A national classification system and payment model for private rehabilitation services. Centre for Health Service Development

A national classification system and payment model for private rehabilitation services Centre for Health Service Development November 1999

A national classification system and payment model for private rehabilitation services Kathy Eagar Janette Green Robert Gordon Centre for Health Services Development University of Wollongong November 1999

Table of Contents EXECUTIVE SUMMARY AND SUMMARY OF RECOMMENDATIONS I INTRODUCTION AND BACKGROUND 1 BACKGROUND TO PRIVATE REHABILITATION ARRANGEMENTS 1 PRIVATE REHABILITATION WORKING GROUP 2 TERMS OF REFERENCE 3 STATISTICAL TERMS 4 CONSULTATION PROGRAM 4 CRITICAL ISSUES FOR CONSUMERS 5 LITERATURE REVIEW 6 REHABILITATION OUTCOMES 6 CLASSIFICATION SYSTEMS 14 RELEVANT VARIABLES 16 FUNDING MODELS 17 A DESCRIPTIVE ANALYSIS OF PRIVATE AND PUBLIC SECTOR REHABILITATION IN AUSTRALIA 19 OVERNIGHT EPISODES 19 AMBULATORY EPISODES 26 ISSUES RELATED TO EPISODE LENGTH 31 EPISODE COST CURVES - LOOKING FOR STEP DOWNS IN COST 38 SUMMARY 40 TRENDS IN REHABILITATION CARE 41 INCREASE IN DEMAND FOR REHABILITATION 41 INCREASE IN AMBULATORY REHABILITATION 42 INCREASE IN CONSULTATION-LIAISON MODELS OF REHABILITATION 42 LENGTH OF STAY IN INPATIENT REHABILITATION 42 CRITICAL ISSUES TO BE RESOLVED IN DEVELOPING A PREFERRED NATIONAL CLASSIFICATION SYSTEM FOR PRIVATE REHABILITATION SERVICES 44 ISSUE 1: DEFINITION OF REHABILITATION 44 RECOMMENDED DEFINITION OF REHABILITATION 49 ISSUE 2: WHO/WHAT SHOULD BE CLASSIFIED? 50 ISSUE 3: SCOPE OF GENERATION 1 CLASSIFICATION 50 ISSUE 4 THE DEPENDENT VARIABLE THE UNIT OF COUNTING/DATA COLLECTION 51

DEVELOPING A NATIONAL CLASSIFICATION SYSTEM FOR PRIVATE SECTOR REHABILITATION 56 WHAT CONSTITUTES AN ACCEPTABLE CLASSIFICATION? 56 HOW WE TESTED THE OPTIONS 57 RESULTS OVERNIGHT EPISODES 57 ISSUES IN THE SELECTION OF A PREFERRED OVERNIGHT INPATIENT MODEL 60 RESULTS AMBULATORY EPISODES 61 ISSUES IN THE SELECTION OF A PREFERRED AMBULATORY MODEL 63 THE RECOMMENDED NATIONAL CLASSIFICATION FOR PRIVATE SECTOR REHABILITATION 65 DEVELOPING A NATIONAL PAYMENT MODEL FOR PRIVATE SECTOR REHABILITATION 67 ISSUES TO BE TAKEN INTO ACCOUNT IN PAYMENT SYSTEM DESIGN 67 REINSURANCE POOL AND IMPLICATIONS OF CURRENT LEGISLATION. 68 PAYMENT SYSTEM DESIGN 68 PRICE RELATIVITIES 72 OUTLIERS/ATYPICAL CASES 73 TRANSFERS 77 THE RECOMMENDED PAYMENT MODEL FOR PRIVATE SECTOR REHABILITATION 79 EXAMPLES OF HOW THE BILLING SYSTEM WOULD WORK 79 IMPLEMENTATION ISSUES 82 Issue 1. Clinical data items to be collected 82 DATA SET TO BE REPORTED 82 OUTCOME MEASURES 83 INTERPRETATION OF OUTCOMES 84 Issue 2. Implications for data collections 85 TRAINING AND EDUCATION 85 INFORMATION TECHNOLOGY 85 DATA ISSUES 86 Issue 3. Product validation and audit 87 Issue 4. Timetable and transition arrangements 88

