Is activity-based funding still active?

Activity-based funding was intended to create a stronger link between the resourcing of hospitals and their activity levels. However, the implementation of this new funding model has been slow. Paul Mulholland investigates

The financial problems in the HSE have been well charted, with a significant deficit expected at the end of the year. As a result, a number of measures are being put in place to limit expenditure. However, one element of the HSE’s financial situation that has received little recent attention is activity-based funding (ABF).

In 2012 the Government committed to the introduction of ABF for hospital care in Future Health: A Strategic Framework for Reform of the Health Service and other policy documents.

ABF is a way of funding hospitals based on their actual activity levels, by setting prices for different diagnoses or procedures based on the national average cost of providing care for the patient, with variations for complexity.

It aims to encourage efficiency in the system because hospitals are motivated to find the most cost-effective means of providing care. ‘Budgetary discipline’ was to be achieved through specified budgets for ABF activity. This means hospitals that exceed their activity targets do not attract additional funding under ABF. If efficiency gains allow providers to do additional work within their envelope of funding, this is supported by ABF.

However, a policy document seen by the Medical Independent (MI) highlights the difficulties experienced by the HSE in implementing the ABF model and points to the wider structural challenges facing the Executive.

ABF implementation plan 2015-17

In 2014, the Healthcare Pricing Office (HPO) was established within the HSE, bringing together the former ‘Casemix’ team and the former ‘ESRI’ team. Assistant Chief Finance Officer Ms Maureen Cronin was assigned responsibility for the HPO and was also asked to develop a plan and lead on the implementation of ABF across Irish public hospitals.

An ABF implementation plan for 2015-2017 was prepared by Ms Cronin, setting out the mission and scope of the ABF programme, and a high-level action plan that encompassed 34 ‘actions’.

A programme of work was required to enable these actions, including work to improve the accuracy and reliability of hospital activity and cost data, building and improving the related classification systems, as well as investment in staffing at hospital, Hospital Group and HSE level to support ABF.

A briefing paper on ABF submitted to the Department of Health by the HPO in December 2018, obtained by MI through Freedom of Information law, highlighted the barriers to putting the implementation plan into operation.

“There has been progress against the plan, however, with limited investment, there is still considerable work ahead of us,” according to the document. However, the Department of Health disputes that there has been insufficient funding of ABF (see Panel 1).

What has happened?

The briefing paper states that, at the end of last year, 60 per cent of hospital budgets were set using price and volume with activity levels derived from the latest 12 months of Hospital Inpatient Enquiry (HIPE) data. A monthly reporting system was developed allowing each hospital and Hospital Group to compare their actual performance against their target and to interrogate their HIPE data flexibly and quickly, down to the level of individual consultant/patient length of stay, etc.

Monthly performance meetings with Hospital Groups now examine ABF performance against targets and a national system for costing patients (PLC) has been procured and implemented in the participating hospitals.

“The development of ‘unit cost’ data has been possible and has now become part of our estimates dialogue with the Department of Public Expenditure and Reform,” according to the document.

“We can show that the national average cost for all admitted activity has remained almost flat between 2011 (€2,246) and 2016 (€2,266). This is despite significant growth in the cost of drugs, for example, which does not deliver any additional activity.”

A ‘hip fracture tariff uplift’ was also introduced as a pilot to achieve greater compliance with ‘Blue Book’, or best practice standards, and payment for laparoscopic cholecystectomies was taking place on a day-case rate.

“These initiatives are not possible in a block-grant environment,” according to the briefing paper.

It acknowledges the need to improve “the quality of the cost and activity data” in order to genuinely benchmark a hospital.

However, it does point out that improvements have been made in the area. For instance, ABF in itself has engaged the Hospital Group chief financial officers in a competitive process around annual benchmarking, which is now visible and shared with all Groups.

Also, chief financial officers have “a renewed understanding” of the importance of their data and many have taken an active role in managing HIPE. Staff have been appointed as Group ABF accountants, Group clinical coding managers, IT analysts and some clinical coders.

“All of these appointments enhance opportunities for improved cost and activity data – as well as critical linkages with clinicians,” according to the document.

