the development of integrated cancer services. The model fo r multidiscip linary care in improving Victorian cancer services is shown in Figure 9 (Department of Human Services, 2007c).

7.1.1 Defining multidisciplinary care

Despite the increasing emphasis on multidisciplinary care, there are oft en differences in understanding of what constitutes multidisciplinary care. The definition adopted by the Multidisciplinary Care Project u nder the Victorian Cancer Services Framework is that of the National Breast Cancer Centre, which states that multidisciplinary care is:

“An integrated team ap proach to health care in which me dical and allied health care professionals co nsider all relevant treatment options and develop collaboratively an individual treatment plan for each patient”.

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Figure 9 Victoria’s model for multidisciplinary care for cancer services

The Multidisciplinary Care Project considers that a multi disciplinary meeting is “a regularly scheduled meeting of cor e and invited team me mbers for the prospect ive treatment and care pla nning” of pa tients. It notes that multidisciplinary meetings ca n precede or follow a multidisciplin ary clinic, imp lying that th e clinic visit involves the attendance of the patie nt while the multidiscip linary meeti ng does no t involve the attendance of the patient.

In regard to the su ggested co mposition of the multidisciplin ary team, the Multidisciplinary Care Project suggests that:

Membership of the team would incl ude health care practitioners “required for all treatment and care decisions”, and

Team members can co me fro m “th e primary, communit y a nd acute sectors, public and private sector and can be from several health services”.


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While this is a broad and inclusive definition, it does not include any ‘thresholds’ or ‘minimum’ staffing levels and/or types that mu st be involved in order to meet a test of being classed as multidiscip linary for the purposes of a classificat ion and funding model.

7.1.2 Multidisciplinary care in the outpatient setting

There is limited information avai lable that is sufficient ly rigorous to develop a classification system fo r identifying and countin g types of multidisciplinary care in the outpatient setting.

A 1997 study of four Victorian publi c hospitals (Jackson and Sevil, 1997) identified six models or ‘variants’ of multidisciplinary care in existence at that time comprising:

Model 1 – A speciali st medical cli nic, with on e or more allied healt h staff rostered to the clinic (e.g. nutritionists, ort hoptists, n urse practit ioners, physiotherapists, occupational therapists, speech pathologists, social workers);

Model 2 – As for Model 1, but al lied health staff are ‘on call’, rathe r than specifically rostered;

Model 3 – Multiple medical specialists rostered to a single clinic with ad hoc cross referral of (or professional consultation regarding) complex patients;

Model 4 – As for Model 3, but with allied health on a rostered or on-call basis;

Model 5 – Seriatim visits to a prescr ibed set of h ealth professionals, based on standard protocols (e.g. spina bifida clinic pat ient booked routinely to see the urologist and physiotherapist); and

Model 6 – Case confere nce format consultation with a number of medical and allied hea lth specialist s meeting with the pa tient (and f amily me mbers) to discuss clinical management.

In examining these models, there are clearly several dimensions that might contribute to the development of a classification or typology of multidisciplinary care including:

+/- multiple medical staff;

+/- multiple allied health staff;

Scheduled or unplanned;

Consultation vs case conferencing ( not necessa rily a clear distinct ion in the above models); and

Concurrent (same room) vs sequential consultations.

A further dimension not explicitly re ferred to in t his typology is the pre sence/absence of the patient. These multiple dimensions can obviously result in a wide array of different combinations of multidisciplinary care, which is clearly not a single ‘entity’ or phenomenon.

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7.1.3 Information on multidisciplinary care collected for this project

There are t wo main data sources on multidisciplinary ca re in Victorian outpatie nt clinics collected specifically for this project comprising:

Written advice provided by health servic es to DHS following the consultations held by DHS with health services in November to December 2006; and

Information templates on the staffing profiles of each clinic completed by health services and provided to Aspex Consulting dur ing the data collection phase of this project.

Each of these data sources will be briefly described, with illustrative information on the patterns of multidisciplinary care. However, n either of the se data sou rces is ro bust enough to use as the basis of a comprehensive approach to classification of multidisciplinary care.

7.1.3.1 Health service information provided to DHS

In its writte n advice to health services prior to the consultation me etings, DHS requested that health services provide advice as follows:

Multidisciplinary clinics – the estimated share of multidisciplinary clinics in each VACS category; the number of multidiscip linary consultations/we ek; the average time and range of time taken; the nu mber and type of medical and other staff p resent at multidisciplina ry consultations; and th e costing of these clinics.

Multidisciplinary meetings – the estimated share of multidisciplinary meetings in each VA CS category; the number of multidiscip linary meetings/week; the average time and range of time taken; the nu mber and type of medical and other staff present at multidiscip linary meetings; the ext ent to which thes e meetings are held by teleconference and/or video conference; and the costing of these meetings.

The level of information that was a ble to be provided varied quite significantly acro ss health services. Both the volume of information, and the non-standar d manner of its presentation back to DHS, meant that it was not possib le to summarise or ident ify ‘typical’ patterns of use of multidisciplinary care. An indication of the complexity of this information is given in Table 17 which shows some of the key data reported to DHS by three health services.

7.1.3.2 Health service information provided to consultants

In order to collect more comparab le information, a samp le of health services was requested t o complete a ‘core staffing’ template for every outpatient clinic. Th is allowed them to co mplete details of all the staff engaged in each clinic, includ ing specifying the share of time that staff participat ed in the clinic. Using the cost cent re for each clin ic, this could then be linked back t o the gener al ledger an d costing data. Health services provided data on the staffing profiles of over 1,300 clinics.

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However, it has ag ain not been possible to use these data to construct a rob ust classification on pattern s and co sting of multidisciplinary car e due to variation in ho w health services coded the data, together with internal conflicts in interpr eting the data. For example, issues included:

Some health services provided data on the total number of staff engaged in a clinic session, rather th an the number of staff involved in providing ca re to a single patie nt. It was not possible to distinguish across clinics and across hospitals th e approach used, with the exception of obvio us ‘outliers’ (e.g. a clinic with 16 staff was probably the number of staff involved in the session).

The clinics also included information using the DHS ‘provider’ code (where 1 = medical practitioner, 2 = nurse and 3 = allied health). The information reported using these codes did not always appear to be consistent with the st affing profile data provided, meaning that it was not p ossible to ‘code’ the clin ic and develop a t ypology of staffing of clinics. For example, there were frequentl y clinics that were recorded as 1 & 2 (medical and nurse), but were described as nurse-led b y health ser vices, desp ite being in the VACS medical & surgical categories. In many cases this appeared to correspond to workforce substitution, where a nu rse pract itioner or other specialist n urse had the lead responsibility for the op eration of t hese clinics. Examples of these types of clinics in cluded diabet es educatio n, gastroen terology monitoring a nd pre-admission clinics.

The information provided on medical specia lties was variable, with only some health services ident ifying whether care was provided by specialists from different medical disciplines.

It was not possible to identify the main ‘model of care’ due to inconsistencies in how health services reported information on the share of time/participation by each health profession al to the clinics and internal con flict betwee n this information and the staffing profile data provided.

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Table 17 Multidisciplinary care at three selected health services, 2006

Health Service A Health Service B Health Service C Type of hospital Major tertiary Smaller metropolitan Specialist Number and range of multidisciplinary clinics

Comprehensive listing of multidisciplinary clinics occurring in at least 19 VACS categories, accounting for between 30-100% of each VACS category

A. Preadmission clinics (9) in a range of surgical specialties B. Surgical clinics (8) C. Women’s health clinics (6) D. Medicine clinics (12)

Only identified 1 multidisciplinary clinic at the hospital

Frequency Number of multidisciplinary consultations/week ranges from 10 – 190 across VACS categories

NA NA

Staff involved Extensive listing provided – varies according to clinical specialty; some clinics involve multiple medical specialists, allied health and nursing staff; others involve 1 medical specialist and a mix of allied health and nursing staff

A = usually 1 medical, 1 anaesthetist, 1-2 nurses, sometimes 1 specialist nurse, 1 administration staff B = 1-6 medical, 1-3 nurses, 1 administration staff D = 1-4 medical, 1 nurse, 1 specialist nurse sometimes, 1 administration

NA

Duration Average ranges from 20 – 300 minutes (some clinics were clearly reporting the duration of the session rather than the length of the consultation for individual patients)

A = 1.5 – 3 hours, with most being 2 hours B = 10-15 minutes (4), 20-30 minutes (3), 10-45 minutes (1) D= varied, 9 different time specifications ranging from15 minutes to 30 minutes – 3 hours

30 minutes

Number and range of multidisciplinary meetings

Information provided on meetings in 18 different specialties, covering discussion of patients presenting to outpatient clinics on same day or review of inpatient and outpatient treatment plans

A. Breast clinic B GI clinic C. Diabetes D. Endocrine surgery E. Lung cancer

NA

Frequency Generally weekly, but also bi-weekly, fortnightly and monthly

A-C are weekly D is monthly E is fortnightly

NA

Staff involved Varies according to specialty A = oncology, radiation physicians, radiologists, pathology, breast coordinator, surgeons, junior doctors B = oncologists, surgeons, pathology, junior medical staff C = endocrinologist, dieticians, diabetes educators, research coordinators, podiatrist D = endocrinologists, endocrine surgeons, pathology, junior doctors

NA

Duration Generally 1 hour, but ranges from 30 minutes to 2 hours

A-B are 1-1.5 hours C is 1 hour, D is ½ - 1 hour

NA

NA = Not available/not provided

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The level of interpretation required to allocate clinics to staffing types was too high to have sufficient confide nce in th e veracity of the data for use in a cla ssification a nd funding model.

7.1.4 Implications and the way forward on multidisciplinary care

Notwithstanding the dif ficulties in collecting a nd interpret ing quantita tive data on multidisciplinary care, the review of qualitat ive information provided by health services (together with health se rvice views during the 2006 consult ation meetings with DHS) has contributed to shaping a proposal for the future treatme nt of multidisciplinary care under VACS. This proposal is based on the following views:

There is cle arly a real distinct ion b etween mul tidisciplinary clinics (involving assessment and/or management of patients) and mu ltidisciplinary tea m meetings (where multi ple health professional staff review patient progress without the presence of the patient). Some he alth services and some clinica l disciplines run highly structured, sch eduled multidisciplinary team meetings on a regular b asis, oft en weekly. These session s may invol ve the sequential review of a large number of patients with each patient review being of relatively limited duration, or may focus on reviewing a small number of patients at greater duration.

There is hu ge variation in what might be classified as a multidisciplinary care clinic in outpatient departments. It needs to be remembered that, by d efinition and as a result of the ir historica l developme nt, public h ospital outp atient services are generally providing highly spec ialised services. In this con text, it is not unco mmon for a clinic to in volve at least two staff, namely a medical practitioner and nurse, or a medical practitioner and allied health professional. If this model of care was classifi ed as multi disciplinary, it is likely that the majority of outpatient services would be deemed to be multidisciplinary care.

At the other end of the spectrum, the commo nly cited example of comple x multidisciplinary care relates to clinics for oncology patie nts with he ad/neck tumours. These clinics might involve 6 or more staff, including multiple medical specialists and allied health profe ssionals fro m several discip lines (medical oncology, radiation on cology, surgery, radiotherapy, speech patho logy, dieticians and nursing staff). Accordingly, some multidiscip linary consultations might be quite brief, while other consultations could be quite lengthy.

The establishment of a rigid classification of multidisciplinary care based on the number and type of me dical, nursin g and allied health staff involved in the consultation is problematic for several reasons. First, it runs the risk of ‘locking in’ models of care thro ugh a classification and funding system, rather than allowing clinical practice to evolve, with different models being used ba sed on patient nee d and the evidence on whether it improves patient outcomes. Second, multidisciplinary care may be more suitable for some types of pat ients and some clinical specialties, but there is likely to still be variation in the patient mix and complexity treated within individual clinical specialties.

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This analysis has sh aped the developmen t of the p roposed int roduction o f classification and fund ing elements for multidisciplinary car e in VACS, the details of which are outlined in Section 9.

7.2 Assessment, triage and integration of outpatient and community-based services

Another model of care issue relates to the need to improve the ‘front-end’ of outpatient services. Table 3 identified a series of issues raised during the Patient Flo w Collaborative about problems with accessing of outpatient services including:

Triage of referrals (including the absence of triage or urgency categorisation of patients referred to outpatient clinics);

Lack of availability of investigation results pre-appointment;

Lack of functional information prior to appointment;

Chronic high failure to attend rate; and

Unschedule d appointments/over-bookings.

Combined with long waiting times and a traditional consult ant-focused model of ca re, these issues have prompted the development of new mod els of care t o improve t he assessment and triage of patients, allowing the fast-trackin g of access to the mos t appropriate care.

7.2.1 New service models

A Septemb er 2007 conference, Improving the Delivery of Services for Outpatients , highlighted the similar ef forts underway in man y Australian states to refor m the front-end of outpatient services.

In Western Australia there has bee n a strong focus on ‘intake process solutions’, as shown in Figure 10 (Bowen, 2007). This includes:

Creating intake and triage nurses at each site t o liaise with GPs and s upport medical triage;

Invoking Clinical Priorit y Access Criteria and promoting 10 common clinical pathways for the 10 common conditions;

Streamlining and reducing emergency department and internal refe rrals to outpatient clinics;

Redistributing work to the shortest waiting list; and

Trialling ne w models of care incl uding allied health/physiotherapist in first assessment of neurosurgery and orthopaedic patients.

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Figure 10 Outpatient reform approaches in Western Australia

Queensland is adopting a similar approach through the use of standard computerised referral processes and enhanced communication on the types of patients for wh om outpatient care is appropriate and the necessary tests/investigations that should occur prior to ref erral to out patients (D uckett 2007 ). There is also a st rong focus in Queensland on direct access by GPs to hospital-based diagnostic tests, the use of GP assessment clinics and up-skilling GPs via hospital outpatient services. Queensla nd has trialled models including:

diabetes nu rse-led clinics a s gate- keepers to improve access to sp ecialist services; and

gynaecology care coordinators involving nurse-led categorisation of referrals and subsequent management of patients through the hospital.

Victoria has also been trialling diff erent models of care to improve timely access for new patients referred to outpatient services. For example:

DHS has sponsored t he trialling of a management and prioritisation tool (MAPT) for orthopaedic waiting list (OWL) p atients at 4 hospitals (Osborne 2007). The focus is on patients already on outpatient waitin g lists, rather than patients being triaged from the community. The ‘management’ element of the MAPT has involved testing a musculoskeleta l health coordinator model (with different options involving nursing, physiotherapy or medical staff).


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Many Victorian health services have been developing improved processes for the referral and management of new patients. For example, The Alfred Hospital has:

o Used clinica l nurse coor dinators to prioritise urgent referrals, improve the quality of clin ical in formation available at t he time of consultation, organise diagnostics prior to fir st appoint ments and streamline appointments and clinic flow;

o Improved communication with GPs through a GP web si te, letters to GPs, and phone calls to GPs to follow-up incomplete clinica l information or missing investigation results (Capron 2007).

7.2.2 Implications of new service models for VACS

The existing VACS model provides no direct incentives for new servic e models th at focus on improving the timely assessment and triage of patients ref erred to public hospital outpatient services. In general, patient s are directly referred t o a specialist medical or surgical clinic and may wait for an ext ended time before they are assessed and treated by a specialist, with shortages of specialists contributing to delays. Some patients may not require surgery or treatment by a medical specialist an d may be able to be assessed and managed in ot her ways. This include s management by their GP or other community-based health services.

These issue s are furthe r considere d in Section 9 which ou tlines a pro posal to fun d new Early Assessment and Linkage (EAL) clinics.

7.3 Promoting timely discharge and management of patients in the community

Health services raised concerns in the consultations with DHS that the mix of patients seen in out patient dep artments was too heavily skewed t owards existing or review patients. This was viewed as being caused by several factors. Some specialists were reluctant to discharge p atients back to the community for o ngoing management by their GP. There was also recognition that increasing the share of new patients in outpatient departments would have implicati ons for the nu mber of people waiting f or elective surgery.

Proposals t o improve triage and a ssessment ( including th e use of substitution and diversion to ensure optimal use of outpatient specialists) should help r educe waiting times and hence ‘free u p’ elective surgery capacity. Howe ver, it is still important to improve the ‘back end’ of outpatien t processes, with timely discharge of appropria te patients who no longer need hospital-based care.

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7.3.1 Strategies to promote timely discharge and community-based care

Hospitals in Victoria and in other states have been trialling approaches to improve the balance between hospital and community-base d care. Some of these strategies are now described.

Queensland has been using a process redesig n team to improve the management of patients back into the community (Duckett 2007). This includes setting a maximum 12 month referral, such th at patients must return to their GP, who the n determines whether a further referral is require d for specia list care. T his 12 month maxi mum referral is similar to the existing arrangements under the Me dicare Benefits Schedule for accessing commu nity-based speciali sts. Queensland is also examining alternatives to automatic rebooking of patients for outpatient appointments including patient-initiated follow-up and telep hone follow-up by staff with a clinic slot availab le within a week. These t ypes of initiatives are in tended to address the scenario where patients may be booked for an outpatient appointment many months or even a year in advance, in the absence of clear evidence that this constitutes good clinical practice.