APPENDICES APPENDIX 1 CASE HISTORY MRS FLO CHART 89 APPENDIX 2 NEW WESTERN AUSTRALIAN DRGS FOR MEDICAL REHABILITATION 92 APPENDIX 3 UDS VERSION 4 IMPAIRMENT CODES (2 DIGIT) 93 APPENDIX 4 FIM-FRG 2 IMPAIRMENT GROUPS 94 APPENDIX 5 VICTORIAN DEPARTMENT OF HUMAN SERVICES REHABILITATION CLASSIFICATION (CRAFT) 95 APPENDIX 6 AN-SNAP CLASSIFICATION 96 APPENDIX 7 FIM-FRG 1 CLASSIFICATION 97 APPENDIX 8 EFFICIENT NEW INPATIENT MODEL 98 APPENDIX 9 ABBREVIATED AN-SNAP MODEL 99 APPENDIX 10 NEW AMBULATORY MODEL 100 APPENDIX 11 FUNCTIONAL IMPAIRMENT CODES (FROM THE UDS, VERSION 4.0) 101 APPENDIX 12 RELATIVE WEIGHTS AND PRICE BANDS FOR THE VARIOUS PAYMENT OPTIONS 102 APPENDIX 13 PAYMENT WEIGHTS FOR THE RECOMMENDED MODEL 105 APPENDIX 14 THE FIM TM INSTRUMENT 106 REFERENCES 107

Executive Summary and Summary of Recommendations In August 1999, the National Private Rehabilitation Working Group (PRWG) commissioned the Centre for Health Service Development, University of Wollongong to develop a recommended national classification and payment system for private rehabilitation services in Australia. This report presents the results of that project. It has been undertaken in close consultation with the PRWG. It is intended that the recommendations contained in this report will inform the Department s advice to the Minister for Health and Aged care regarding policy directions for rehabilitation services in the private sector. A summary of the recommendations of this report is provided below. In essence, the project comprised five main elements: A literature review of papers related to rehabilitation outcomes, rehabilitation classification systems and related funding models; A comprehensive consultation program with key industry stakeholders. A descriptive analysis of private and public sector rehabilitation in Australia; A statistical analysis leading to a recommended national classification for overnight and ambulatory private sector rehabilitation in Australia; The development of a recommended payment model for the funding of private sector rehabilitation in Australia. Literature Review On page 6 we summarise the result of our literature review. Over 800 papers were reviewed and approximately 40 papers were identified as being relevant to the project. Topics covered by the papers are discussed in the report under four headings: rehabilitation outcomes and outcome measurement tools; the details of classification systems, including the criteria to be considered in the decision to adopt a particular funding model; the assessment of variables considered to be important in classification; and funding models. Consultation A wide ranging set of consultations were conducted to provide stakeholders with an opportunity to provide input to the project and to maximise industry support of the recommended outcomes. The consultation process occurred concurrently with the literature review and the recommended classification and payment model development work. The PRWG, as the key industry representatives, were involved in all aspects of the project. It provided critical advice to the project team as issues arose. National consultations were held with health funds, providers, clinical faculties and societies, government departments and other relevant representative industry groups during the project. State level consultations with also conducted with health funds and providers in NSW, Victoria, Queensland, South Australia and Tasmania as part of broader industry consultation process conducted by the Commonwealth. Private Rehabilitation Final Report Page i