The document states there is much greater participation in coder education programmes as the message is delivered that “quality-of-coding” matters in a budget setting.

“We have seen a marked increase in the number of clinicians willing to participate in coder education and discuss linkages between coders and clinicians at hospital level.”

Each hospital obtained a personalised report on coding quality arising out of the national audit of admitted data carried out by external consultants and interactions took place with both hospital managers and senior clinicians on these results. This was a new level of interaction between ‘HIPE’ and clinicians.

“The work of the Clinical Programmes including NIQIS [National Quality Assurance Intelligence System] and audits by NOCA [National Office of Clinical Audit] are bringing clinicians face-to-face with their own clinical data,” according to the document.

“The National Lead has a high profile and has presented to clinicians at many fora, such as Charter Day and the Millin Meeting. Such interactions were not happening before the launch of ABF.”

Also, the document states that following the appointment of two auditors to the HPO, the enhanced capacity for audit programmes and the launch of a new auditing training programme has given greater focus to the quality-of-data.

Shortcomings

Despite this progress, the document admits that the implementation of ABF has stalled.

“While considerable work has been ongoing there has been something of a hiatus in the drive for ABF for a couple of reasons,” it states.

The first of the reasons cited is that when the envelope of funding is not sufficient to buy the activity delivered in the ‘outgoing’ year, ABF is not possible unless the price is unilaterally reduced.

“This was necessary in 2016 – the first year of ABF – when funding was not available at the start of the year, but because [it was] available later in the year,” according to the document.

“It was also necessary in 2018 when VIP1 [Value Improvement Programme 1] and VIP2 [Value Improvement Programme 2], representing some €141 million, were required to close the ‘gap’ in acute hospitals – therefore the price effectively had to be reduced by that amount.”

The document admits that clinicians and health managers know that ABF did not work properly in these years.

Also, it refers to the Australian health system, which is a leader in terms of implementing ABF. The briefing paper notes that instead of implementing a price cut, ABF in other countries like Australia is offering increased volume of work “as well as price growth for known factors”.

“There is a journey to be undertaken in order for ABF to be now taken seriously by clinicians and therefore to reap the potential rewards of a new funding system,” according to the document.

ICT

One significant hurdle is deficits within the health service’s ICT infrastructure.

“Full implementation of ABF is also dependent upon further investment in staffing and ICT infrastructure in public hospitals to develop accurate costing at unit level, which is the cornerstone of ABF,” states the document.

“ICT infrastructure in many Irish public hospitals remains a considerable block to the further development of ABF. Recruitment and retention of staff in such a niche area has also proved challenging over the duration of the first implementation plan and is likely to remain so over the period of the next plan.”

The next phase

The 2015-17 implementation plan has now expired. Of the 34 actions, a number have been achieved or are ongoing, “with some not progressed or stalled”. A detailed review of progress against these was required, as well as an assessment of the next steps needed to progress ABF, according to the document.

The 2018 Sláintecare Implementation Strategy committed to the ongoing implementation and expansion of ABF, including expanding ABF to other parts of acute services, significantly increasing the ABF proportion of hospital budgets and examining the use of ABF for outpatient services.

“At present, with the expiration of the 2015-17 implementation plan, there is no framework under which to progress these actions,” according to the briefing paper.

In addition, in September 2018, as part of its programme of work to assess compliance with the information management standards in all major national health and social care data collections within the HSE, HIQA undertook a review of the key acute hospital activity data set for ABF, the HIPE, and made nine recommendations.

“These recommendations are far reaching across the HSE and include responsibility for education of clinicians in writing charts etc,” the document states.

“They extend well beyond the remit of the HPO and will need careful consideration and resourcing.”

In June 2018, the Department of Health wrote to the HPO to confirm that the embedding and extension of ABF remains a priority objective and that a new implementation plan should be developed.

A public tender process was undertaken in mid-2018, and in October 2018 Ms Jennifer Nobbs was engaged to lead this work. Ms Nobbs is the former Executive Director of ABF at the Australian Independent Hospital Pricing Authority, the HPO’s equivalent in Australia.