Western Australia has established a series of clinical business rules ( Bowen 2007). This includ es a “2+1” policy so t hat more than 2 follo w-ups with a registrar are disallowed without the explicit approval of the consultant. An integral part of improving outpatient management is the use of clinic al pathways th at also outline appropriate care for post-operative review. Western Au stralia is also implementin g a 12 month ‘active life of the referral’, with exceptions on ly allowed f or patients with selecte d chronic diseases su ch as those undergoin g dialysis. Another clinica lly driven approach is to encoura ge ‘paper ro unds’ at the end of ea ch outpatient clin ic. While this validates the important teaching role of outpatient clinics, it also services to reduce follow-up appointments. Impro ved documentation, including templates for ‘Assessment and Review” and “Outcomes’ improve commu nication and help set clear expectations regarding when care is ‘complete d’. Finally, Western Australia is set ting targets to in crease the new to revi ew appointment ratio from the current level of 1:4 (that is, 20% new) to 1:3 (that is, 25% new).

Austin Health has a discharge a wareness campaign (see Figure 11) to remi nd medical staff about discharge of ap propriate patients back t o the community (Rickard and Cosgriff 2007). It has undertaken a discharge audit (a similar concept to audits of surgical waiting lists) and has focussed on improved data f or monitoring of outpatient performance. Between August 2005 and August 2007 it in creased the discharge rate of outpatients from 6.9 % to 10.6%. Over t he same p eriod Austin Health also increased t he share of appoint ments for new patients from 29.6% to 38%, considerably higher than the Victorian average of 21%.

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Figure 11 Austin Health discharge awareness campaign

The Princess Alexandra Hospital in Brisbane has implemented a new model of care for diabetes management (Russell 2007). This moves away from the exi sting outpatient specialist clinic model of regular (3-6 monthly) review of patients with diabetes. Under the new model, the GP be comes the primary ‘care coordinat or’ (rather than the endocrinologist). One of the to ols is to have the patient seen by a n up-skilled GP ‘clin ical f ellow’ under the supervision of a specialist in the outpatie nt clinic with a llied hea lth staff in atte ndance. G Ps also un dertake an in tensive eight week training program.

Figure 12 New model of care for diabetes patients, Princess Alexandra Hospital


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7.3.2 Implications of new service models for VACS

The key issue is the extent to whi ch appropriate dischar ge and communit y-based management can be fa cilitated thr ough a fun ding model. Options t hat have been floated at various times include:

Setting separate targets for new and review patients: Although some jurisdictions (e.g. Que ensland) ha ve a new/review split in their out patient classification, there is no sugge stion that t his is translated into separate funding targets to provide a direct incentive to increase the share of new patients. S plitting new and review is also sometimes argued on the ba sis of their anticip ated differe nt resource costs. H owever, th ere is conf licting Australian evidence on t he value of reporting and separately funding new and review encounters:

o A Flinders Medical Centre study (Michael and Piper, 1991) found that while consultation time between new and review encounters was different, it was not a g ood predictor of total r esource use in the visit (taking ancillary services into account);

o The National Ambulatory Case mix Project recommended only a fe w partitions b ased on th e new/review criterion in its f inal classification (Lagaida and Hindle, 1992);

o A Queensland project t o support b etter allied health data collect ion removed the new/review variable because clin icians thought the value of the information was insuff icient to ju stify its record ing (Princess Alexandra Hospital, 1997); and

o Data collect ed for this project iden tified the time spent o n new an d review patient encounte rs, as a pro xy for costs. It found th e average time per pa tient encou nter was id entical (26 minutes), although this may have been a function of health services only being able to capture ‘booked time’ rather th an actual time from th eir outpatie nt schedulin g systems.

Providing ‘incentive’ payments for discharge: Another suggestion is that the funding model could include a paym ent for the su ccessful d ischarge of each outpatient. This is unlikely to be effective in the a bsence of clinica l protocols fo r the appropriate management of patients and a strengthening of communication between the hospital and community-based service providers. It is like ly to be difficult to monitor and ma y result in a ‘revolving door’ phenomenon.

Capping the number of review visits that are funded: Another option that has been considered is to cap funding to a specif ied level of review visits (say 2 or 3 post the initia l appointment). A variation on this would involve the application of the ‘coning’ principle t hat is used for pathology pa yments under the MBS. Under this approach payments for the second and subsequent visits would be discounted, w ith each su ccessive visit being subject to incre asingly steep discounts. The implementati on of these options would suffer fr om the same issues as have been already identified for discharge payments.

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In summary, while there is a rang e of funding model opti ons that mi ght be trialled, these have not been recommended for inclusion in the new funding model in Section 9. Neither t he literature nor the experience of o ther states in implementing outpatie nt funding models suggest that new/review splits (and their incorporation into fundin g models) are effective. Funding incentives provide a blunt tool in this situation and the evidence would sugge st that bett er outcomes can be achieved th rough clin ical engagement and the development of protocols on appropriate discharge.

7.4 Private MBS clinics

The Auditor-General’s report on specialist m edical outpatient services highlighted th e substitutability of outpatient services and private MBS clinics lo cated in public hospitals. Section 5 of this report indicated that there may be considerable variation in the uptake of MBS clinics across pu blic hospitals, with some having very low levels of MBS clinics and others having higher levels of MBS clinics.

The existence of MBS clinics (including their variable use across public hospit als) creates some challeng es to the d evelopment of a pub lic outpatient funding model. The analysis in Section 5 suggested that public hospitals may have directed growth in VACS targets to surgical outpatient clin ics, while growth in medical specialist clinics has been met through a combination of VACS and MBS clinics.

There are some real issues about the extent to which these patterns of uptake of MBS clinics can or should be incorporated in a public outpatient funding model. There are parallel developments that are sometimes canvassed as options for inclusion in an outpatient funding model. Two of the options that have been evaluated are as follows:

Adjusting public targets for the level of MBS clinics: This option would parallel the approach taken by NSW Health to determining funding le vels for each of its Area Health Services. One of the adjustment factors used by NSW Health is t he level of private insurance of the area’s population. This recognises the extent to which public funding n eeds may b e reduced due to private hospital use. DHS has not explicitly set public patient tar gets for Victorian health services on the ba sis of their level of MBS clinics. This factor is indirectly ‘used’ in the sense that the gap between VACS t argets and actual activity may be reduced through the use of MBS clinics, therefore masking the need for additional public funding.

Providing a private VACS (top-up) payment to health services: There are clear parallels with WIES. DHS makes a reduced private WIES payment and sets separate targets for treating sp ecified levels of public and private WIES. However closer evaluation of this option sugg ests that th ere are significant barriers and disadvantages to introducing private VACS payments as follows:

o The introduction of private VACS p ayments would simply divert funding from public outpatients to existing M BS clinics, with no in crease in the number of patients treated. Depending upon the total numbers of MBS clinics located at public hospita ls, this cou ld significantly r educe the funding available to operate public outpatient services.

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o The MBS fe e is stru ctured to recog nise pract ice costs, as well as the cost of providing medical treatment. It is debatable whether there are additional costs that should be reimbursed by the public sector for MBS clinics operating in public hospita ls. The establishment of MBS clinics in certain specialtie s suggests tha t these clin ics are bein g selectively introduced where they will be reve nue neutral or positive (noting that other factor s such as medical staf f support will also be cr itical to thi s decision).

o The use of private VACS targets may be vie wed as inequitable by health services that are not able to negotiate th e establishment of MBS clinics with medical staff.

On the basis of this an alysis, the f unding model proposed in Sect ion 9 does not include options to directly encourage or discourage the use of MBS clinics.

However, th e Auditor-General raise d some concerns about the potential for cross-subsidy of MBS clinics by health services, if th e fees char ged by health services f or supporting these clinics do not fully meet costs. There are several options to address this concer n. It is u nderstood t hat DHS will be providing health services with guidelines that provide advice about the establishment and operation of MBS clinics that are located in health services. Another option that ma y b e useful is the development and provision to health services of an ‘ MBS calculator’. This sim ple Excel tool would allow health service staff to calculate the revenue a vailable through private billing (including the level of associated diagnostic services and incorporating the mix of new and review visits). This could be compared with the real costs of delivering these services and the revenue available from providing the same services under VACS. Health services woul d then be able to determine the level of any facility fees to be charged to medical practitioners if MBS clinics are established.

The complementary nat ure of private specialist ambulatory care clinics also means that it has b ecome necessary to better understa nd the type and level of services th at are available through private clinics that effectively deliver services that may be delivered in public clinics at other hospitals.

It is therefore proposed that the act ivity of private clinics be reported by each hospit al where:

The hospita l provides the administration and/or billing for the private clini cs; and/or;

The hospital provides professional staff that sup port the clin ical operation of the private clinic; and

Where there are no out-of-pocket costs for patients.

7.5 VACS specified grants

Since it s int roduction, t he VACS funding model has inclu ded a ser ies of specified grants. The stated ratio nale for the se grants is that some services for non-admitted patients have either a relatively specialised function or are pr ovided in a manner that cannot be readily funded in terms of patient encounters.

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7.5.1 Distribution of VACS specified grants

A list of the VACS spe cified grants in 2006/07 is provided in Table 1 8. In 2006/07 specified grants represented 3.9% of total funding under VACS. It can be seen fro m Table 18 that:

In 2006/07 there were a total of 37 VACS specified grants, totalling ~$13million. As has already been noted, the VACS specified grants comprise a relatively small share of the non-admitted budgets for health services.

The health services with the larg est specified grants in 2006/07 were B ayside Health ($2.87million), Austin Health ($1.81million) and PMCI ($1.75 million).

While ackn owledging t hat VACS specified grants are intended to fund ‘specialised’ functions ( which may not be evenly distribute d), there seems t o be some disparity in th e range and quantum of funding r eceived by health services under VACS s pecified grants. Focussing on the metropolitan health services, several had very smal l specified grants in 2006/07 including: Peninsula Health ($0.0015million), Eastern Health ($0.045million) and Western Health ($0.12million).

Another notable feature is the small size of many of the in dividual specified grants. Of the 37 specified grants, 13 are less than $100,000 and 14 are between $100,000 and $500,000.

Of the 37 specified grants:

o 14 are for ambulance outpatient clinic charges;

o Three relate to autologous blood collection;

o Two are described as relating to the PANCH outpatient service;

o Two are for pain management (Barwon & St Vincent’s); and

o The other 16 cover a range of functions.

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Health Services

Table 18 VACS specified grants for each Health Service, 2006/07 Grant Total

Ambulance Outpatient Clinic Charges 420,186$ Autologous Blood Collection 41,960$ Country Clinics 58,952$ Liver Transplant Unit 554,160$ Spinal Clinics 739,339$

Total 1,814,597$ Barwon Health Service Development: Pain Management 93,978$

Ambulance Outpatient Clinic Charges 674,147$ Burns 147,267$ Haemophilia 479,369$ Heart Transplant 1,383,778$ Melanoma 183,449$

Total 2,868,010$ Estern Health Ambulance Outpatient Clinic Charges 45,083$

Ambulance Outpatient Clinic Charges 118,944$ Autologous Blood Collection 75,138$ Muscular Rehabilitation Services 851,810$

Total 1,045,892$ Ambulance Outpatient Clinic Charges 13,528$ PANCH Outpatient Service 647,513$

Total 661,041$ Ambulance Outpatient Clinic Charges 31,905$ PANCH Outpatient Service 431,678$

Total 463,583$ Peninsula Health Ambulance Outpatient Clinic Charges 1,505$

Ambulance Outpatient Clinic Charges 1,300,200$ Complexity 447,234$

Total 1,747,434$ Ambulance Outpatient Clinic Charges 7,978$ Hugh Williamson Gait Laboratory 1,138,369$

Total 1,146,347$ Ambulance Outpatient Clinic Charges 251,073$ Cochlear Implant Clinic 279,392$

Total 530,465$ Ambulance Outpatient Clinic Charges 6,358$ Genetics 97,908$ Hyatidiform Mole 36,874$

Total 141,140$ Ambulance Outpatient Clinic Charges 207,841$ Foetal Diagnostic Clinic 602,015$ Genetics 120,450$ Thalassaemia 397,642$

Total 1,327,948$ Ambulance Outpatient Clinic Charges 579,240$ Autologous Blood Collection 20,462$ Service Development: Pain Management 421,043$

Total 1,020,745$ Western Health Ambulance Outpatient Clinic Charges 120,450$

GRANT TOTAL 13,028,218$

Austin Health

Bayside Health

Melbourne Health

Mercy Public Hospitals


St Vincent's Hospital

Northern Health

PMCI


Royal Victorian Eye & Ear Hospital

Southern Health


December 2007

7.5.2 Ambulance specified grants under VACS Given the volume of sp ecified grants for ambulance outpat ient cl inic charges, these are examined separately.

In 2006/07 each of the 14 Metropolitan Health Services received a VACS a mbulance specified gr ant. The quantum of t hese grants ranged from $1,505 f or Peninsula Health to $1.3 million for PMCI and totalled $3.7 8 million (equivalent to 29% of VACS specified grants).

The analysis has involved comparing the funding received by each health service for this grant a gainst the expenditure incurred against this fun ction, as ca ptured through general ledger data. However, g eneral ledger data were not available for 3 health services (Bayside, RCH and Western), meaning that the following analysis relate s to the other 11 health services.

Table 19 shows ambulance outpat ient expenditure in the general le dger for each health service compared with the VACS specified grant for ambulan ce outpatie nt charges.

Table 19: VACS ambulance specified grant and expenditure on ambulances for outpatient services, 2006/07

Health service Outpatient

expenditure from the general ledger

VACS specified grant for

ambulance Difference

Austin Health $238 $420,186 -$419,948 Eastern Health $12,619 $45,083 -$32,464 Melbourne Health $71,790 $118,944 -$47,154 Mercy $477 $13,528 -$13,051 Northern Health $99,864 $31,905 $67,959 Peninsula Health $1,055 $1,505 -$450 PMCI $121,870 $1,300,200 -$1,178,330 RVEE $47,832 $251,073 -$203,241 RWH $0 $6,358 -$6,358 Southern Health $47,030 $207,841 -$160,811 St Vincent's Hospital $458 $579,240 -$578,782

Total $403,233 $2,975,863 -$2,572,630

It can be seen from the above that:

Of the 11 h ealth services examin ed, 10 reported expenditure on amb ulance outpatient services that was lower (and often considerab ly so) than their specified g rant. Only Northern Health reported actu al expenditure on ambulance outpatient services in excess of its specified grant.

Of the 11 health services, total rep orted expenditure on a mbulance outpatient services was $403,233 compared with $2,975,8 63 in specified grants. On the surface, this appears t o suggest t hat these h ealth services are rece iving a ‘windfall’ equivalent to about $2.6 million flowi ng from the VACS amb ulance specified grant.

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However, the situation is more complex than is evident from this analysis. Some of the factors that contribute to this situation are:

History: An obvious starting point in making recommenda tions on the future treatment of this grant is to unde rstand the basis on w hich it was initially constructed and its rationale. A 1993 DHS ci rcular (33/1 993) identifies that following a review of the funding ba sis for ambulance services, it was d ecided to allow ambulance ser vices (i.e. the Metropolitan Ambulance Service – MAS) to introduce charges to hospitals for the transport of patients att ending outpatient clinics from September 1993. To facilitate thi s direct ch arging, funding was transferre d from the MAS bud get to the then ‘additional throughput pool for hospitals’. This explains why the VACS specified grant for ambulance outpatient charges is only made a vailable to metropolitan health services, a nd not to the 3 VACS-funded rural health services ( Barwon, Bendigo and Ballarat).

Quantum of grant across hospitals: Advice from DHS is that the qua ntum of the VACS ambulance specified gr ants reflect the actual costs reported b y health services in 1993. These have been indexed over the past 14 years (by the same % share for each health service). The indexation applie d to the VACS a mbulance specified grant f rom 05/06 t o 06/07 was 3.8% acr oss the board. Gi ven this hist ory, it is no t surprising that there seems to b e little relationship between the size of the grant and the expenditure incurred.

Potential double-counting of ambulance costs: A further complicating factor is that in the determination of the VACS cost weights, the ambulance costs are actually included in the nursing ‘basket’ t hat contributes t o the calculation of the VACS variable grants. It is que stionable whether costs that are being met separately through specified grants should be contributing to the core elements of the VACS funding model.

Accuracy of data reported in the general ledger: There may also be issues about the accuracy of how these data are reported in the ge neral ledger. For example, four health services (Austin Health, Mercy Public Hospital, RWH and St Vincent’s Hospital) had low or z ero expendi ture reported for ambul ance outpatient costs. While Table 19 identifies the ambulance costs for outpatient services reported in the general ledger, the ambulance costs reported for acute inpatient se rvices, sub-acute inpati ent services and emerg ency departments have also been examined. As with the rep orted data o n expenditure for ambulance services provided to out patients, there is considerable variation in these other categories across he alth service s. Whethe r this ref lects real differences in expenditure patterns, costing allocation issues or other issues is not able to be determined.

Billing and charging issues between MAS and Health Services: Advic e from the DHS Ambula nce Services Unit is that expenditure by metropolitan health services on ambulance services fo r outpatients may also be artificially low, linked to proble ms with billing/invoicin g by MAS and probl ems with payment by metropolitan health services.

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However, it is not clear that data are available to estimate th e extent of under-billing/payment, either for individual health services or to map and attribute these ambulance costs specifically back to services provided to outpatients.