Critical Issues for Consumers Consultation during the course of the project indicates that a range of issues are of critical importance to consumers. They are discussed on page 5 and include: 1. The provision of clinically appropriate care. 2. Access to appropriate care. 3. Provision for auditing quality and outcomes and inbuilt mechanisms to monitor the impact on consumers and carers in terms of both quality and outcome. 4. Consumers with chronic conditions and those admitted to care directly from home should not be disenfranchised from receiving health care in the private sector. 5. Out-of-pocket expenses. 6. Consumers want their privacy protected. 7. Consumers want to give informed consent and to make informed decisions about their entitlements. Descriptive Analysis A descriptive analysis of overnight and ambulatory rehabilitation care in Australia was undertaken to evaluate differences between the public and private sectors (see page 19). It represents a major source of information about patterns of care and corresponding resource use across the public and private sectors. The data set used in the analysis was compiled originally in the 1996 AN-SNAP classification project and included patients treated in both overnight and ambulatory settings. The overnight sample comprised approximately 7300 rehabilitation episodes (2400 from private and 4900 from the public facilities) and the ambulatory sample comprised approximately 3000 episodes (738 from private and from the public facilities). The report findings are that there are differences in the mix of impairments treated in the 2 sectors and in the level of functional impairment (ie the casemix). Private patients are, on average, 21% less complex than public patients and 22% less expensive. The differences in complexity between the two sectors is influenced both by the mix of impairments in each sector as well as the mix of episodes within each of the impairment groups. However, when adjusted for casemix, there are no significant differences between the private and public sectors. We found little or no justification for step-down payment models in medical rehabilitation based on the actual costs of care each day. This finding relates to two of the key issues raised by consumers. The first is that consumers do not want payment models to create financial incentives to provide inadequate or inappropriate care. The second is that consumers believe that, if a payment model contains incentives to reduce length of stay, there should be inbuilt mechanisms to monitor the impact on consumers and carers in terms of both quality and outcome. Private Rehabilitation Final Report Page ii

Trends in rehabilitation care Based on the literature review, consultation that occurred during the course of the project and analysis of 1999 public sector rehabilitation data (as no equivalent private sector data were available), four issues emerge when considering trends in rehabilitation care (page 41). Firstly, demand for rehabilitation care is increasing as the population as a whole ages. Secondly, there appears to be increasing demand for ambulatory rehabilitation, some of which is substitutable for overnight care. Thirdly, consultation-liaison services, which have become well established in the public sector, are not similarly established in the private sector and are not recognised by funds for payment purposes. Finally, there are no indications that changes in clinical practice are leading to reductions in inpatient length of stay. This last finding is based on an analysis of public rehabilitation services in NSW. An equivalent analysis could not be undertaken using private sector data because no such data are collected in the private sector. Classification Development Many critical issues need to be considered in the development of standard definitions and a classification and payment model for the private rehabilitation sector. Two issues that need to be resolved at the outset are the definition of rehabilitation (page 44) and the unit of counting to be adopted for classification purposes (page 51). Definition of rehabilitation The national definition of rehabilitation is current under review by the National Health Information Management Group (NHIMG) and substantial amendments to the current national definitions are proposed. The NHIMG is awaiting the outcomes of this project before finalising their proposals. The issue of developing a national definition of rehabilitation is complex. Issues relating to the setting in which care is provided, the clinical intent of the care and accreditation requirements of the treating clinician are critical and have been considered in detail in this report. We recommend that the following definition of a rehabilitation episode be adopted: Rehabilitation is an episode of care: Provided in a specialist rehabilitation unit (a separate physical space and a specialist rehabilitation team providing inpatient and/or ambulatory care) accredited as such by the Commonwealth Department of Health and Aged Care 1 ; AND Provided by a multidisciplinary team which is under the clinical management of a consultant in rehabilitation medicine or equivalent 2 ; AND 1 We recommend that the Commonwealth adopt the same approach as that in place for the recognition of Neonatal Intensive Care Units. In this model, the Commonwealth works with the relevant clinical society (in this case, the Australasian Faculty of Rehabilitation Medicine) and, in consultation with purchasers, providers and other relevant medical societies, develops the standards required for recognition as a specialist unit. The States/Territories undertake the inspections using the agreed standards and forward their report to the Commonwealth and the Commonwealth approves a unit (or not) based on that standards report. Accreditation should be for an initial period of 2 years. These arrangements are in addition to the licensing procedures managed by the States and Territories. 2 Whilst most patients will be treated by a consultant in rehabilitation medicine (a fellow of the AFRM) there are circumstances in which the treating doctor should not be required to be a fellow of the AFRM. This includes patients receiving sub-speciality rehabilitation and patients receiving care in geographic areas where there is a shortage of AFRM fellows. Likewise, most rehabilitation units should be under the clinical leadership of a fellow of the AFRM. However, there may be circumstances in Private Rehabilitation Final Report Page iii