The new implementation plan is intended to build on the previous plan and incorporate the Sláintecare actions and HIQA recommendations.

“It should be noted that ‘phasing out of transition payments’ must be approached with significant caution because we know that our ‘measurement’ factors are not yet eliminated,” states the briefing paper.

“Until we can ‘stand over’ our costs and genuinely benchmark hospitals accurately against the national average price, we cannot remove transition payments and cause a hospital to fall into significant financial deficit.”

The new plan was intended to be completed in April or May of 2019.

Earlier this year, a spokesperson for the HSE told MI this will not be completed until the final quarter of this year. When MI asked for an update on the plan, no response was received.

Given the precarious state of the HSE’s finances and the structural changes within
the Executive, the implementation of ABF is likely to remain challenging for the foreseeable future.

Panel 1: Department of Health defends support given to ABF

On 28 June 2018 the Chief Financial Officer of the HSE, Mr Stephen Mulvany, wrote to the Department of Health on the subject of activity-based funding (ABF).

According to Mr Mulvany, the resources provided to the HSE to support the development of ABF were insufficient.

Mr Colm Desmond, Assistant Secretary, Finance and Evaluation Division, Department of Health, responded to Mr Mulvany’s email on 5 November 2018.

He apologised for the delay in responding to Mr Mulvany’s concerns, which he said was the result of “priority demands around the estimates and Budgetary process”.

In the letter, seen by the Medical Independent through Freedom of Information law, Mr Desmond said he did not agree with Mr Mulvany’s contention that ABF was not receiving sufficient financial support.

“Allowing for overall budgetary parameters, the additional budgetary parameters, the additional funding allocated for the purposes of ABF implementation in the National Service Plans 2015 and 2018 would appear to have been broadly in line with the resources identified in the ABF implementation plan 2015-2017.”

Mr Desmond also noted that the Healthcare Pricing Office (HPO) has underspent its annual allocation in each of the relevant years 2014-2017 inclusive. He wrote that this indicates “there was adequate scope to progress the recruitment of the necessary staff and the procurement of the IT systems outlined in the implementation plan, within the resources available”.

According to Mr Desmond: “The agreed key benefits of ABF are to drive structural and efficiency improvements in the health sector, drive improved quality, deliver greater transparency in the allocation of resources both within individual hospitals and in the wider acute hospital setting, and to improve national health data.”

He reiterated that ABF is central to the health sector’s funding strategy, stating that in developing the National Service Plan 2019 it was incumbent on the HSE to prioritise ABF activities within the resources available.

Mr Desmond stated it was essential that a new implementation for ABF is drawn up as soon as possible.

Panel 2: Hospitals and ABF

The issue of activity-based funding is highlighted in two Hospital Group operational plans for 2019. The South/South West Hospital Group states in its 2019 plan that the Group performed positively under the 2018 ABF benchmarking exercise to the value of €4.3 million.

“In order to recognise performance in the benchmarking process we received a 10 per cent uplift of this – equivalent to €0.430 million,” according to the report. “It is recognised that ABF is in its infancy and that there are considerable requirements to improve clinical coding and DRG costing. We as a Group have achieved improvements in both of these areas during 2018 and will continue to develop the ABF model in all sites during 2019,” according to the plan.

Saolta University Health Care Group also referred to its positive ABF performance in its operational plan.

“The ABF model, on which the 2019 Budget for inpatient and day case funding is based, showed a marked improvement in 2018 in that the Group (apart from RUH [Roscommon University Hospital], which is outside this model), now compares favourably with other Groups in the country from a cost perspective. The 2019 Budget shows a positive ABF adjustment for the Group of €13 million (2018 €5 million and 2017 negative €16 million).

In a recent interview with the Medical Independent, RCSI President Mr Ken Mealy expressed disappointment about the slow rate of ABF implementation.

“There are a couple of problems. One is the hospitals are still block-granted, so they are not actually getting this money or losing this money until such time as activity-based funding is actually implemented… secondly, there is no incentive,” according to Mr Mealy.

“As I said, if you have 100 gallbladder patients on your waiting list at the end of the year, the NTPF [National Treatment Purchase Fund] will take them and do them for you.”