7.5.3 Evaluation of other VACS specified grants There are 23 other (non-ambulance) VACS specified gra nts, with the name of t he grant and level of funding shown in Table 19. An eval uation of these grants is currently underway and involves a three-stage process, comprising:

Collection o f detailed information about each specified grant from relevant health services;

Development of a set of assessment criteria to guide decision-making on when specified grants should be used; and

Development of prop osals to improve the future ma nagement of VACS specified grants.

Health services are providing information on each specified grant comprising:

The purpose, description and funding rationale for each specified grant;

The relationship of services funded under the VACS specified grant to other funded services;

The level of activity under the grant including recent changes in activity;

The current level of e xpenditure on the ser vice, including other fu nding streams used to support the service; and

Information on whether costing data are included in the Cost Weight Study.

Aspex Consulting will b e discussing the imp lications of this informatio n and the likely impact of a dopting new assessment criteria on specified g rants with relevant health services during consultations on the VACS classification and funding model.

7.5.3.1 Assessment criteria for VACS specified grants Going back to first principles, it is important to clearly articulate and agree the criteria that are to be used to assess the leg itimacy of specified grants. The current rationale for these g rants is that some services for non-admitted patients have either a specialised function or are provided in a manner that cannot be readily funded relative to patient encounters.

To aid de cision-making on the appropriateness of th e funding model, a more comprehensive set of assessment criteria has been developed as follows:

Specialised function – Is the service provide d highly specialised with the health service undertaking this function on a state-wide basis?

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Horizontal equity – Are some health services funded for a specified grant, while other health services providing the same function are not funded on the same basis? The application of this criterion w ould mean that specif ied grants would not be provided f or services at one hospital if similar services at other hospitals are excluded from specified grant funding. (Note: this criterion needs to be read in conjunction with the next criterion).

Ability to calculate reliable weights – Is it possib le t o calcu late reliable weights? If a specialised function is provided at 2 or more health services, cost weights should be able to be calculated. In this situation, t here is cap acity to create addit ional VACS clinical categories und er which th e function can be funded on an activity basis. For example, Table 10 indicates that some existing VACS categories (115 Developmental Neurological Disability and 404 Reproductive Medicine) have activity at only two health services.

Alternative funding streams – Is the service funded under the specified grant more suitably funded under other DHS or other funding str eams? This might include ide ntifying whether similar services p rovided at other hospit als are funded through other DHS programs.

Non output basis of service – Is t he service not able to be measured on an output basis?

Relationship between inpatient and outpatient services – Does the highly specialised service provide a clinica lly necessary service supportin g care provided on an inpatie nt basis? This criterio n relates to the rationale for providing the function in a public hospital outpatient setting.

7.5.3.2 Improving the assessment and management of VACS specified grants

It would be expected that application of the above assessment criteria would result in a sizeable reduction t o the number of existing VACS specified grants. While recommended outcomes for each specified grant will be de termined following review of the information being provided by each health service, it is likely that the total number of VACS specified grants may be 10 or fewer, co mpared to the existing 23 VACS specified grants.

Following consultation s with each health service, it is pro posed that t he existing 23 grants be allocated to one of two groups as follows:

Group 1 – Specified grants to be retained on an ongoing basis; or

Group 2 – Specified grants to b e translate d across into VACS clinical specialties and/or absorbed into more relevant funding streams.

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The proposed change management arrangement s to improve the management of these specified grants would comprise:

Group 1 – A small nu mber of highly special ised outpatie nt services will be retained for funding under the VACS specified grant mechanism. In order to qualify for access to specified gran t funding (and given the non-contestable nature in which service s have developed), it is proposed that the services funded through these grants be directed to Victorian Policy Ad visory Committee on Clinical Practice and Technology (VPACT) for the purposes of independent review of their clinical effectiveness, includ ing exa mining the appropriateness of the model of ca re. To the extent that some services may have been through similar review processes ( such as the Nationally Funded Centre process), VPACT could take this evidence into account. Th e determination of funding levels of highly specialised services is not readily amenable to benchmarking against other services. One option would be to create notional ‘weights’ for these services that are tied to the weight of related outpatient services funded under VACS varia ble grants. These notional weights co uld be use d as the basis of price adjustments and to ensure continuing efficiency in the delivery of highly specialised services.

Group 2 – Existing services that are not recommended for ongoing funding as VACS specified grants should be further revie wed by the VACS clinical panel to identify mapping of these services into existing or new VACS categories. In addition, some services may be considered for translation/absorption into other more suitab le funding mechanisms (such as WIES, SACS etc). I t is further proposed th at a tria l d ata collectio n be in stigated for the Group 2 se rvices during the next CW S round to enable a volume /output related payment to be calculated.

7.6 Base grant The Base grant component of the current model is provided to cover costs associated with fixed costs and se rvices provided to patie nts outside defined clinical categories. This has no tionally included such ite ms as phone consultations and administration of patients, amongst other things.

In 2006/07, the Base grant was approximate ly 12% of the total VACS funding, or 18.4% excluding emergency medicine. This represents approximately $61.27M.

Since the inception of VACS, the Base grant h as been considered a key component. It has performed the function of a ‘capacity grant’. The purpose is to provide minimum capacity to maintain an outpatient service, regardless of t he volume of outpatien t activity. It is the grant that ‘keeps the doors open’.

In the transition from a block grant funding system prior to 1997 to an activity based funding system (i.e. VACS), there was a reasonable concern that the basic capacity to deliver a public outpatient services needed to be protected, irrespective of the patient output. The result was a Base grant.

The evidence since that time is that outpatient services have continued to grow, often at a pace greater than the capacity of the individual hospitals to meet this demand.

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Three specific observations can be made:

1. The real level of fixed costs asso ciated with public outpatients is very small. There are n o major fixe d costs associated with operating outpatients th at can be readily identified, g iven that ca pital infra structure is e xcluded fro m th e funding component.

Operating costs that ar e generally fixed could relate to su ch cost s as utility charges and cleaning amongst others. Again, these are relatively small and do not appear to align with the proportion of Base grant funded. Fixed costs for outpatients (excluding emergency services) are estimated to be closer to 2%-3% of total costs.

2. The initia l concerns prior to 1997 regarding p atient volumes have not been manifest within the system.

3. Hospitals do not dif ferentiate the Base and variable grant components for any internal management purpose.

There has also been feedback from several hospitals that Base grants are no longer a relevant funding component.

Overall, the re are some legitimate fixed costs associated with outpatient services. These could continue to be funded under a Ba se grant. However, the overall gra nt would be much smaller. Gi ven the continued high volumes, the rationale for a Bas e grant component is sig nificantly diminished to the point where it is con sidered to lose meaning.

It is appropriate and timely to discontinue with a Base grant and ‘roll in’ the funds with the variable payments, which also simplifies the funding model1.

7.7 Teaching grant

The teachin g grant has been provided to reco gnise the important role of teach ing within the hospital setting, with out patient services being a core part o f the teaching setting.

In 2006/07 the teaching grant (excluding emerg ency medicine2) represented 9.8%, or approximately $32.6 million of total VACS funding.

The review has:

Identified that the teaching role in outpatients r emains a critical component of the teaching program and service delivery capacity;

Found that t he basis f or determining the level of grant to each hospital is not consistent. Over time th is has led to anomalies developing across the sector; and

1 Note: The consideration of the Base grant component has not considered the impact on the emergency grant. There is a stronger conceptual argument for a ‘capacity grant’ for Emergency Departments. 2 Teaching grant is approximately 7% including emergency medicine

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Noted that the teachin g components for inpatient service s remain separate fixed grants, and are not rolled in to the case weights.

The review also sees m erit in the a rguments proposed by several hospitals that it is important to continue to separately identify the contribution t hat the health care sect or makes to t eaching an d training. If this gra nt payment is rolled in to the variable payment, it ceases to be identified. At a time when there are continuing pressures in the sector regarding the contribution to teaching by Universities and hospitals, a separately identified grant is appropriate.

The preferred position is therefore t o retain the teaching grant as a se parate funding component.

There is, nevertheless, a case to ch ange the basis of alloca ting teaching grants. T he previous system was to allocate on the basis of defined ‘st udent’ positions. This h as led to anomalies. It would be preferable that in future, the allocation of teaching grants be based o n a percent age of variable paymen t. All of th e hospitals have, and will continue to develop, their teaching capabilities. There is a greater level of parity in the teaching load of all VACS funded hospitals today compared with 1997.

7.8 Clinical support services under the VACS variable grant

Clinical support services are currently included as part of the ‘bundled payment’ that is the VACS variable gran t. Each of t he three main clinica l support area s - pharmacy, pathology and medical imaging - ar e examined in more de tail be low to consider th e impact on any future funding model.

Figure 13 segments the relative size of the pha rmacy, pathology and medical imaging costs by VACS clinic category for 2006/07.

7.8.1 Pharmacy

Pharmacy costs represent a reaso nably signi ficant component (16.3%) of the act ual costs of out patient services. Moreover, there a re a few clinic categories that have very high p harmacy costs (expressed either in absolute $ t erms or the share of total costs a ccounted for by pharma cy). These clinics in clude infe ctious disea ses, nephrology, haematology, cardiology, oncology, gastroenterology and dermatology.

However there are several issue s impacting on the provision of outpatient pharmacy services th at need to be consid ered in determining the appropriate treatment of pharmacy costs. These are:

The tendency for some medical practitioners to refer patients to outpatient (and inpatient) services where the primary reason f or referral is to access certai n pharmaceuticals that are not on the PBS. This means that the hospital meets the full cost of the se p harmaceuticals. This p ractice disto rts the p urpose of having an outpatient service, but is the only means that some practitioners see as ensuring their patients have access to ‘appropriate clinical care’.

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91

Figure 13 Share of input costs by VACS clinical category, 2006/07

$- $100 $200 $300 $400 $500 $600 $700 $800 $900

General Medicine

Allergy

Cardiology

Diabetes

Endocrinology

Gastroenterology

Haematology

Nephrology

Neurology

Oncology

Respiratory

Rheumatology

Dermatology

Infectious Diseases

Deveptl Neuro. Dis.

General Surgery

Cardiothoracic

Neurosurgery

Ophthalmology

Ear, Nose and Throat

Plastic Surgery

Urology

Vascular

Pre-admission

Dental

Orthopaedics

Ortho. App.

Psych. & Behav.

Family Planning

Obstetrics

Gynaecology

Reproductive Medicine

Dysplasia & Colpos.

Paediatric surgical

Paediatric Medical

Audiology

Nutrition

Optometry

Occ. Therapy

Physiotherapy

Podiatry

Speech Pathology

Social Work

Other Allied Health

Staff direct Salary indirect Imaging Pathology Pharmacy Other


December 2007

The cost weights for clinic categories are determined following the ‘trimming’ of high cost pa tients. Tho se trimmed have a total cost (less S100) greater than $3,000 per patient encounter. This means that high cost patients re ceiving non-PBS drugs (which are also not listed as S100) are often excluded from the weights.

Notwithstanding the trimming pro cess, the impact that is observed on pharmacy costs in the CWS, which should notionally include untrimme d patients, is not significant. This su ggests that the numbers of patient s are too small to make a statistical difference.

The transition of hospitals to PBS for public pat ients under AHCA pharmaceutical reform has resulte d in direct revenues to hospitals f or their pharmaceuticals (with the exception of the non-PBS drugs noted above).

On this basis, there is no argument to continue to include p harmacy in VACS funding, as this would be ‘double-dipping’.

It is therefore proposed that all pharmacy costs be excluded from the c ost weights. Section 100 and PBS pharmaceuticals are f unded through separate funding sources, so it is inappropriate to be funding hospitals for these same costs through VACS. The cost weight study provi ded by man y hospi tals does not clearly disting uish betwee n PBS, Section 100 and non-PBS ph armaceuticals. This means that the total cost of pharmaceuticals needs to be excluded.

7.8.2 Pathology Figure 13 in dicates that pathology is not a major contributor to higher co sts for most clinical cate gories. In aggregate, pathology costs accou nt for about 7% of total outpatient costs. The clinical categories with r elatively high pathology cost s include nephrology, haematology, infectious diseases and dysplasia and colposcopy.

The nature of the patho logy appears to already be well incorporated in to most clinical categories. Therefore, there is limited scope t o meaningfully segment these clinic categories on the basis of patholo gy costs. Pathology costs can appropriately be reflected in the relative cost weights for these clinic categories.

7.8.3 Medical imaging Medical imaging can be a significant component of the cost of some outpatient clinics.

Figure 13 in dicates that medical imaging cost s are reported across a wide range of clinics. For most of th ese clinics they are a relatively small component and ar e managed within the overall cost weights for individual clinics.

However, t here are some clinics with reasonably high costs that appear to be associated with ‘high end’ medical imaging for a discrete cohort of patients.

There is no clear-cut a pproach to addressing the cost im pact of medical imagin g across all clinics due to the disparity of the impact within and between clinics. The options to address medical imaging costs within the new funding regime are:

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1. Retain the status quo: Retaining t he current approach has the advantage of maintaining a system that is known and understood. Maintaining the current approach is defensible on the basis of price b eing broadly reflective of the average cost, particula rly for high volume cli nics. It is a simple but crude method.

However, it would perpetuate the funding of services where there was known to be a wid e disparity in costs within clinics which may n ot reflect real cost; thereby disadvantaging or discoura ging hospitals to provide good quality care for specialised patient groups.

2. Global medical imaging cap: Another method is to provide a separate VACS code for all medical imaging across a ll clinics (or possibly all high-end modalities such as CT, MRI, nuclear medicine and PET).

The separate MI VACS code would have a weight, and ther e would be a cap on medical imaging for the hospital set by DHS.

This option has the advantage of ‘smoot hing’ medical imaging costs across clinics. T his would potentially make the costs w ithin cl inics more homogeneous and better reflect clinic costs. However, a distinct disadvantage of this approach is that it further fragments the funding of output ‘product s’ and instead funds ‘input components’.

In circumst ances wher e clin icians are aware of, and do respond to , price signals, there would be one less input cost f or clinicians to conside r, thus minimising any consideration of resource-use trade-offs at the patient level.

An externally imposed cap 3 on medical imaging would also ensure cont rol of the maximu m costs a ssociated wit h outpatient medical imaging. Ho wever, setting such a cap may be seen to be micro-managing health services.

3. Grant: An other option is to provi de a flat grant for all outpatient medical imaging. T his would o perate in a similar manner to the establishment of a single VACS code for MI.

A grant for medical imaging provides a mechanism to pay e ach hospital up to the capped level for medical imagin g irrespective of the level of MI provided. This could provide an incentive to minimise h ospital cost s associate d with medical imaging by retention of revenues derived up to the cap.

The grant would be a dministratively simpler but would weaken the output-based nature of the funding model with out achieving any a dditional advantages compared with those of the ‘global MI cap’ option.

4. Selective splitting of VACS categories: This option would ‘split’ those VACS categories that have a high MI cost component and create new VACS codes for sub-classes based on particular client/patient groups. A key consideration is the criteria (or thresh old levels) for determining which V ACS categories are appropriate to split.

3 A Medical Imaging clinic would be a capped target within the broader VACS funding cap for each Hospital.

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The criteria would need to flag tho se patients types where there is a clinical indication to consistently incur h igh-end MI costs. This sug gests the following criteria for investigating which clinics might require splitting:

a. VACS that have an average MI cost of greater than $70. This indicates average costs that are a ppreciably higher than standard gen eral x-ray services. T he threshold level of $70 would indicate suff icient volumes of VACS encounters; and

b. Clinics where MI costs a re greater than 15% of the total average costs of the clinic, which indicates a sig nificant pro portion of t he average costs; and

c. Where there are at least four hospitals providing more than 10% of the total encou nters for the specialty (market share). This would tend to reflect co sts that are du e to commo n clinical pr actice rathe r than the practices at any one hospital.

Each clinic would have a separate weight.

The four opt ions each have their own attractions and shortcomings. At this time, the option favoured for inclu sion in the model is Option 4 - the selective splitting of clinics that meet the listed criteria.

Option 4 is the preferre d approach for two main reason s. It adequat ely addresses high and differential costs for MI across some clinics, and maintains the integrity of the current activity-related clinic-based approach. The main shortcoming is that it d oes not provide explicit incentives to manage the overall MI costs. Cost management would need to be driven by the cost weights that do not provide incentives to ‘game’ the system.

Table 20 summarises the analysis of the clinics against the three criteria.

Table 20 Assessment of criteria for splitting medical imaging costs

VACS Clinic >$70 Av. cost

>15% of Av. cost

4+ Hospitals with >10% of market share

101 General Medicine 102 Allergy 103 Cardiology 104 Diabetes 105 Endocrinology 106 Gastroenterology 107 Haematology 108 Nephrology 109 Neurology 110 Oncology 111 Respiratory 112 Rheumatology

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113 Dermatology 114 Infectious Diseases 115 Devpt. Neurological Disability 201 General Surgery 202 Cardiothoracic 203 Neurosurgery 204 Ophthalmology 205 Ear, Nose & Throat 206 Plastic Surgery 207 Urology 208 Vascular Surgery 209 Pre-admission 301 Dental 310 Orthopaedics 311 Orthopaedic Applications 350 Psychiatry & Behavioural Disorders 401 Family Planning 402 Obstetrics 403 Gynaecology 404 Reproductive Medicine 405 Dysplasia and Colposcopy 501 Paediatric Surgical 502 Paediatric Medical 601 Audiology 602 Nutrition 603 Optometry 604 Occupational Therapy 605 Physiotherapy 606 Podiatry 607 Speech Therapy 608 Social Work 609 Other Allied Health Service 610 Cardiac Rehabilitation 611 Hydrotherapy

On the basis of the above analysis, three clinics meet all three criteria - cardiothoracic, neurosurgery and oncology.