Provided for a person with an impairment and a disability and for whom there is reasonable expectation of functional gain 3 ; AND For whom the primary treatment goal is improvement in functional status which is evidenced in the medical record by:? an individualised and documented initial and periodic assessment of functional ability by use of a recognised functional assessment measure.? an individualised multidisciplinary rehabilitation plan which includes negotiated rehabilitation goals and indicative time frames. Inclusions: Rehabilitation care provided to both admitted and non-admitted patients. Single therapy care if: it is consistent with the patient s rehabilitation goal and their care plan; AND it is in planned continuity with a multidisciplinary rehabilitation episode AND it is ordered before the completion of the multidisciplinary program by the treating rehabilitation doctor and is supervised by the treating rehabilitation doctor Exclusions: the tail end of an acute care episode respite, convalescent, maintenance or aged care, irrespective of whether such care is provided in a specialist rehabilitation unit or provided under the clinical direction of a rehabilitation physician or equivalent Certification The treating medical specialist is to certify that the above criteria in relation to the person, the goal and the evidence are met. The unit of counting One of the most basic issues to be resolved in developing classifications is the unit of counting. Recent developments in the sector have focussed on two models: the episode of illness and the episode of care. In theory, the counting unit could be anything from the individual occasion of service through to a whole lifetime of care and support. The five primary options considered were: 1. Episode of illness/disability/need (the period in which a person has a disability, impairment or handicap, which might be lifelong for some patients, and which might involve one or more episodes of care); 2. Rehabilitation episode (the period in which the person is receiving rehabilitation care); 3. Episode of care (the period in which a person receives care in one setting); 4. Day of care (all the services received on any one day); or 5. The occasion of service. which another medical specialist can appropriately head a rehabilitation service. The Commonwealth accreditation guidelines described above should make specific provision for these circumstances. 3 Acceptable rehabilitation impairments are the Version 4 Impairment Codes in the Uniform Data Set for Medical Rehabilitation shown in Appendix 11. Private Rehabilitation Final Report Page iv

For the reasons outlined in the report (see page 51), we recommend that the most appropriate level of bundling for rehabilitation episodes is the episode of care. Developing a national classification of private sector rehabilitation The AN-SNAP data set used in the descriptive analysis was also used as the basis for developing a preferred classification for both overnight and ambulatory rehabilitation care. Details of the sample of episodes collected during the AN-SNAP study are shown below. In total, the private sector represented about one-third of rehabilitation episodes in the AN-SNAP study. Rehabilitation Episodes in the SNAP study data set OVERNIGHT AMBULATORY TOTAL Overnight Same day Outpatient Community All episodes 7,303 598 1,721 737 10,359 Private sector 2,69 12 61 3,21 Private as % of total 33.81 21.07 35.91 0.14 31.03 We began by testing classification models for overnight inpatient episodes. Testing occurred initially by using the full data set and then by using only the private sector data set. Six existing classification models were tested AN-SNAP, CRAFT - the Victorian model, the Western Australian model, UDS impairment codes, FIM-FRG 1 and FIM-FRG 2 Impairment Codes. Each of the classifications tested is included as an appendix to this report. We then attempted to develop a classification of overnight episodes that performed better statistically than any of the existing systems. However, the two resulting classifications we developed were discarded by the PWRG on the basis that they either lacked clinical meaning or did not perform as well statistically as the AN-SNAP and FIM-FRG1 systems. We moved on to test ambulatory models. The smaller volume of ambulatory episodes in the private sector required that all testing be undertaken on the whole study data set. Essentially, the same process used to analyse the overnight data set was applied when testing the ambulatory data set. That is, having analysed the performance of each of the existing classifications, we attempted to develop a new model that achieved better result. In total, nine existing models were tested and one new model developed. As expected, the RIV results for all models were lower than those reported for inpatients. Our conclusion was that there were only three real contenders the new ambulatory model, the AN- SNAP ambulatory classification and the AN-SNAP inpatient classification. Importantly, the preferred option is highly dependent on the model selected for the classification of inpatient care and the final decisions made about whether there should be separate classes for same day and outpatient rehabilitation. The recommended classification for private sector rehabilitation The final decision about a preferred classification system was made by the PRWG. Having considered the range of options, the PRWG resolved that the AN-SNAP classification should be adopted as the recommended classification of private sector rehabilitation in both the overnight inpatient and ambulatory settings. The decisions of the PRWG are summarised on page 65. Developing a national rehabilitation payment model Private Rehabilitation Final Report Page v

The development of a recommended payment model for private sector rehabilitation requires the classification system to be used in tandem with a set of payment rules that in combination will ensure that appropriate and cost-effective care is provided for patients. Financial risks to purchasers, providers and patients need to be shared equitably and operate in a system that embraces the cost structures of services and the need for flexibility in funding negotiations. In the Australian context, the implications on reinsurance arrangements also needs to be addressed. In developing a preferred payment system that embraces the above issues, three models can be considered as the basis on which payments for rehabilitation services are made per diem models, per episode models and blended models. In per diem models, a payment rate is struck for each day of care. Medical rehabilitation services in the Australian private sector have been traditionally funded on a per diem basis. Step-down payment rates have applied at various points during episodes of care depending on the particular program. Per diem models have no incentives to contain length of stay. Risk is carried predominantly by funders for providers who are technically inefficient as well as for providers who treat the most complex patients. Further, per diem models tend to discourage variations in the intensity and duration of therapy. In per episode models, a single payment rate is struck for each episode of care. In this model, most risk is carried by providers who may make large gains or losses on individual episodes. Providers can minimise risk under this model by being technically efficient, by providing inadequate services (such as premature discharge) or by pre-selecting less complex patients. In the rehabilitation sector, average lengths of stay are considerably longer than acute care episodes and consequently display much greater variation around the mean. Further, given the size of most private rehabilitation providers in Australia (and their small volumes), the concept of swings and roundabouts that underpins most DRG funding models will not apply to a large proportion of private rehabilitation providers or to the smaller purchasers. We modelled the impact of introducing a per episode model and concluded that the risks to both purchasers and hospitals are very high. After empirical testing, we propose a blended payment model whereby some payment components are episode based and others are per diem based. The episode component is condition-specific and is related to the cost weight for the class to which the episode is assigned. The per diem payment is standard across all rehabilitation episodes and covers the core hospital cost. The rationale for a blended model is straightforward. Costs which are directly related to case complexity should be included in the episode payment. Costs which are independent of case complexity are included in the per diem payment. Specifically, costs included in the per diem rate include hotel services, core nursing services and some basic therapy services. All rehabilitation patients receive these services irrespective of class. Our view is that the blended model represents a better sharing of risk than either of the other models. Further, given the magnitude of the change that casemix funding represents, the blended model appears to be a safer option for purchasers, for hospitals and for patients. While it contains incentives to reduce length of stay, the incentives are not as strong as those contained in the episode payment model. The impact on daily payment rates is less severe which is more suitable to care with a flat cost curve. Outliers Outlier policies are required to deal with atypical cases. Twelve methods of calculating outlier Private Rehabilitation Final Report Page vi