It is proposed that a detailed analysis be undertaken of:

The sub-class of patients that would constitute the additional/ne w clinic category in each instance; and

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Two other clinic categories – o rthopaedics and obstetrics - that would potentially meet all three criteria for a definable sub-class of patients that is not apparent from the high-level analysis possible with existing data.

In the event that the VACS Clinical Panel was unable to differentiate a sub-class of patients, it will be ne cessary to ad opt more st ringent rule s around th ese three n ew VACS codes that preclude/minimise ‘gaming’. Patients eligible for these codes wo uld be confined to those patients receiving particula r categories (i.e. MBS it em numbers) of ‘high-end ’ MI modalities - CT, MRI, nuclear medicine and PET. Examinations outside of t he specified list of MBS item numbers would d efault to the ‘non-medical imaging’ VACS code.

7.9 VACS category refinement

The review has considered the appropriateness of the current clinica l categories a nd the extent to which the y are clinica lly meaningful and relatively cost homogeneous (and therefore represent a fair basis of payment).

The analysis and proposals in Section 7.1 and Section 9 relating to MDC, care plan conferencing and triage and assessment indicate that at least an additional four VACS categories would be appropriate in the future.

The discu ssion in Section 7.8 relating to medical imaging suggests th at, subject t o further analysis, it is appropriate to split three to five e xisting clinic categories to better reflect costs of certain patient cohorts.

The discussion relating to specified grants in Section 7.5 is also likely to result in a n expansion or refinement of clinic categories.

Overall, it is likely that t here will be signifi cant refinement of the existing categori es that incorporate:

A better reflection of best practice;

Cost homogeneity; and

The ‘mainstreaming’ of clinics which were once unique.

7.10 Weighted encounters

Variable VACS paymen ts are base d on weight ed encounters for medical categor ies. This is de signed to reflect relative differences in the cost of delivering high qualit y services. This approach is entirely consistent with output-based funding and remains an appropriate basis for funding clinic categories in the future.

The allied health catego ries are not currently we ighted. There is a flat payment rate regardless of the type of allied health service provided.

As a sound funding principle, allie d health categ ories should be weighte d, and funds should be provided on t he basis of weighted encounters in the same way as medical categories.

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This raises two critical issues:

1. The accura cy and co mpleteness of allied h ealth co sts to provide relative weights; and

2. Whether relative weights should be developed within the allied health categories alone or created as combined medical and allied health categories.

In relation to allied health costs, non-weighted payments for allied health were established in 1997 du e to the pa ucity of pati ent level co st data for allied heal th ‘encounters’. As part of this review, costs of allied health services were collected. It is apparent that there i s still much pr ogress to be made to develop cost data on a llied health that is sufficiently robust (with respect t o accuracy and completeness) to b e confident of developing cost weights.

In relation to the ‘pool’ of services to be included in the cost weights for allied healt h, there are ar guments that suggest relative weights shou ld be developed within a llied health categories only. The main line of argument is that t he nature of allied healt h services, including group sessions and multiple allied health professionals in the same clinic etc. lends itself to a different funding pool on which to develop rel ative weights. Relative cost weights established within t he allied health discipline s would provide a more cohesive set of comparable (hom ogenous) services, and the refore a more accurate basis for payment.

This would necessitate a differential base price to be set for allied health categories.

There are also arguments that suggest that relative we ights should be developed across all VACS categories including medical and surgical clinics. These include:

Developing a viable sub stitution and diversion a pproach needs an a ccurate basis that r eflects the r elative cost s of the various types of services. The achievement of this relativity requires the in clusion of a llied health and medical services in the same pool;

Separating the two ‘streams’ of service:

o artificially sets the two t ypes of services apart w hen they are part of the same integrated pathway of the patient journey; and

o draws costs from a smaller pool which pote ntially presents more difficulties with high and low-outlier patients;

Several hospitals hold t he view tha t there is no clinica l reason to con sider allied health separately from medical clinics.

It is proposed that:

allied health categories be weighted, and that they be weigh ted as part of a single ‘cost pool’ within medical categories; and

this occur only after a high level of confidence in the veracity of the cost data available for allied health services has been established.

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7.11 Funding caps

The current VACS funding model provides f unding targets as a means of capping funding commitment to hospitals. Each health service has two targets; a target for the weighted funded comp onent (medi cal categories) and a separate target for no n-weighted (allied health categories).

The rationale for the two targets is to separa te the funding elements of weighted encounters from non-weighted encounters. This is an entirely understandable approach.

In practice, this approa ch has the disadvantage of discour aging service substitut ion and/or diversion between medical and allied health categories in some instances. For example, it may prevent the greater use of allied health clinics and encourage medical clinics to maximise funding where the targets are misaligned with the direction of clinical practice change s that the hospital is seeking an d/or the policy direction o f DHS. Therefore, the two-target approach may have perverse incentives.

In the cont ext of the preferred position to weight all VACS activity, including allie d health categories as identified in Section 7.10, it is proposed that a single VACS target be set for the hospitals (excluding emergency medicine).

7.12 Extending VACS to other hospitals

A specific t ask of th is review was to examine whether VACS should be extended to four hospitals, namely:

Casey Hospital;

Latrobe Regional Hospital (LRH);

Goulburn Valley Health (GVH); and

Maroondah Hospital.

Specific data requests were made of the four hospitals.

A key consideration in determining whether these hospita ls should be VACS fund ed was developing an appropriate set of criteria.

The criteria include:

The extent to which the hospital p rovides a broad range of clinics t hat are typical of VACS hospitals;

The extent to which there are high volumes of patients that would be typical of VACS hospitals; and

The extent t o which there are alternative services available that currently or potentially meet the needs for specialist outpatient services.

Although not a criterio n, a further consideration is the e xtent to which the VACS funding model is likely to impact on the current funding levels at each of the hospitals.

The data relating to the funding and estimated costs for the four hospitals is presented in Table 21.

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Number of Public ClinicsMedical 0 0 17 23Surgical 9 0 8 60Pre-Admission 18 1 4 42Obs/Gynae 30 0 7 0Paediatrics 0 0 5 0Other Allied/Nursing 0 2 25 0Allied Health 0 6 12 0Ancillary 0 0 0 0

Total 57 9 78 125Public Patient Encounters

Medical - - 2,389 2,999 Surgical 2,732 - 5,322 22,293 Pre-Admission 6,640 2,689 3,074 2,944 Obs/Gynae 6,518 - 3,392 - Paediatrics - - 315 - Other Allied/Nursing - 956 7,303 - Allied Health - 5,035 2,072 - Other 605 - - -

Total 16,495 8,680 23,867 28,236 Clinic Costs

Medical OP 2,342,829$ 105,707$ 2,328,895$ 3,547,750$ Allied OP -$ 1,337,416$ 904,808$ -$ Pharmacy 415,852$ -$ 872,093$ 895,043$

Total 2,758,681$ 1,443,123$ 4,105,796$ 4,442,793$ Actual Revenue (Grant)

Outpatients - Non VACS Funded 6,424,233$ 4,851,605$ 4,889,194$ 2,717,373$ Net Revenue -$ -$ (151,535)$ -$ Pharmacy 415,852$ -$ 768,100$ 895,043$

6,840,085$ 4,851,605$ 5,505,759$ 3,612,416$ Modelled VACS Fixed & Variable Revenue

Medical OP 3,869,758$ 951,959$ 3,633,921$ 4,597,258$ Allied OP -$ 485,976$ 693,713$ -$ Pharmacy 415,852$ -$ 768,100$ 895,043$

Total 4,285,610$ 1,437,935$ 5,095,734$ 5,492,301$ Variance b/n Actual & Modelled (2,554,475)$ (3,413,670)$ (410,025)$ 1,879,885$ Cost per Encounter

Medical 147.44$ 39.31$ 164.27$ 125.65$ Allied Health/Nursing -$ 223.24$ 96.51$ -$ Pharmacy 26.17$ -$ 61.51$ 31.70$

Total 167.24$ 166.26$ 172.03$ 157.34$ Revenue per Encounter

Medical 243.53$ 354.02$ 256.33$ 162.82$ Allied Health/Nursing -$ 81.12$ 74.00$ -$ Pharmacy 26.17$ -$ 54.18$ 31.70$

Total 259.81$ 165.66$ 213.51$ 194.51$ Variance per Encounter 92.57$ (0.60)$ 41.48$ 37.17$

Maroondah2005/06 Outpatients LatrobeCasey Goulburn Valley

Table 21 Non-VACS hospitals – Activity, Revenue and Cost Analysis, 2005/06


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In relation to Casey Hospital, the data indicates:

The range of outpatien t services is very li mited. It offers 57 public clinics. There are no medical clinics and only nine surgical clinics.

At 16,500 e ncounters, the volume of activity is low. It is less than half of a VACS funded hospital at the lowest quartile of hospitals.

There appear to be some alternative serv ices available, as evidenced by the narrow ran ge of servi ces at present and the current practice to refer to private (MBS) clinics in the area.

Importantly, the modelled grant that Casey would receive (under curr ent arrangements) is appro ximately $4. 3M. This compares with a current grant of over $6.8M. Ca sey Hospital would be approximatel y $2.55M. worse off than is curren tly the case.

Notwithstanding the financial impact, Casey Hospital would not appear to meet any of the criteria for VACS eligibility.

In relation to Latrobe Regional Hospital, the data indicates:

The range of outpatient services is atypical for a VACS hos pital. Clinics are confined to a single pre-admission clinic and allied health clinics.

At 8,700 encounters, the volume of activity is very low.

There appear to be a r ange of a lternative services availab le at LRH a nd in the community.

The modelled grant for LRH is estimated to be approximately $1.44M. This compares with a current grant of over $4.85 M. L RH would be approximately $ 3.4M. worse off than is currently the case.

Of the four hospitals considered, LRH is the least like ly to be suitable to be funded under VACS against the criteria.

In relation to Goulburn Valley Health, the data indicates:

There is a b road range of outpatient services at GVH. There are relatively few surgical clinics which reflects th e overall service profile of GVH and the difficulty in expanding outpatient services.

At 23,000 encounters, the volume of activity is relatively low but approaching a minimum threshold of around 25,000 encounters.

There appear to be some alternative services available at GVH. However, these are limited. It is recognised that there is considerable reliance on GVH clinics to enable reasonable public patient access.

The modelled grant for GVH is estimated to be approximat ely $5.1M. This compar es with a current grant of over $5.5M. GVH would be approximately $0.4 M. worse of f than is currently the case.

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GVH is a potential candidate for VACS funding, meeting two of the three criteria. The volume of c ases remains relatively low. Gi ven the added complexity of a possible funding reduction based on current funding guidelines, it is difficult to r ecommend that GVH become eligible for VACS fundi ng at this time. However, it will certainly become eligible in f uture years. Considera tion cou ld b e given to f und GVH under VACS if there were transitional a rrangements to demonstrate incre ased service volumes and funding arrangements that did not reduce current grants.

In relation to Maroondah Hospital, the data indicates:

There is a r easonable range of medical outpat ient services at Maroondah with a strong focus on surgi cal cl inics. There are no allied hea lth clin ics that are publicly funded.

At more tha n 28,000 encounters, th e volume of activity is above a mini mum threshold.

There appear to be some alternative allied health ser vices available at Maroondah.

The modelled variable payment grant for Maroondah is est imated to be approximately $5.5M. Thi s compares with a current grant of over $3.6 M. Maroondah would be approximately $1.88M better off than is currently the case.

Maroondah Hospital appears to meet all of the criteria for a VACS funded service. It operates in a very similar manner to other VACS funded hospitals. T he one area of deficiency is the allied health ser vices and p ossibly som e medical and obstetrics clinics that it is not able to provide. This is reportedly due to the lack of funding.

A summary of the analysis is provided in the following table.

Table 22 Non-VACS analysis summary

Hospital Range Volume Limited

Alternative Services

Casey Hospital Latrobe Regional Health Goulburn Valley Health Maroondah Hospital

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8 A funding and classification model framework Having eval uated the issues shapin g VACS, thi s section n ow introduces the model construct and decision tree used to develop a new funding and classification model. It outlines policy objectives and principles, bef ore discussing the broad concept ual options available in designing funding and classification systems.

8.1 Approach to developing a funding and classification model The purpose of this se ction is to o utline the br oad approach to developing a fun ding and classification model for public outpatients.

Figure 14 is a schematic represent ation of the steps, or sequencing, to develop an operational model. Each of the steps is described below.

Figure 14 Schematic diagram of decision tree framework

Public Policy Objectives

Principles Underpinning Program Delivery

(Main) Funding Model

(Main) Funding Mechanism

Funding Structure

Funding Rules/ Guidelines

• Meet the public outpatients needs for as many patients as

possible in a timely manner• Client-centred Care

• Integrated Care

• Reasonable Access• Transparency

• Simplicity• Relevance etc

• Method of Funding Distribution

•E.g. Output-based funding

• Unit of Output Measurement

• Funding Components

• Operational funding conditions and

parameters

Operational Funding Model

8.2 Policy objectives and principles

Given the development s in the sector over the past ten years, the existing progra m objectives for VACS need to be refreshed.


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The following principles were put forward for consultat ion with the health se ctor during Stage C and were accepted as a sound basis to underpin the development of a classification and funding approach for public hospital outpatient services:

1. Output driven approach . Funding would be based on actual services delivered, rather than service capacity, service inputs or treatment processes.

2. Transparency. The allo cation/distribution of fu nding to health service s must stand scrutiny.

3. Comprehensive m eans of service categorisation. The classification system needs to ca pture the fu ll range of services pro vided through public h ospital outpatient services.

4. Simplicity and relevance . The funding and classification system needs to be readily understood and make sense to staff in public hospitals.

5. Efficient service delivery. There are benchmarks or bands of associated costs within which services are expected to be delivered.

6. Evidence-based m odels of clin ically effective care. The system supports clinical changes to improve/enhance patient clinical out comes and satisfaction with care.

7. Flexibility. The funding model should be able to support (even enc ourage) dynamic changes in service provisi on and innovative, e vidence-based models of service.

8. Robust. The system n eeds to be backed up by commo n definition s and accurate and consistent mechanisms for data capture and retrieval.

9. Ease of implementation. This relates to minimising costs and reporting burden on health services.

10. An auditable service delivery system. Adequate accountab ility and monitoring mechanisms must be a vailable to ensure that the system i s performing in line with its objectives.

The agreed strategic objectives of the VACS funding and cla ssification mod el incorporating consultation feedback are to:

Ensure a clinically meaningful classification system;

Be patient-focused;

Ensure a sustainable outpatient service (incl uding reliab ility, efficien cy and accountability in the delivery of public outpatient services);

Promote improved access;

Support best practice evidence-based models of care;

Support workforce substitution;

Ensure a simple and transparent funding model;

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Support car e in the co mmunity and an enhan ced role for GPs and other community based service providers in the ongoing management of c linically appropriate patients;

Recognise patient choice and the compleme ntary role o f private specialist services in various settings; and

Recognise the important role of clinical teaching in the outpatient setting.

Recommendation 1 That DHS accepts the principles and strategic objectives identified in this report as the agreed basis for reform of the VACS funding and classification model.

Within the context of these principles and o bjectives, several mod el options were considered. Options r elated to fu nding models are fir st outlined, be fore examin ing potential approaches to the classification of outpatient services.

8.3 Funding model options

Within the broad principles and strategic objectiv es outlined above, there are a rang e of possible approaches to funding outpatient services that could be d eveloped. I n general, this includes options that are based on episodes of care, the clinica l streams/specialty, the type of pat ients treate d, or the way that t he service is configured.

Three main models have been explored below.

1. MBS-based payment model

2. Episodic payment model

3. Enhanced VACS model

Each offers a very diff erent approach and illustrates the alternative structures of funding outpatients and the different ‘drivers’ an d impacts th at each model may hav e on the type and volume of services provided.

The three models essentially represent choices on a continuum.

Item-based funding is p ayment based on each element of care. The MBS would be an exa mple of item-based funding. The GP , medical specialist, pathology, medical imaging etc are paid separately.

ItemItem EncounterEncounter CaseCase EpisodeEpisode


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Encounter-based fundin g is the p ayment of patient cont act. VACS, per die m payments etc are examples of this type of funding. This provides for some bundling of services within a single payment.

Case-base funding is the payment of an e xtended encounter. DRG or casemi x payments are an exampl e of this for m of funding. It bundle s a more extensive range of services and costs into a single payment.

Episode-based funding is the pa yment of an even more exten sive series of encounters with the health care system for the same condition that attracts a single payment. T his is typically identified for ch ronic health con ditions. Examples of this form of funding are Diagnostic Cost Groups (DCGs) and capitation payments.

The key parameters are:

The extent to which there is a bundling of services for a single payment;

The period of time covered by the funding; and

The level of risk transfer from the payer to the provider of services.

8.3.1 A ‘shadow’ MBS model

A shadow MBS model is the funding for each item of ser vice provision. In a VACS context, all items of ser vice would be separately identified and funded according to a schedule of prices.