threshholds were modelled. The objective in recommending a particular method is to share risk equitably between funders and providers whilst ensuring that a desirable proportion of funding is contained in the inlier pool. For the reasons outlined in the section of the report beginning on page 74, we determined that the minimum low trim point for inpatient rehabilitation should be set at 7 days. That is, we assumed that effective inpatient rehabilitation care cannot be provided for the typical episode in less than 7 days and the average length of stay plus 13 days should define the high outlier threshold. We would not have selected these trim points for use in a full episode payment model. Because of the greater financial risks associated with a full episode payment model, it would be preferable to adopt trim points with a narrower band (eg +/- 6 days). However, this would result in a very large number of episodes being treated as outliers. Because of differences in the patterns of care, we used a modified approach to defining outliers in ambulatory care. For ambulatory episodes, we concluded that: Episodes with an episode duration of 3 days or less (3 classes) should have a short stay outlier threshold of 0 while the long stay outlier threshold is either 4 or 6 days depending on the class; For the remaining outpatient episodes, the short stay outlier threshold should be either 2 days or the average length of stay minus 13, whichever is the larger value and that The average length of stay plus 13 days should define the high outlier threshold for these episodes. We have proposed payment rules for outliers. The payment rules are discussed on page 76 and the outcomes of these outlier policies can be seen in Appendix 12 and Appendix 13. Transfers A transfer payment policy is required to determine payment rules for patients who transferred to another facility during the course of an episode. Payment models should not influence decisions about whether patients are transferred. Instead, they should neutralise the incentive to hold or to transfer a patient so that decisions about transfers are made solely on clinical grounds. We have developed a set of recommendations for the payment of episodes that end with the patient being transferred elsewhere for care. These rules are discussed on page 78. The recommended payment model On page 72 of the report we conclude that a blended payment model is the preferred approach paying for rehabilitation in the private sector. Appendix 13 sets out the price bands that can be used in this recommended model. It will be seen that there are: 8 price bands for the episode component; 2 price bands for the per diem component; and 5 price bands for outlier payments The proposed model is complex but not difficult. The following examples show how it would translate into a billing system. There are 3 items (episode payment, per diem payment and outlier payment). For a typical (inlier) episode, a hospital would invoice for 2 of these items. The 3 rd item (outlier payment) would be used only for atypical cases. Private Rehabilitation Final Report Page vii

Purchasers and hospitals would negotiate 1 price the price for an average rehabilitation episode. The price for rehabilitation therapy, for core hospital services and for outlier days are all set relative to the price of an average rehabilitation episode. The prices for each item and each band are determined by using the relevant cost relativities shown in Appendix 12. Examples of how the billing system would work Example 1 Invoice for Mrs Flo Smith Class Actual length of stay 224 (ALOS=19, low trim=7, high trim=32) 24 days (inlier) Item Unit Price band $ Episode payment 1 episode @ Price band 1 Per diem payment 24 days @ Price band 2 Outlier payment 0 Price band 3 Total payment Example 2 Invoice for Mrs Mary Brown Class Actual length of stay 224 (ALOS=19, low trim=7, high trim=32) 35 days (long outlier) Item Unit Price band $ Episode payment 1 episode @ Price band 1 Per diem payment 31 days @ Price band 2 Outlier payment 4 days @ Price band 3 Total payment We believe that the blended payment model, in combination with price bands, achieves most of our goals in payment system design. It: Includes incentives for the provision of appropriate rehabilitation services; Fairly shares financial risk; Is consistent with the cost structure of rehabilitation services; Relative to other models, is simple and easy to administer; and Allows actual payment rates to be negotiated between purchasers and providers While the preferred payment model is ultimately a commercial decision for both purchasers and hospitals, we believe that there are strong advantages in the sector agreeing (at least in the short term) to the adoption of one standard payment model. Such a model would use common trim points, rules for transfers for so on. If such a common approach were adopted, common software systems could be used and joint training undertaken. A further advantage is that the sector would be able to develop a large database to allow the types of analyses we have undertaken to be replicated in the future using data solely from the private sector. Our assessment is that the sector does not currently have the capacity to manage a multitude of models working in parallel, each of which would require their own billing systems, associated administrative infrastructure and training. However, this issue is ultimately a matter for the PRWG to resolve and for the Minister to determine. Private Rehabilitation Final Report Page viii