This would include the medical specialist, associated diagnostic tests, pathology tests, pharmacy d ispensing, medical imaging examinations an d allied health service, to name the more obvious services.

A shadow MBS appro ach is potentially attractive as a transitional p ath if there are likely to be major changes to the Commonwe alth/State financing of public hospitals that lead to an MBS-style payment system for outpatients.

Otherwise, it has limited appeal as a funding method. I t weakens output-based funding approaches an d has the potential to dilute clin ical responsi bility, fragmen t care, reduce collabora tive approaches and mo ve away fro m evidence-based models of care (such as multi-disciplinary care).

8.3.2 Episodic payment model

An episodic payment model is the funding of a completed series o f health care interventions or activities, often across the continuum of care and range of settings. In the context of VACS, this would mean a payment system that could be either:

‘Confined’ to episodes of care within the outpatient funding program; or

‘Broadened’ to episode s of care t hat encompass care in the preced ing or subsequent acute treatment, and/or sub-acute care phase.

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A limited episodic payment system that is confined to t he outpatie nt program (as defined by VACS eli gible services) would need to identify or cl assify patient s according to the likely service needed (includin g the numb er of interventions over a defined period of time).

Operating under a broa der episodic payment system, the o utpatient component of an episode would be ‘rolled in’ to the broader episode of care. This would mean tha t the majority of outpatient attendances would n o longer re quire a se parate fund ing arrangement, which in turn, erodes the need to operate an outpatient funding system.

An episodic payment approach has some inherent benefits. It would:

More explicitly pay for p atient-related outputs. It would significantly extend the current compartmentalised output-based funding system.

Enhance continuity of care.

Potentially reduce the transactio n costs be tween DHS and the service provider.

More explicitly recognise/determine an expected clinica l pathway(s) that would be required to meet the clinical outcomes.

More effectively monitor and reward performance than is currently the case.

However, an episodic p ayment approach is also much more difficu lt to implement. It requires:

General agreement, o r at least acceptance of clinical pathways as a reasonable basis for clinical care , which are n ot easy to define (except for conditions t hat are high volume) and on which it is even harder to get consensus;

Determining the points of commencement and conclusion of an episode;

Activity and cost information syst ems that can reliably capture patient level data, capable of being integrated, o ften across settings and time periods in a ll health services;

Robust cost ing to develop the relative weights for different episodes o f care with many more possible service output combinations being problematic;

Risk adjustment on the part of the payer and provider; and

Determining appropriate capital/ infrastructure costs of service delivery across different settings.

The difficu lties that wo uld need to be overcome to operate an episodic paymen t system mak e this opt ion impractica l at th is time. There is no patient-level data for outpatients, there is no universal UR number, t here is no mechanism to capture d ata across care settings, let alone in different organisations, and there is unlikely to be any shared vision of what constitutes an episode of care.

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8.3.3 Enhanced VACS model

An Enhanced VACS model is based on encounters. Therefore, it provides an output-based appr oach that h as some se rvice bundling, over a relatively short but defin ed period of time, with explicit risk known to the funder and service provider.

Although not able to deliver the fully output-based service that ma kes episodic payments at tractive, the enhanced VACS model (described in Section 9) is a maj or advance on the existing approach and is able to satisfy the policy objectives.

The enhanced VACS model can be viewed as a long-term sustainab le solution for funding outpatients, or as a transitional arrangement to a more devel oped approach. Both perspectives are valid.

8.3.4 Other funding options – consultation findings

Two other funding approaches were raised by health services in the January to March 2008 consultations undertaken by Aspex Consulting.

The first op tion was for DHS to establish a single funding framework across all ambulatory care services. This would cover public hospital outpatient services, sub-acute ambulatory care services, HARP and other ambulatory care services current ly funded by DHS. Clearly, this is a long-term option that is o ut of scope of this current project. However the e volution of new delivery arrangements such a s super clinics and integrat ed health services, together with our recomme ndation in Section 9 that VACS funding be used flexibly for services outside tradit ional public hospital settings, means that it will be important to consider streamlining and alignment of fundin g models for ambulatory services in the future.

The second option was for DHS to mo ve towa rds population-based or capitation funding for outpatient services. The option of using po pulation-based funding did not have wi despread support and was raised for discussion by only a few health services. It was canvassed largely in t he context of seeking to achieve a mo re equitable distribution of resources across health services. Population-based funding was viewed as allowin g greater r ecognition of factors t hat might contribute to underlying demand for u se (or cost) of hospital services, including population growth , socio-economic factors, access to private hospitals, GP and specialist service s, private health insurance levels, and population ethnicity and need for interpreter services. H owever, other health se rvices argued that outpa tient departments should provide a universal service and that popul ation-based funding w as ill- suited to outpatient services, due to their high volume, s hort-term nature and overlap with MBS services.

A move to population-based funding is not supported by Aspex Consulting on the following grounds:

It is not consistent with the agreed principle s outlined in Section 8.2, namely, that funding should be output driven and directly related to the delivery o f outpatient services;

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There is an absence of patient-level data on outpatients which would be a prerequisite in setting the risk a djustment factors that are necessary in establishing a population-based funding model;

The complexity and overlap associated with Commo nwealth/State and public/private provision of outpatien t-type services makes it difficult to isolate and quarantine out a population-b ased fundin g model fo r public ho spital outpatient services; and

The poor quality of outpatient cost ing data mitigates again st setting a ccurate payments for the cost of outpatient services per head of population.

8.3.5 Recommended funding model approach

The three models of shadow MBS, epis odic payment and enhanced VACS highlight the varying potential to impact on key dimensions of a future funding m odel, and the nature of the funding system in relation to:

service cla ssification including the clin ic structures, gr anularity of service categorisation and integration with other services;

range and mix of clinical services;

responsibility and accountability for funding outpatient services;

service conf igurations that reflect be st practice and patient ‘complexity’ (such as new and review patients, multi-disciplinary care etc.); and

the impact on the episodic nature or continuity of care.

At this stag e in the evo lution of fun ding models for outpatie nt services, an enhanced version of t he current VACS mod el is the mo st feasible. It is able t o meet the key principles and objectives, with fewer shortcomings and uncertainties.

However, the shortcomings of the ‘shadow’ MBS and episo dic payment models cou ld potentially be addressed over time, leading to m ore favourable consideration at some future time.

The preferred ‘Enhanced VACS model’ could therefore be viewed as a sound mod el with an inde finite life sp an, or a tra nsitional model to other more complex models as they become feasible.

Recommendation 2 That DHS implements an Enhanced VACS model as the basis for funding and classification of outpatient services. Recommendation 3 That DHS considers more fundamental reform of outpatient funding over the longer-term, including the possible establishment of a single funding framework across all ambulatory services, and the option of bundling the outpatient episode with other related services conditional on other developments including the introduction of patient-level data for outpatient services.

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8.4 Classification model options

Within the context of an Enhanced VACS appr oach, consideration ne eds to be given to the classification system.

The current classifications are based around clinical specialties, with 35 weighted and 12 unweighted clinica l specialt ies. The 35 weighted clinical specia lties generally correspond to medical and surgical discip lines. The unweighted categ ories comprise 11 allied health services (plus emergency medicine - VACS 550).

Specifically, consideration has been given to classification by:

1. Clinical stream. This means the classification of services according to clinical groupings, which is the basis of the current VACS system.

A ‘clinica l st reams’ approach would specify clin ical groupin gs to the le vel of granularity that is meaningful to clinicians and adequately differentiates costs.

For example, VACS ha s broad clin ical groupings (such as general medicine) as well as some categories that are sub-classes (such as dysplasia and colposcopy being a sub-class of gy naecology, and orthopa edic applica tions being a sub-class of orthopaedics).

The current clin ical cat egorisation is clinically meaningful and has been a workable mechanism for the past ten years.

2. Patient cat egory. This is a classificat ion of the type of patients. The classification can become inconsistent and there is potential for overlapping classifications as they are not mutually exclusive. Definitions typically become important. Classification groupings could include, for example:

The potential for overlap of categor ies for patients is problematic. It weakens, even undermines, the output-based ‘product’ objective.

Service TypeService Type

New Patient – Complex assessment/treatmentNew Patient – Simple assessment/treatmentReview PatientDiagnostic Assessment Group Session

3. Episodes of care. Under this option, classification would be based on a defined episode of care, whether within th e current o utpatient se rvices, or ro lled into other funding streams, such as WIE S, emergency services, CRAFT, or mental health services amongst others.

A classif ication system based on e pisodes requires the in corporation of other funding mechanisms o utside the scope of th is project. Neverthele ss, it is unlikely that the level of patient data, IT systems or other supports could be put in place in t he near future to enable an effective episode of care classification system.

Single or multiple event episodePre-Admission eventPost-discharge eventNon-admitted patient eventAcute or chronic patient

Episode of Care ModelEpisode of Care Model


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In summary, the current clinica l cat egorisation system re mains viable. There is no other syste m that demonstrates th at it is bot h superior a nd readily implementab le. The review recommends the cont inuation of clinical streams or cat egories a s t he basis for a classification system.

Recommendation 4 That the Enhanced VACS model be based largely on the continued use of clinical specialties as the organising dimension.

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9 A reformed funding and classification model This section provides the conceptua l outline and description of the structure of a ne w funding and classification model for public outpatients. This model is described as the Enhanced VACS model.

9.1 Overview of model structure

The main features of the ‘Enhanced VACS’ model include:

1. Output-based funding approach combined with a single measure and a single variable payment (price) for equivalent service outputs.

2. The weighting of service outputs that broadly reflect service costs.

3. A classification system that retains clinical disciplines/streams at its core. However, it is proposed to extend the current clinic-based classification system to incorporate best practice approaches of:

a. Early assessment and linkage (EAL) ‘clin ics’, which recog nises ‘front end’ cost s associated with patient triage, ser vice substit ution and diversion;

b. Multi-disciplinary care (MDC) ‘clinics’; and

c. Care plan conferencing (CPC) ‘clinics’.

It is also proposed to further extend the classification system by ‘splitting’ some existing VACS codes where there is a meaningful differen ce in service costs for discrete cohorts of patients, and where the existing patient profile within a clinic is not of sufficient granularity. The number of clinica l categories may be further expanded following translatio n of some existing VACS specified grants into variable payments.

4. A funding structure based on:

variable payments for measurable service outputs; and

a small ra nge of fixed grant pa yments wh ere service s are not conducive to variable (output-based) payments.

There are five types of variable payments:

Weighted encounters f or one-on-one attendances for med ical, nurse and allied health practitioners;

Weighted e ncounters f or group se ssions, for nurse and allied heal th practitioner led services;

Weighted multi-disciplinary care encounters (two levels);

Weighted care plan (case) conference payments (one level); and

Weighted p ayments for early asse ssment and linkage services (one level).

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There are three types of fixed grant payments (noting the cessation of the base grant):

Teaching grant;

Specified grants; and

Reform and innovation grants.

5. A single capped VACS target across all outpatient services.

6. The model excludes provision of capital/infrastructure funding.

Within this framework, the propose d structure or key ele ments of th e funding a nd classification model is outlined in Figure 15.

The remainder of this section is organised as follows:

Section 9. 2 outlines recomme nded chan ges to th e variable clin ical streams/disciplines in cluding chan ges to the existing m edical/surgical and allied health payment arrangements;

Section 9.3 describes the proposal for new multidisciplinary and c are plan conferencing variable payments, while Section 9.4 describ es the prop osal for new early assessment and linkage (EAL) variable payments;

Section 9.5 outlines the proposal for cessation of the base grant and Section 9.6 describes proposed changes to the calculation of the teaching grant;

Section 9.7 includes r ecommendations on th e treatment of the ambulance specified grants, while Section 9.8 includes recommendations on the treatment of the other (non-ambulance) specified grants;

Section 9.9 outlines the proposal fo r the creatio n of a reform and innovatio n fixed grant;

Section 9.10 includes r ecommendations on future funding arrangeme nts for four hospitals that are not currently VACS funded; and

Section 9.11 outlines some proposals to improve the operational effe ctiveness of the VACS model.

The proposals and recommendatio ns in each of the follo wing sectio ns incorpor ate feedback from the con sultation meetings held by Aspe x Consulting fr om January t o March 2008 and hence represent the final recommendations of the project. Given th e breadth and richness of issues raised at the consultation meetings, it is suggested that health services may also want to read the separate Consultation Outcomes Paper.

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1

Specialist Clinic or Service

Figure 15 Schematic diagram of the model elements

Weighted paymentPatient specific service by medical specialist, nurse

practitioner, specialist nurse or allied health professional

Multi-Disciplinary Care


Weighted PaymentPatient specific service involving three medical specialists

with at least one nurse or allied health practitioner

Weighted (Sessional) PaymentPatient specific Care Plan Conference involving at least 4 health care professionals and including at least 3 medical

specialists

Variable Payment Components

Weighted paymentGroup Session by nurse or allied health professional

Level 2

Weighted paymentPatient specific service involving at least three health care

professionals, one of whom is a medical specialistLevel 1

Weighted paymentPatient specific service by suitable health care professional

involving the assessment/triage and referral of patientsEarly Assessment & Linkage

Teaching Grant A % of Variable VACS Target plus private clinic attendances

Reform & Innovation Grant

Grant for innovative improvements and service reconfiguration consistent with policy objectives, good practice and service quality. Selective availability of

grants.

Fixed Payment Components

Grant where a variable payment is not appropriate or due to the specialised or unique nature of the service.Specified Grant


December 2007

9.2 Variable clinical streams payments The Enhanced VACS model retains clinical di sciplines or streams at it s co re. However, it is proposed to introduce several changes to t he operation of the clin ical streams payments. In overview, these changes are to:

Establish a single tar get for health services across a ll VACS variable payments;

Allow health services to use their VACS targe ts at locatio ns outside VACS-funded public hospitals;

Introduce weights for individual and group allied health services;

Proceed with splitt ing some existing VACS clinical strea ms conditio nal on identification of discrete patient cohorts;

Exclude the costs of Section 100 and PBS p harmaceuticals in cost weight development (while reta ining this fu nding within the total p ool), but ret ain the costs (and funding) of non-PBS pharmaceuticals (subject to further identification of the quantum and distribution of these costs);

Allow payment against the existing medical/sur gical categ ories when care i s provided by a nurse practitioner;

Consider allowing payment against the existing medical/sur gical categories in the context of further d evelopmental work on enhanced scope of pra ctice for allied, nursing and other health professional staff;

Consider options to sup port payment for outpat ient consultations not involving the physical presence of the patie nt, based on use of alternative delivery mechanisms (videoconferencing, telephones etc), where it can be demonstrated that these encounters involve the provision of clinical advice and assessment to individual patients; and

Consider options to better recognise the cost of interpreter services provided to outpatients.

Each of these proposed changes are discussed below.

9.2.1 A single target across all VACS variable payments

Currently health services receive t wo separate VACS targets from DHS: one relating to weighted medical/surgical services and another relating to unweighted allied health services.

The proposal is to move to a single target across all VACS variable activity, pro viding health services with greater flexibility.

Consultation findings. This proposal was almost universally supported. The current distinction of targets does not support inter-changeability or substitution . While there was some concern tha t allied hea lth services may be eroded at the expense of additional medical/surgical activity, it is in fact possible that the reverse situation could occur with higher rates of growth in allied he alth service s (due to increasing r ole substitution and expanded provision of private MBS services).

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Nonetheless, health se rvices could choose locally to set ‘internal’ targets for medical/surgical and al lied health services if t here were concerns ab out volatility in service mix following the change to a single VACS target. DHS also has the capa city to monitor changes over time in the mix of medical/surgical and allied health services for individual health services.

Recommendation 5 That DHS set a single target across all VACS variable activity for each health service. VACS variable activity will include medical/surgical, allied health, multidisciplinary care, care plan conferencing, and early assessment and linkage services.

9.2.2 The use of VACS outside public hospital settings

Currently VACS funding can on ly be used for outpatie nt clin ics in VACS-fund ed hospitals.

The proposal released for consultation was that VACS funding be able to be used “at designated sites by agreement”.

Consultation findings were that there was strong support f or the direct ion of greater flexibility in allowing VACS funded services to be provided outside public hospitals (for example, at communit y health centres, integra ted care centres, super clinics etc) . Several he alth services indicated that they were already moving down this path. Potential benefits were identified including:

• Enhanced local access consistent with Care in your Community;

• Improved provision of services for patients who might not otherwise attend outpatient services in major hospitals; and

• Service provision in other settings provided health services with an opportunity to deal with physical capacity constraints at their hospital campuses.

Health services also identified some potential barriers to more off-site service delivery. In general, these were related to administrative and infrastruct ure issues of establishing and mainta ining off-site services. Notwithstanding these barriers, health services welcomed the flexibility in havi ng greater autonomy over where outpatient services could be provided.

Aspex Consulting also n otes that g iven that VACS targets ar e allocated at the healt h service level, this means that health se rvices should have autonomy within existin g VACS capped targets to determine the allocation of VACS targets across individu al hospital campuses within their health service. This would include hospital campuses that are not currently considered t o be VACS-funded (but may receive fixed gra nt payments for non-admitted patient services).

Recommendation 6 That DHS allow health services flexibility regarding the locations in which they use their VACS funding, subject to DHS and health services jointly considering the service planning implications of any significant changes to the proposed use of VACS funding by individual health services. Locational flexibility includes other public hospital campuses and non-public hospital settings.

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9.2.3 Weighting allied health services

Currently there are 11 unweighted allied health categories.

The proposal is to weight these allied health categories, using the same weighting scale that applies to medical/sur gical VACS categories. It is furth er proposed to introduce two separate weights for some of the 11 allied health categories; one weight for single p atient enco unters and one weight for group sessions, involving multiple patients at t he same se ssion (e.g. hydrotherapy, cardiac r ehabilitation). Weights for allied health services would be based on Cost Weight Study data, or modeled in the absence of adequate costing data.

Consultation findings were that weighting of allied health services was generally supported, subject t o the qua lification th at there n eeded to be significant improvements in costing data. T his in cluded adequately capturing the costs of consumables (splints, prosthetics/orthotics, d ressings, sterile items) that mig ht contribute to different cost structures across the 11 allied health categories.

The introduction of sep arate, higher weights for group allied health services was also supported, although some health s ervices noted that the weights would need to be high enoug h to provide an incent ive for group, rather th an individu al, sessions if clinically warranted. Information systems would need to be modified to allow capture of group allied health session s. There were differen t interpretat ions of wh at constituted a group. Some health services argued that if patients attending group sessions have individual care plans, this should be counted as individu al encounters for payment purposes. It was also suggested that the grou p payment rates used for SACS and HACC patients be exa mined as a possible b asis for group allied health sessions under VACS.

Recommendation 7 That DHS proceed to introduce weights for individual and relevant group allied health services, noting that:

Further work will be required to improve costing data with estimation or modelling of weights in the short term; and;

Definitions of ‘group’ encounters for allied health services will need to be developed, together with business rules to ensure appropriate counting of group and individual allied health sessions.

9.2.4 Splitting of some VACS clinical categories

Currently there are 35 medical/surgical categories (and 11 allied health categories) in VACS.

The proposal is to establish three new clinics that ‘split out’ a cohort of patients in the oncology, cardiothoracic and neurosurgery clinics where there is hig h volume, h igh cost medical imaging provided. (Subject to more detailed analysis by the VACS Clinical Pan el this may potentially increase to five new clinics, most likely involving orthopaedics and obstetrics).

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The splittin g out of clinics due to medical imaging costs has been based on the following criteria:

1. On average, medical imaging costs are greater than $70 per encounter (indicating consistently high use of high end modalities); and

2. Medical imaging is grea ter than 15% of the total average cost of the encounter; and

3. Where there are at least four ho spitals providing more than 10% of the total encounters for the spe cialty (market share). Th is would ten d to reflect that costs are more likely to be due to common clinical practice rather than the practices at a few hospitals.

Each clinic would have a separate weight.

It is proposed that the VACS Clinical Panel undertake further analysis to determine the most appropriate split. It could be, for example:

110a – Oncology without high-end medical imaging.

110b – Oncology with high-end medical imaging.

Or preferably,

110a – Oncology – initial comprehensive diagnosis.

110b – Oncology – all other.

A preferred approach would be to attempt to de fine the actual patient cohort using the high-end medical imaging modalities (such as ‘initial comprehensive assessment’ f or oncology, or ‘epilepsy and head injury’ for neurosurgery, or ‘prosthetic implants’ for cardiothoracic etc). That is, splitting on the basis of high costs alone is not supported as the preferred approach to further splits of VACS categories.

On the basis that the VACS Clinical Panel is unable to determine an appropriat e patient cohort, additional operational rules would be required that preclude/minimise ‘gaming’. Patients eligible for th ese code s would be limited to th ose rece iving particular categories (i.e. specified MBS it em numbers) of ‘high-end’ medical imagin g modalities - CT, MRI, nuclear medicine and PET . Examinations outside the specified list of MBS item numbers would default to the ‘non high-en d medical imaging’ VACS code.

Consultation findings were that health services supported the concept of splitting out VACS categories. Some health services suggested other specialties or patient groups as worthy of consideration for splitting including:

• Tertiary maternity services within obstetrics (VACS 402);

• Developmental disability within medical paediatrics (VACS 502);

• Medical photography within other allied health (VACS 609);

• Hand clinic (VACS 310, 604, 605);

• Orthoptics within other allied health (VACS 609);

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• Complex head and neck patients within ENT (VACS 205);

• Complex patients within urology (VACS 207);

• HIV/AIDS patients within infectious diseases (VACS 114);

• Lung disease patients within respiratory medicine (VACS 111);

• Trauma and non-trauma split for general surgery (VACS 201); and

• Trauma services within orthopaedics (VACS 310).

Aspex Con sulting not es that the number of VACS categories has remained remarkably stable sin ce the introduction of VACS in 1997. It is important that the VACS clas sification system is c omprehensive and ro bust with regard to the homogeneity of patient cohorts and costs within individual VACS categories.

Recommendation 8 That the VACS Clinical Panel review whether there are distinct patient cohorts within oncology, neurosurgery and cardiothoracic to determine possible splitting of these VACS categories. Splitting of VACS categories should reflect clinical grounds, rather than simply variations in the costs of services. Recommendation 9 That health services are encouraged to present submissions to the VACS Clinical Panel for consideration of the creation of additional VACS categories for clinics with separate patient cohorts and costs outside the existing VACS categories. As the development of weights requires data from multiple health services, submissions to the VACS Clinical Panel for new categories should ideally be jointly prepared by all health services involved in providing the clinics that are the subject of the potential new VACS categories.

9.2.5 Treatment of pharmaceuticals

Currently DHS ‘excludes’ some costs in using t he cost weight study data to set the VACS weights. The excluded costs include S ection 100 pharmaceuticals and high cost encounters (defined as those costing more than $3000 even after the removal of Section 100 pharmaceuticals).

The proposal released for consultation was to exclude the cost of all pharmaceuticals from the setting of VACS weights. The costs of PB S and Section 100 pharmaceuticals ar e legitimately met throu gh other fu nding streams and should not be in cluded in the VACS wei ghts. Wh ile this is n ot the ca se for non-P BS pharmaceuticals, the difficulties in accurat ely identifying the b reakdown of pharmaceuticals resulted in the pro posal to exclude all phar maceutical costs from the VACS weights (including non-PBS pharmaceuticals).

Consultation findings were that health services were concerned that the exclusion of pharmaceutical co sts would have a negativ e financia l impact. Health services identified many exa mples of pharmaceutical costs that were outside the PBS and Section 100 funding streams.

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Other issues raised included the co sts faced b y health ser vices for ph armaceuticals provided to patients outside the 30 day window of the outp atient encounter and/or for services without a matching outpatient encounter.

Recommendation 10 That DHS proceed with excluding the costs of Section 100 and PBS pharmaceuticals in the development of outpatient cost weights, but retain the funding within the overall funding pool.

Recommendation 11 That further work be undertaken with health services to identify the costs associated with non-PBS pharmaceuticals to ensure that these costs (and funding) are retained in the cost weights.

Recommendation 12 That DHS consider options to address the costs of ‘unmatched’ pharmaceuticals that are outside the 30 day window or do not relate to a funded VACS encounter. One option might be the establishment of a medication review category within VACS.

9.2.6 Substitution of workforce roles

Currently payment a gainst the VACS med ical/surgical categories requires the involvement of a medical specialist (with the exception being payment when a midwife is involved for VACS 402).

The proposal released for consultation was t hat this be extended so that payme nt for all VACS medical/sur gical categories be made if a nurse practitioner was involved (not requiring the involvement of a medical specialist).

Consultation findings were that health services wanted to extend payment again st the VACS medical/sur gical categories to allow role su bstitution b y other types of health care professionals including allied health staff. There was strong support for the proposal relating to nurse practitioners, but there was recognition t hat this would not have a signif icant impact in t he near fut ure given t he low nu mbers of n urse practitioners in the system.

Discussion on exten ding VACS medical/surgical cat egories to other health professionals focuse d o n the appro priate recog nition and credentialing/authorisation processes. There was broad support for using the concept of ‘enhanced scope of practice’ as the basis for authorising payment by other health professionals under the VACS medical/surgical categories. While there was interest in hea lth services taking responsibility for implementing enha nced scope of practice, there was support for this to occur within a framework to be developed by DHS.

Recommendation 13 That DHS proceed with the proposal to allow substitution of nurse practitioners in the VACS medical/surgical categories.

Recommendation 14 That DHS consider removing the requirement for involvement of a medical specialist in the existing medical/surgical VACS categories and recognise the concept of enhanced scope of practice for allied,

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nursing and other health professional staff, subject to:

Development of a framework by DHS, with input from the health sector, within which enhanced scope of practice can be sanctioned and implemented that supports substitution of defined aspects of care or treatment currently being performed by medical specialists;

Provision for data capture and regular reporting of outpatient services provided under an enhanced scope of practice model; and

Development of an evaluation framework to monitor and evaluate the outcomes of implementing enhanced scope of practice for outpatient services.

Recommendation 15 That DHS implement a system to monitor and evaluate the impact of ‘standard’ and ‘substitution’ for each clinical grouping to track changes over time in role substitution in the delivery of outpatient services.

9.2.7 Non-standard consultations

Currently payments under VACS are only made based on the one-to-one interaction involving the physical presence of the doctor or other health professional staff.

There were no proposals released at the consultation stage to change this situation.

However, consultation findings were that hea lth services were supportive of VACS being extended to in clude outp atient enco unters involving telephone or video-conferencing. There was also support for VACS paymen ts not havin g to involve the physical pre sence of th e patient. The rationale for these positions w as that these changes would be more patient-cent red and promote improved access, particularly in rural locations.

Recommendation 16 That DHS consider amending the current limitation that prohibits funding for outpatient consultations not involving the physical presence of the patient and extend payment for consultations involving telephone and/or videoconferencing, subject to resolution of the following issues:

Guidelines that describe the core elements of a VACS funded encounter. This could include reference to the involvement of health professional staff in providing clinical advice and assessment to individual patients. Excluded from scope for payment would be telephone or other communications that are of an administrative or non-clinical nature;

The ability to capture the activity and costs of these encounters has not yet been demonstrated and DHS would need to have further discussions with health services on whether to separately identify and report these types of encounters; and

There would need to be further discussion of payment options including equivalent VACS payments (to encourage these types of consultations) or discounted payments (in recognition of likely reduced diagnostics/consumables in consultations not physically involving the patient).

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9.2.8 Interpreter services

Currently t here are n o separate payments under VACS relating t o the co st of interpreter services.

There were no proposals released at the consultation stag e to change this situ ation with interpreter services being funded separately outside of VACS.

Consultation findings were that some health services noted that they incurred much higher costs for interpreter serv ices related to outpatient ser vices than were prov ided for in the DHS grant for interpret er services. Various o ptions were suggested to separately identify and fund the cost of interpreter services within VACS.

Aspex Consulting notes that many of the concerns raised by health services go to th e quantum of funding allocated for interpreter services, and this would st ill be the ca se regardless of whether the funding flowed through VACS or t hrough a se parate grant. The cost of interpreter services is n ot particularly amenable to being included under a variable grant payment system as t he need for interpreter services will vary acros s health services. This matter should be considered sepa rately outside the VACS review.

9.3 Multidisciplinary care and care plan conferencing

Currently the variable payments u nder VACS do not distinguish the number of staff involved in providing care.

The proposal released for consultation was t o introduce three categories of multi-disciplinary care and two categories of care pla n conferencing. This was to recognise best practice approaches to patient care.

The three proposed MDC categories were:

1. MDC1 - pat ient attenda nce involving three health care pro fessionals, one of whom is a medical specialist4.

2. MDC2 - patient attenda nce involving two medical specialist s, and at least one nurse and/or allied health practitioner.

3. MDC3 - pati ent attendance involving at least three medical specialists, and a t least one nurse and/or allied health practitioner.

The two proposed CPC categories were:

1. CPC1 - a d esignated, formal meeting to discuss the (prospective) care plan(s) for specific patients an d involving two medical specialists and at least one

4 Note. MDC categories should not be used for patient attendances where there is typically a single medical specialist and one or more allied health practitioner or nurse. For example, an ophthalmologist and orthoptist working in a clinic would not form an MDC encounter. Similarly, an orthopaedic surgeon and physiotherapist, or an ENT surgeon and audiologist would not constitute an MDC for the purposes of VACS funding. It should also be noted that where a medical specialist is mentioned, a nurse practitioner can be substituted.

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nurse and/or allied health practitioner (and if a time element is introduced, say fifteen minutes or less for a specific patient).

2. CPC2 - a d esignated, formal meeting to discuss the (prospective) care plan(s) for specific patients and involving at least three medical specialists and at least one nurse and/or allied health professional (and if a time element is introduced, say greater than fifteen minutes for a specific patient).

The implications of this proposal for MDCs are that:

Health services would continue to use the medical an d surgical sp ecialty categories for clinics involving two staff such as a medical specialist and either an allied health practitioner or a nurse.

The implications of this proposal for CPCs are that:

The patient is not required to attend care planning conferences; and

It is anticipated that business rules will need to be developed to define, record and report CPC encounters. For example, audit requirements may specify that a senior clin ician par ticipating in the care p lan conference may need to ‘sig n off’ on the CPC encou nter, including recordin g relevant details on in dividual patient records.

Implications that are relevant to both MDCs and CPCs are that:

Health services would need to devel op systems to identify MDC an d CPC encounters both for counting purposes and to capture and allocate the costs of these encounters (noting that the se encounters are likely to occur wit hin the VACS medical and surgical specialty clinics as well as wi thin scheduled MDC or CPC clinics);

The MDC and CPC payments would be weighted and ther e would be separate weights (and hence prices) for ea ch of the le vels. As for EAL clinics, the weights for MDC and CPC encounters would need to be modelled in th e early years, pending the collection of robust costing data;

The weights for the MDC and CPC encounters do not vary according to the type of medical specialist (s) involved in the encounter;

It is propo sed that th e participation of health professio nal staff in MDC encounters can occur in person or through other channels (telephone, videoconference etc). I t is also po ssible to include health professionals from other entitie s in the MDC and CPC encounters (includ ing GPs and/or health professionals employed by another entity); and

CPCs would not require the presence of a patient.

Consultation findings were that th ere was broad support for recognising the higher costs associated with multidisciplina ry care and care plan conferencing in the VACS model.

There were some questions about w hether the compliance a nd implementation costs associated with capturing data on these modalities would be warranted if there was no additional funding to en courage their expansion. There wa s considerable discussion with respect to the make-up and nu mber of staf f in multid isciplinary teams and car e

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plan sessions, the optimal number of categories, ‘stret ching’ the diffe rence between categories, the relation ship of these services to existing outpatient clinics and th e implementation costs of their introduction.

There was also feedba ck which su ggested tha t by includin g a medical specialist a s part of the requirement for an MDC, this would not encoura ge workforce substitution. It is considered that fo r a specialist acute outpatient ser vice, a medical specialist would be part of the skill mix necessary for good clinical outcomes.

Recommendation 17 That DHS proceed with the introduction of multidisciplinary care services and care plan conferencing categories within VACS, with these payments only being available for public patient services. All health services would be eligible to provide MDC and CPC services, but these services would be included within the fixed target of each health service.

Recommendation 18 That the exact composition of MDC categories be further developed in business rules between DHS and health services, with some suggested parameters comprising:

The lower limit for an MDC team be set at a minimum of 3 health professionals, at least one of whom is required to be a medical specialist or nurse practitioner;

That GPs are able to be counted as part of the 3 health professionals in the MDC team, noting that an MDC team would still require a medical specialist in addition to the GP;

That registrars and interns would not be directly counted in MDC services, but the consultant supervising the registrar would be included as a team member;

That staff counted towards MDCs can include staff from outside the health service, including staff who are not physically present but participating through other modalities such as telephone or videoconferencing (this also applies to staff from within the health service); and

There will need to be clarification regarding the counting of midwives, nurse practitioners, allied health assistants and Division 2 nursing staff.

Recommendation 19 That the preference is for fewer MDC categories (rather than categories that are closely tied to the exact number and levels of staff) and that the key objective is to adequately reward the costs of high-end multidisciplinary care. On this basis, it may be desirable to establish only 1 or 2 MDC categories that are targeted at high-end multidisciplinary care.

Recommendation 20 That DHS develop business rules identifying what constitutes an MDC service, including clarifying the counting of services that may be organised sequentially.

Recommendation 21 That DHS clarify that for services that do not meet the definition of an MDC service, that health services are able to count and capture these costs in standard VACS encounters (medical/surgical/allied health).

Recommendation 22 That in introducing care plan conferencing, consideration be given to the option of structuring payments on the basis of time sessions (rather than patient-based payments). If sessional payments are used, there would only be 1 care plan conferencing category.

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Recommendation 23 That business rules be developed relating to the staffing composition and core elements of what constitutes a care plan conferencing session.

Recommendation 24 That pending the collection of accurate data on the real costs of MDC and CPC services, that weights be developed for these categories on an estimated or modelled basis in early years.

9.4 Early assessment and linkage services Currently there are no payments fo cussed on early assessment for patients requiring access to outpatient services.

The proposal released for consultation was to introduce two Early Assessment and Linkage (EAL) clinic categories, o ne based o n medical EALS and one based on surgical EA LS. The type or specialisation o f the health care profe ssional is n ot specified. Professionals involved in the EAL f unction would be determined by th e health service.

The functio n would incorporate a (prompt) preliminary a ssessment of all patients referred to outpatients. The purpose of the assessment is t wofold. It is to enable a n early assessment of th e patient’s condition a nd to deter mine the most appropriate care path for the patient, including:

Timely boo king of pat ients to a VACS-fun ded medical or allied health outpatient clinic;

Referral to alternative or sub stitute service s that are more suited to the patient’s needs; or

Referral back to the GP or other health ca re professio nal, for ad ditional diagnostic tests and patient work up.

It will not be compulsory for all patients to be ‘vett ed’ by EAL clinics. Health services might also use these clinics for re-assessment of patie nts who have reached a ‘maximum’ number of outpatient visits in medical and surgical outpatient clinics.

The payment is output based. It is proposed to be a weighted encounter payment for patients a ssessed/triaged and pro cessed t o an outpatie nt booking or alternative service. Th e weighted encounters would form part of the overall VACS target (ca p). Assessment/triage/referral would not require the physical presence of the patient and could involve communication by different modalities (telephone, video conferencing);

Consultation findings were that there were mi xed views on th e proposed introduction of EAL clinics. There was broad support for the capacity of EALs to better manage the front-end of demand a nd embed i nnovative a pproaches ( such as the OWL trials) into mainstream practice to drive workforce su bstitution. However, there was potential confusio n about the relationsh ip of EALs to existing processes for screening a nd asse ssment of out patients. Concerns w ere also raised about t he administrative issues in capturing d ata on EALs and that their introdu ction was n ot being acco mpanied by additional f unding. The terminology of medical and surgical EALs was considered confusing, with a preference for a single category.

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Recommendation 25 That DHS proceed with the establishment of a single category for EAL clinics. Recommendation 26 That the implementation of the EAL category by DHS would need to resolve the following issues:

Defining the core elements of what constitutes an EAL service (including a valid referral) and the associated business rules for health services;

The extent to which a weighted output-based payment approach is offset by the administrative burden of data collection and verification;

How EALs relate to other services including MBS clinics, pre-admission clinics and existing outpatient clinics;

Clarifying that EALs involve the health service assuming clinical responsibility and that accordingly these services would need to be provided by appropriately qualified clinical staff (not administrative or clerical staff);

Development of other tools (guidelines, maximum referral periods, target numbers of review visits) so that there is a multi-faceted strategy in place around the timely and appropriate discharge of outpatients; and

Development of validation and auditing processes to support a robust approach to the counting and funding of all new clinic types, with rules relating to funding adjustments for inappropriate counting.

Recommendation 27 That DHS recognise the importance of evaluating the implementation of all the proposed new clinic types (MDCs, CPCs and EALs), with up-front specification of the performance and other measures that will be required to assess the impact of the proposed changes.

9.5 Fixed grants – base grant

Currently health services receive a VACS base grant.

The proposal is to discontinue th e base grant element, but retain the quantum of base grant f unding within the VACS funding en velope. The rationale f or this position includes:

At the time of the introduction of VACS, there were widespread concerns that a new funding system exclusively reliant on variable payments (i.e. servic e volume) could be sufficient to maint ain the service and ‘keep the doors open’. All VACS-fu nded health services now have hi gh levels of outpatient service provision, so there is less justification for a fixed ‘availability’ grant. This was a concern at the time of introduction of VACS;

The VACS base grant was $61.3 million in 2006/07. It accounts for about 12% of total VACS funding (or 18.4% if emergency medicine is included). However, it is estimated that real (non-capital) fixed costs for outpatients are likely to b e about 2-3% of total costs;

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The significant level of the base gr ant ‘dilutes’ the output b asis of the VACS funding model; and

Hospitals d o not differentiate the base and variable grant for manag ement purposes.

Consultation findings were that the proposal to discontinue the base grant was broadly accepted on the conditio n that there was no reduction in total funding available through VACS. Issues raised by health services related to ongoing financial sustainability, and the avoidance of volatility and redistributional impacts.

It was also noted that if the base grant was translated into ‘price’ in the variable grants, this would create a perception of g reater dispa rity between the revenu e able to be received from VACS relative to MBS services.

Health services wanted to ensure that funding for HEN, TPN and CPAP that is currently included in the base grant for certain health services was co ntinued (an d specifically identified).

The key issue in ce ssation of the base grant relates to th e purposes for which th is funding should be used in the futur e. Options include rolling the base grant into t he variable grant (through either price or volume) and/or directing some of the base grant into the proposed Reform and Innovation grant.

Rolling of t he base gr ant into the price of variable gran ts is con sistent with the objective of financial sustainability. Howe ver, this would result in some redistributio n of the base grant across health servi ces. This could be ove rcome through a blended approach where some of the base grant is translated into price and some into volume relating to the new clinic types (MDCs, EALs) . Health services wanted to ensure that there was n o requirement for additional activity in how the base grant was translated into the variable grant.

Recommendation 28 That DHS proceed with the discontinuation of the VACS base grant, with the implementation comprising the following tasks:

Undertake modelling to identify the quantum of base grant relative to outpatient activity at each health service to understand the potential size of any redistributional impacts;

Transfer/continue funding for specific programs (TPN, HEN and CPAP) that are currently included in the base grant for particular health services; and

Modelling of the impact of redistribution of the base grant across variable grants (price and volume) and the Reform and Innovation grant needs to balance financial sustainability, stability in funding for individual health services and support for new clinic types.

9.6 Fixed grants – teaching grant

Currently t he teaching grant is allocated on t he basis of historical levels of stud ent positions at each health service.

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The proposal is to retain the teaching grant, but to allocate it on the basis of total outpatient activity, including public and MBS encounters. A teaching grant recognises the importance of teaching within the outpatient setting. The level of the teaching grant payment would be ba sed on a pre-determined proportion of the total report ed encounters (as determined by weighted encoun ters target) plus reported MBS clinical encounters/attendances where the hospital ad ministers an d/or bills o n behalf of t he medical specialist for p atients attending the pr ivate clinic. This provid es funding as close as po ssible to th e ‘service effort’ and therefore, the ‘teaching effort’ for eac h health service.

Consultation findings on the appropriate treatment of the teaching grant were highly diverse, including within individual health services. Options canvassed included:

Ceasing the teaching grant with funding rolled into variable payments;

Extracting the teaching grant from VACS and c ombining it with the Training & Development Grant at a health service level;

Continuing to distribute the teaching grant on the basis of student numbers, but updated numbers across all clinical disciplines; and

Distributing the teaching grant on th e basis of total outpatie nt activity, a s per the proposal.

Although there was not uniform agreement, the most preferred option was to link the distribution of the teaching grant to outpatient activity as per the proposal.

Recommendation 29 That DHS proceed with setting the VACS teaching grant on the basis of total outpatient activity, subject to:

Modelling/analysis to identify the potential size of any distributional impacts; and Release of the DHS review into the Training and Development Grant to understand whether

there may be benefits in aligning the determination of the T&D and VACS teaching grants. Recommendation 30 That the following technical parameters may be useful in guiding the calculation of the VACS teaching grant:

The total quantum of funding now included in the teaching grant is transferred into the new teaching grant and expressed as a fixed % (or price in Year 1) for each unit of outpatient activity (public and private);

In subsequent years, the quantum of funding invested in the teaching grant at a statewide level grows so that the grant remains at a constant % share of the variable grant price (i.e. the real value of the grant is not eroded by being allowed to remain at historical levels); and

The distribution of the teaching grant across health services is made on the basis of total outpatient activity, lagged by one year. This is intended to provide certainty of funding and avoid the need for adjustments that would be required if the grant were calculated on the basis of actual encounters. The ‘total’ outpatient activity may be set at equivalent to the VACS targets (hence excluding public activity in excess of target) and MBS encounters (with the need for robust business rules on the counting and auditing of these data). VACS targets would include medical/surgical, allied health, EAL, MDC and CPC activity.

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9.7 Specified grants – ambulance Currently a mbulance specified gra nts are available to metropolitan he alth service s, with the qu antum of the grant unr elated to a ctivity or expenditure o n ambulance services.

The proposal is that the ambulan ce grant be discontinue d under VACS. There is limited just ification for continu ing to separa tely fund ambulance services for outpatients through the mechanism of VACS specified grants. The current approach:

Is inequitable across health services with no apparent relationship between the level of the grant (where it exists) and costs;

Is confounded by flawed cost ing data, with attribution of ambulance and other patient transport costs poorly recorded in hospital costing systems; and

Is not based on a clear ly articulated policy framework for the role and funding of ambulance and transport service use by health services.

There are several options for the f uture treatment of the e xisting VACS ambulanc e specified gr ants. The ambulance funding could be extracted fro m VACS and consolidated with other funding streams for a mbulance services at a health service level, or the ambulance specified grant could be rolled into the price in variable grants.

Consultation findings were that there was general a cknowledgement that the existing allocations were not a sensible ba sis t o fund ambulance services f or outpatients. This was the case, even among some health services that reported costs at a higher level than t he size of t he VACS a mbulance specified gra nts. However, health services wanted to ensure that the ambulance fun ding was retained in the system.

Recommendation 31 That DHS cease the VACS ambulance specified grant in its current form and roll the funding into VACS variable grants in order to ensure that the funding is retained by health services, on a more equitable basis.

9.8 Other specified grants (non-ambulance) Currently DHS funds 23 (non-ambulance) specified grants within VACS.

The proposal released for consultation was that these grants be assessed against a set of cr iteria to de termine whether they sho uld cont inue as specified grants or be incorporated into variable payment arrangements. The pro posed assessment criteria are:

Specialised (state-wide) function – Is the service provided highly specialised with the health service undertaking this function on a state-wide basis?

Horizontal equity – Are some health services funded for a specified grant, while other health services providin g the same function are not funded on the same basis?

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Ability to calculate reliable weights – Is it possib le t o calcu late reliable weights on the basis that the se rvice is pro vided at two or more health services?

Alternative funding streams – Is the service funded under the specified grant more suitably funded under other DHS programs or other funding streams?

Non output basis of service – Is t he service not able to be measured on an output basis?

Relationship between inpatient and outpatient services – Does the highly specialised service pro vide a clinically nece ssary service that supports an inpatient service?

Following assessment of individual specified g rants, the pr oposal was that grants be classified a s continuin g (Group 1) or suitable for transfer to other funding arrangements (Group 2).

For Group 1 services, VPACT could be request ed to review the clinical effectiveness of the services funded under these grants. For Group 2 services, the VACS Clinical Panel would need to map these services int o new or e xisting VACS categories for funding on a variable g rant basis, or DHS ma y consider t ranslating some of these grants into other (non-VACS) program funding streams.

Consultation findings were that t here was limited consideration of these issue s, pending release of recommendations on the treatment of individual specified grants.

Following completion of templates by relevant health services, Aspex Consulting has completed its asse ssment of individual spec ified grants a gainst the criteria. Th is information has been pr ovided separately to DHS in order to ensure th at discussions can be held directly wit h individual health services, rather than through the forum of the Outpatient Funding Reform Sub-Committee.

Recommendation 32 That DHS discuss with relevant health services the proposed translation of specified grants assessed as falling within Group 2 to alternative funding arrangements. Recommendation 33 That DHS request the VACS Clinical Panel to assess whether individual Group 2 grants can be translated into existing VACS categories or require the creation of additional, new VACS categories. In addition, or alternatively, DHS may want to consider translating some of these Group 2 grants to other program funding streams outside VACS. Recommendation 34 That DHS adopt a life-cycle approach to the ongoing management and regular review of remaining VACS specified grants that might comprise the following elements:

Involvement of the Clinical Panel in reviewing the clinical effectiveness of the services covered under these grants; and

Implementation of reporting by health services to ensure ongoing monitoring.

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9.9 Reform and innovation grant The proposal is to establish a new reform and innovation grant within V ACS (initially described a s a quality and innovation grant in the consulta tion papers) . The basic purpose of this grant is to promote the development or re inforcement of innovative practice and provide incentives to reconfi gure services that better achieve the policy objectives o f governme nt and principles of V ACS. Priorities for use of the grant should be determined in consultation with health services, possibly thr ough the use of an industry panel. All VACS servi ces would be potentially eligib le to receive the se grant payments. However, the allocation of this funding may not be uniform across all health services.

Consultation findings were that health services supported funding reform and innovation, but only if it was done through additional funding.

There were mixed vie ws about h ow any such funding should be distributed, b ut a common th eme was th at the allocation of funds should a void small, one-off project grants, particularly where there was one rous acco untability and reporting requirements. There was a preference not to have project-based funding. There was also some support for r eform and innovation funding to occur within th e context of a performance framework with clear directions for the future improvement of outpatie nt services. Health services also wanted to contribute to setting the priorities that might be funded under a reform and innovation grant.

Recommendation 35 That DHS include a Reform and Innovation Grant in the new funding model, with further consideration of:

Timing: option of delayed implementation of this element of the funding model to allow health services to manage introduction of other new models of care;

Quantum and source: preference for new or growth funding to be directed towards reform and innovation, rather than funding through internal reinvestment; and

Allocation, reporting and accountability: preference for a non-grant based mechanism, but need for some clearly agreed and shared priorities to guide investment by health services.

9.10 The non-VACS hospitals The current situation is that DHS requested advice on whe ther four hospitals should move from non-admitted grant funding to be funded under VACS.

The proposal (and the final recommendations) are outlined below.

Recommendation 36 That the nature and level of reported activity at Casey Hospital and Latrobe Regional Hospital would suggest that they do not provide a ‘typical’ specialist outpatient service at this time, and would not be suitable for VACS funding. Recommendation 37 That Maroondah Hospital provides a typical suite of specialist outpatient services and that Maroondah move to VACS funding in the near future. This would include the translation of the current non-admitted patient grant into VACS targets and these new targets would not be hospital campus specific. (There may need to be separate discussions relating to the level of any growth in VACS target in relation to current

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activity at Maroondah, supported by a comprehensive audit of the activity data to verify its accuracy). Recommendation 38 That Goulburn Valley Hospital may be considered for VACS funding over the next few years, with the option of a transition grant to enable a smooth transfer to VACS. This may also enable GVH to demonstrate that higher service volumes (and a broader range of clinics) can be provided.

9.11 Improving the operational effectiveness of VACS In addition to the specific proposals developed for consultation, health services raised some issues relating to the operational effectiveness of VACS.

The role of the VACS Clinical Panel was id entified as a concern b y man y health services. While health services understood that the VACS Clinical Panel did not make decisions on funding, the two-stage process of ‘mappi ng’ new clinics to VACS categories and then negotiating fu nding with DHS was viewed as cum bersome and time-consuming. DHS has indicat ed that the VACS Clinical Panel is still required to undertake t his mapping role as so me health services have submitted proposals f or clinics that are not con sistent with the se rvices provided by other health services in these VACS categories.

It is sugge sted that th is situat ion could be rem edied over t ime if the existing VACS descriptors using a on e-word clinical spe cialty be expan ded to include a detailed listing of th e types of services that would typi cally be included within each of the categories. This would also assist role substitution.

Recommendation 39 That DHS consider changing the role of the VACS Clinical Panel over time to include:

An expanded responsibility for the review and development of VACS categories to ensure that the classification system keeps pace with changing clinical practice;

A function of describing the services included within each of the VACS categories and; A reduced role for mapping/assignment of individual clinics to VACS categories.

Other issues raised by health services related to the transparency of the VACS budget and target setting process and the n eed to significantly improve costing data for outpatient services.

Recommendation 40 That greater transparency in setting and reviewing the level of VACS targets would enhance the confidence of health services in VACS. Recommendation 41 That DHS consider regular release of detailed costing data to senior management of health services that identifies costs for each health service for each VACS category (broken down into staffing, imaging, pharmaceuticals, pathology, and other costs) in order to:

Promote improvement in the underlying costing data through analysis and investigation of apparent differences in outpatient costs between health services;

Encourage benchmarking by health services on opportunities to improve the efficiency of outpatient service delivery; and

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Provide health services with data that allows them to identify further potential splits in the VACS categories to ensure there is greater homogeneity of costs and better matching of costs with VACS payments.

Recommendation 42 That DHS ensures adequate priority is given to improving outpatient costing data through VACCDI and other forums, noting the need for senior management participation to ensure that these data are improved. .

9.12 Comparison of current and proposed model

Table 23 provides a summary of t he main dif ferences between the c urrent VACS funding model and the proposed enhanced VACS model.

Table 23 Summary of differences between the current & proposed funding models

Current Model Proposed Model

Clinic-based classification system with 35 medical and 11 allied health categories

Clinic-based classification system with additional categories comprising: 1 EAL clinic (new type of clinic); 2 MDC clinics (new type of clinic); 1 CPC clinic (new type of clinic). Patient not required to be in

attendance; and At least three split clinical categories

Weighted medical and unweighted allied health clinical categories

Weighted medical and allied health clinical categories (including weighted EAL, MDC and CPC clinics)

Two separate VACS targets for medical and allied health clinical categories

One VACS target over all clinical categories

Fixed payments: Base grant. Teaching Grant on

an historical basis Specified Grants

Fixed payments Discontinue Base Grant. Retain Teaching Grant and fund on % of patient activity Retain a reduced number of Specified Grants. Introduce Reform and Innovation Grant

Medical clinical categories requiring attendance/ supervision of medical specialist

Medical clinical categories requiring attendance/ supervision of a medical specialist or a nurse practitioner, with the option of expanding role substitution through enhanced scope of practice of nurses and allied health practitioners.

VACS sites confined to hospital campus Locational flexibility as to where VACS services are provided

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9.13 Comparison of program objectives and proposed model

The followin g table iden tifies the re lationship be tween the objectives of the funding and classification model and the proposed model.

Table 24: Summary of Model Objectives and the Proposed Model

Model Objectives Proposed Model

Patient-focused

Retention of output based funding approach. Retention of encounter based approach to funding. Supporting individual patient care planning through MDC & CPC

clinics. Elimination of Base grant.

Clinically Meaningful Classification System

Retention of clinical categories as the backbone of the classification system.

No overlap or duplication of patient categories unlike other systems

Sustainability – reliability, efficiency & accountability

Retention of payments based on weighted encounters. The development of weights based on costs. VACS funding of services where there is a reliable, high volume of

services. Retention of monitoring and reporting systems that ensures integrity

of activity data. Elimination of Base grant.

Improved Access

More prompt assessment and booking of referred patients through EALs.

Potential for provision of VACS at locations flexibly determined by health services.

Support best-practice evidenced-based model of care

Introduction of MDC clinic categories. Introduction of Care Plan Conferencing clinic categories. Introduction of Early assessment & Linkage clinic categories.

Support workforce substitution

Inclusion of EAL, MDC and CPC clinics that assist in workforce substitution.

Introduction of Nurse Practitioners for medical clinic categories. Scope for introduction of broader role substitution through expanded

scope of practice.

Simple and transparent funding model

Retention of clear funding components. Simple basis and explanation of how model components might

operate.

Support care in the community

Timely ‘discharge’ of patients through review mechanism (EAL). Introduction of effective substitution and diversion of referrals

though EALs. Inclusion of health care professionals from outside the entity in CPC

and MDC clinics. Recognise patient choice Enhanced reporting of private clinic activity.

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and complementarity of private specialist services

Enabling VACS to operate in conjunction with private ambulatory clinics

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10 Implementation approach The implementation of an enhance d VACS funding model can be complex. The impact on the stability of ongoing acute speci alised outp atient services will be an important factor in tempering the potential pace of change.

Outlined below are key areas for ref orm, each with an implementation approach a nd indicative timeline. Essentially, th e timelines provide fo r a roll-out of the mo del reforms ove r a two year period, wit h some of the key cha nges taking three to fo ur years.

Model Component Objective/Issue Approach & [Indicative Timelines]

Fixed Payments

Base Grant Discontinue Base

Grant

Model the roll-in of Base Grant and - assess impact on price by product type and across health services [Yr.0]

Separate out TPN, HEN & CPAP [Yr.1] Shadow Impact of Modeling [Yr.1] Determine % of Base grant funding to support new clinics

[Yr.2]

Teaching Grant

Use Activity as the Basis for Grant

Allocation

Model potential grants for each HS based on known activity and assess changes from current allocation [Yr.1]

Determine the operational guidelines for allocating funding. [Yr.1]

Shadow Impact [Yr.1] Consider the robustness of the MBS data. [ end of Yr.1] Fully Implement [Yr.2]

Discontinue Ambulance Grants

Determine funding to be rolled-in to VACS [Yr.0] Model the roll-in with the Base Grant modeling. [Yr.0] Shadow Impact of Modeling [Yr.1] Fully Implement [Yr.2]

Group 1 – Continuing Grants

VPACT review all Group 1 [Yr.1] Fully Implement [Yr.2]

Specified Grants

Group 2 - Grants suitable to transfer

DHS & HS discussions of suitable transfer/translation [Yr1] VACS Clinical Panel assessment of suitable classification/

coding [Yr1] Fully Implement [Yr.2]

Reform & Innovation

Grants

Encourage innovative practices

Establish process for joint – DHS & HSs – identification of priorities for development, operational rules for the allocation of grants, and accountability mechanisms. [Yr.1]

Fully Implement [Yr.2]

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Variable Payments

Single VACS Target Establish notional weight s for allied health clinic

encounters. [Yr.0] Establish a single VACS target. [Yr.1]

Allied Health Service Weights

Model costs in all allied health categories at a sample of HSs, and then determine notional cost weights for allied health clinics, including group clinics. [Yr.1]

Shadow fund. [Yr.2] Fully implement. [Yr.3]

Additional VACS Clinic Categories

VACS Clinical Panel review of the 3 possible clinic splits – oncology, neurosurgery & cardiothoracic. [Yr.1]

VACS Clinical Panel to investigate proposals by HSs during consultations. [Yr.1]

Examine the potential for a Medication review clinic. [Yr.1] Change coding and reporting to suit. [Yr.1] Fully Implement [Yr.2]

Service Locations Enable VACS services to be delivered from suitable non-hospital locations. [Yr.1]

Patient Attendance Determine the operational rules for the use of telephones,

videoconferencing and teleconferencing regarding funding eligibility, information capture and reporting. [Yr.1]

Pharmaceutical Costs

HSs to provide advice to DHS re non-PBS & S100 drug costs. [Yr.0]

Model the estimated pharmacy costs into roll-in with the Variable Grant. [Yr.0]

Shadow Impact of residual pharmaceutical costs. [Yr.1] Fully Implement [Yr.2]

Interpreter Services Determine whether interpreter service costs should be met by VACS. [Yr.1]

Core Clinic Variable Grants

Workforce Substitution

Implement Nurse Practitioner accessing Med/Surg. Level payments. [Yr.1]

Develop joint – DHS & HSs – framework for enhanced scope of practice and workforce substitution. This would include credentialing criteria, determining genuine substitution, and defining practice scope etc. [Yr1.]

HSs develop clinical practice guidelines within this

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framework for enhanced scope of practice. (Yr.1/2]

Upgrade data capture and monitoring system for enhanced scope of practice models. [Y1/2]

Establish a process to evaluate the (clinical & financial) impact of the workforce substitution changes. [Yrs 3+]

Early Assessment &

Linkage

And

Multi-Disciplinary

Care

And


Support Clinical Best Practice

Determine the core or defining characteristics of an EAL, MDC and CPC. [Yr.0]

Determine the number of EAL, MDC and CPC categories. [Yr.0]

Determine business rules relating to the eligibility for funding and the capture of data for EALs, MDCs and CPCs. [Yr.1]

Determine the conditions under which video-conferencing & teleconferencing can occur for MDC. [Yr.1]

Determine the conditions under which telephone can occur for EAL. [Yr.1]

Establish the data capture processes. For MDC and CPC [Yr.1]

Model the EAL, MDC and CPC costs. [Yr.1] Commence data collection. [Yr.2] Shadow fund. [Yr.3] Fully Implement. [Yr.4]

Transparency Improve operational

efficiency On a periodic basis, provide all HSs with VACS costing

data.

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Appendix 1 – Project Committees The Outpatient Funding Reform Sub-Committee comprised the following members:

Kwang Lim (Chair), Clinical Services Director, Medicine, Northern Hospital

Greg Pullen, CEO, Goulburn Valley Health

Helen Rizzoli, Manager, Clinical Information and Costings, St Vincent’s Health

Greg Young, Executive Director, Primary Care, Southern Health

Michael Jefford, Medical Oncologist, Peter MacCallum Cancer Institute

Glenis Bea umont, Exe cutive Director, Nursing , Executive Director, S urgical Services, Bendigo Health Service

Kris Jenkins, Manager, Health Information Services, Austin Health

Josephine Beer, Manager, Information and Perf ormance Unit, Royal Women’s Hospital

Cathy Nall, Head Physiotherapist, Austin Health

Tim Barta, Director, Funding Health and Information Policy, DHS

Jane Fewings, Manager, Funding Policy Unit, DHS

John Bayliss McCulloch, Funding Policy Unit, DHS

Geoff Lavender/Simon Moy, Rural and Regional Health Services, DHS

Annette Pritchard, Outpatient Improvement and Innovation Strategy, Access and Metropolitan Performance Branch, DHS

Maree Roberts, Access and Metropolitan Performance Branch, DHS

The Outpatient Funding Reform Su b-Committee met on the following dates: 19 April 2007, 24 May 2007, 16 August 20 07, 11 October 2007, 1 3 December 2007 and 18 March 2008.

The Technical Reference Group comprised the following members:

John Bayliss McCulloch (Chair), Funding Policy Unit, DHS

Kris Jenkins, Manager, Health Information Services, Austin Health

Helen Rizzoli, Manager, Clinical Information and Costings, St Vincent’s Health

Brendon Gardner, Manager, Information Systems, Peninsula Health

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Lee Salter, Manager, Outpatient Services, Casey Hospital, Southern Health

Maria Tucker, Program Director of Emergency, Ambulatory and Allied Health, Box Hill Hospital, Eastern Health

Josephine Beer, Manager, Information and Perf ormance Unit, Royal Women’s Hospital

Jacki McLeod, Health Information Manager, Northern Hospital

The Technical Reference Group met on the following date s: 26 April 2007, 17 Ma y 2007, 21 June 2007, 9 August 2007 and jointly with the Outpatient Fu nding Reform Sub-Committee on 11 October 2007.

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Appendix 2 Limitations of data sources Data used in this project came from three main sources: the Cost Weight Study, AIMS and project data returns. Each of these data sources has its own limitations.

A2.1 Issues with and limitations of Cost Weight Study data

Potential issues with the Cost Weight Study data include:

The representativeness of the hospitals contributing data to the CWS; and

The accuracy of the costing data submitted by the participating hospitals to the CWS.

In terms of representativeness, the number of hospitals contributing to the CWS has improved o ver time. T able 25 indicates the n umber of hospitals contributing to t he CWS from 2001/02 to 2005/06.

Table 25: Aggregate Costs & Funding for CWS hospitals - 2001/02 to 2005/06

Year Funded Health

Services

CWS Health

Services

Proportion of Health Services

in CWS

Proportion of VACS funding to CWS Health Services

2001/02 17 9 53% 69% 2002/03 17 7 41% 54% 2003/04 17 13 76% 87% 2004/05 17 12 71% 79% 2005/06 17 12 71% 79%

The CWS study has included between 41% and 76% of all VACS fu nded Health Services. However, t he reported costs in t he CWS h ave represented a higher proportion o f activity of between 5 4% and 87 % of fundin g. The CWS is broa dly representative of public outpatient services in re spect to the number of hospitals an d the proportion of funding. Nevertheless, there is scope to further exp and representation and refine service costs.

To assess the accuracy of the CWS data provided by submitting hospitals each year, it is nece ssary to understand the ‘exclusions’ undertaken by DHS in ‘cleansing ’ t he data prior t o its use in developing cost weigh ts for both inpatient an d outpatient services.

Table 26 presents two ‘views’ of the exclusion criteria: the first half of this table shows the exclusion criteria used by DHS; and the second half of the table shows the exclusion criteria used in this project.

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Table 26: Exclusion criteria for outpatient data, 2005/06

2005/06 CWS data DHS Exclusion Criteria Attendances Costs

Submitted Data 1,231,747 304,442,262 Exclusion Criteria

VACS 550 - Emergency 48,336 8,199,089 Invalid separation dates 7 692

Invalid VACS codes 4,135 1,603,920 Zero TOTCOST 5,113 0

$0 < TOTCOST < $5 3,366 13,859 TOTCOST (less S100 costs) < $5 17 24,872

TOTCOST (less S100 costs) > $3,000 2,709 21,533,189 TOTCOST Does Not Balance 23 14,579

VACCDI & Submitting Hospitals 16,010 2,798,827 Total Exclusions 79,716 34,189,028

Included Data (DHS) 1,152,031 270,253,233 2005/06 CWS data Project Exclusion Criteria Attendances Costs

Submitted Data 1,231,747 304,442,262 Excluded Items

VACS 550 - Emergency 48,336 8,199,089 Invalid VACS codes 4,135 1,603,920

St Vincent's High Cost Errors 69 2,380,029 Casey 15,890 2,768,713

Cranbourne ICC 3,796 257,743 Total Exclusions 72,226 15,209,493

Included Data (Project) 1,159,521 289,232,769

It can be seen from the top half of Table 25 that:

The applica tion of the DHS criteria resulted in the exclusion of 6. 5% of attendances and 11.2% of costs submitted through the CWS.

The most important reason for data being excluded from the CWS by DHS was the exclusion of high cost ‘outliers’ (that is, encounters with a cost in excess of $3,000). T hese encou nters coste d more than $3,000 even after re moval of Section 100 (high co st) pharmaceuticals. This criterion accounted for $21.5 million of the excluded data costs.

The second half o f Table 25 sh ows the exclusion criteria applied by the project team. The key difference was that attendances with either low or high ‘outlier’ costs were not excluded fr om the dat aset used f or the sub sequent analysis. The r ationale wa s to allow further analysis of the reasons behind these anomalously costed encounters in order to determine whet her there were some legitimate costs that should be included in the VACS funding model. As a result, the crit eria used by the project excluded only

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5% of costs submitted through the CWS, compared with the 11.2% of costs excluded by DHS5.

There has b een considerable improvement ove r time in the quality of the data being submitted to the CWS b y participating hospi tals. Table 27 shows the share of cost s for each he alth service/ hospital t hat were excluded by DHS over th e period fro m 2001/02 to 2005/06. The level of exclusions has reduced significantly since 2003/04. For 2005/06, some of the initial exclusions for individual hospitals included in Table 27 have since been rectified, improvi ng the over all accura cy of the cost weight stu dy data.

Table 27: Excluded costs by hospital, 2001/02 to 2005/06

Note: DNS = Did not submit

A2.1.1 Issues with and limitations of AIMS data

It is genera lly recognised that the q uality of the data report ed through AIMS is less robust than that submit ted through the VAED. VAED data have been subjected t o more regular external a nd internal auditing, wit h a strong emphasis given to thei r accuracy because they are directly used for determining WIES payment s by DHS t o health services. Issues relating to the AIMS data have been examined through a 2005 external audit of VAC S commissioned by DHS (Healthcare Management Advi sors 2006). This review made a number of specific recommendations t o improve t he accuracy of data for activity funded under VACS, most of which have been accepted and are being implemented by DHS.

Campus Name 2001/02 2002/03 2003/04 2004/05 2005/06Austin Health 17.3% 7.5% 15.4% 9.5% 7.6%Bendigo Hospital 0.4% DNS 66.0% 0.0% 0.0%Box Hill Hospital DNS 36.3% 41.3% 1.9% 5.1%Cranbourne Int Care Centre DNS DNS 12.1% 8.1% 4.0%Dandenong Campus 0.1% 0.9% 0.8% 1.9% 0.5%Mercy Public Hospital Inc. DNS DNS 0.0% 0.1% 0.2%Monash Medical Centre [Clayton] 12.2% 17.5% 20.7% 19.6% 10.0%Monash Medical Centre [Moorabbin] 0.5% 1.2% 2.3% 3.5% 6.8%Peter MacCallum Cancer Institute 3.8% 20.3% 16.9% 3.0% 28.4%Royal Childrens Hospital DNS DNS 6.6% 20.6% 8.6%Royal Melbourne Hospital City Campus 52.1% 45.9% 39.6% 31.9% 7.0%Royal Victorian Eye & Ear Hospital DNS DNS 1.8% 0.2% 0.3%Royal Womens Hospital 2.2% DNS 0.7% 2.6% 0.2%St Vincents Hospital 18.9% 26.1% 22.2% 28.3% 12.6%The Alfred 8.3% 9.2% 31.2% 3.4% 9.3%Western Health 52.4% DNS 21.1% DNS DNS

% of Costs Excluded

5 Note: the other different exclusion criteria used by the project relate to services that are not currently funded through VACS – Casey and Cranbourne – and the exclusion of 69 encounters at St Vincent’s Hospital with an average cost of $35,000 per encounter that represented erroneous data, not genuinely high cost encounters.


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There can be consider able variatio n in the dat a submitted through AI MS relative to that submitted for the Cost Weight Study (CWS), even when adjustments are made for the fact tha t the CWS comprises only a sample of all h ospitals. F or example, a comparison of the unwei ghted encounter data f or the 12 h ospitals submitting data to the CWS with the data t hese same hospitals contributed via AIMS in 2005/06 reveals considerable differences:

In aggregat e, the CWS captured 85% of u nweighted encounters reported through AIMS by these same hospitals. For example, allie d health encounters were much less likely to be reported through the CWS data than in AIMS.

However, t he CWS c aptured a higher volume of encounters for some individual VACS codes than AIMS. For e xample, in 2005/06 the CW S captured over twice as many VACS 102 (allergy) encounters as AIMS.

Significant auditing was undertaken by the proje ct team to understand the reasons for the differences. One of the contributing factors was the sh ifting between manual and automated data collection systems for some hospitals between AIMS and the CWS.

A2.2 Issues with and limitations of Project Returns data

The coverage of data collected for this project was as follows:

All site s pr ovided the majority of requested data except Royal Children’s Hospital and Peninsula Health.

Data collection coverage represents 90.3% of AIMS activity and 90.5% of DHS VACS Funding.

Data were collected fo r 2,868 ge neral outpat ient clinics comprising: 2,229 VACS funded clinics (78%), 270 MBS billed clinics (9%) and 369 other clinics (13%).

Data were collected for 428 allied health clinic/services comprising: 397 VACS funded clinics (93%), 13 SACS funded clinics (3%) and 18 other clinics (4%).

Product costing information was received from 11 of 23 ho spitals, representing 71.6% of total VACS funding in 2005/06.

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review of the victorian ambulatory classification & funding system

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