Issues in implementation the recommended system We recommend that the recently developed Australasian Faculty of Rehabilitation Medicine Uniform Data Set (UDS) be completed for each rehabilitation episode of care and documented in the medical record. In addition, the relevant casemix class for the episode should be recorded in the medical record. We have developed a set of recommendations on the submission of patient level and facility level data. We believe that these represent acceptable industry standards in the implementation phase of the recommended system. They include what we believe are acceptable measures required for product validation and audit. In addition, they will provide the industry with the capacity to collect outcome measures in a consistent manner for inpatient care. Further work is recommended to develop outcome measures for ambulatory care. The model being proposed in this report represents a significant departure from the way that the private rehabilitation sector has historically operated. The success of its implementation will be largely dependent on the provision of training and education for both purchasers and providers including careful consideration of information technology requirements. Finally, we note that a range of issues will need to be considered in determining a timetable for the new arrangements and in determining whether any transitional arrangements (such as shadow payments) will be required. One major issue is undoubtedly the capacity of the sector to undertake training, to implement the required data collections and to negotiate new contract arrangements. The other major issue is the timetable required to make any necessary amendments to the legislation. It is beyond the scope of the current project or the CHSD team to determine a suitable timetable or to identify the required transition arrangements. These tasks form an ongoing work program for the PRWG. We recommend that: Recommendation 1. The private sector recognise that, for classification and payment purposes, there are 3 Care Types diagnosis-related (acute), function-related (sub-acute) and supportive care (non-acute). Refer to page 45 2. All rehabilitation be recognised as function-related or sub-acute care. 45 3. Both diagnosis-related ( acute ) and function-related ( sub-acute ) care be regarded as acute for the purposes of the current (but outdated) National Health Act 1953 and the Health Insurance Act 1973. 4. A classification and payment model be developed for other types of functionrelated (sub-acute) care. 5. After the current project is complete, the PRWG resolve whether consultationliaison should be recognised in the private sector and, if so, how it should be paid for. 45 45 46 6. Geriatric Evaluation and Management be recognised as sub-acute care that is 47 Private Rehabilitation Final Report Page ix

appropriately provided and funded in the private sector and that a classification and payment model be developed for this care. 7. Rehabilitation be defined as being an episode of care: Provided in a specialist rehabilitation unit (a separate physical space and a specialist rehabilitation team providing inpatient and/or ambulatory care) accredited as such by the Commonwealth Department of Health and Aged Care; AND Provided by a multidisciplinary team which is under the clinical management of a consultant in rehabilitation medicine or equivalent; AND Provided for a person with an impairment and a disability and for whom there is reasonable expectation of functional gain; AND For whom the primary treatment goal is improvement in functional status which is evidenced in the medical record by an individualised and documented initial and periodic assessment of functional ability by use of a recognised functional assessment measure and an individualised multidisciplinary rehabilitation plan which includes negotiated rehabilitation goals and indicative time frames. 8. The sector move from the classification of rehabilitation programs to the classification of rehabilitation patients receiving care from approved rehabilitation services. 9. Four types of rehabilitation episodes be recognised - overnight, same day, outpatient and community episodes. 10. The episode of care be adopted as the single level of purchasing and reporting within the industry. 11. For the purposes of private sector rehabilitation, an episode of care be defined as A period of contact between a patient and a facility that occurs in one setting (either overnight, same day, outpatient or community) and in which the patient meets the criteria for Rehabilitation. 12. The AN-SNAP classification, consisting of 47 classes (32 for overnight episodes and 15 for ambulatory episodes) be adopted as the recommended national rehabilitation classification. 13. Standard outlier thresholds as shown in Appendix 12 and 13 be adopted in the private rehabilitation sector for the first year of implementation of the new classification and funding model. These thresholds can then be reviewed after one full year of data has been collected. 14. The rules outlined in this report be adopted for the payment of episodes that end with the patient being transferred elsewhere for care. 15. The PRWG adopt the blended payment model with price bands as the national preferred payment model for rehabilitation with standard trim points and rules for patient transfers. 16. The Australasian Faculty of Rehabilitation Medicine Uniform Data Set (UDS) be completed for each rehabilitation episode of care and documented in the medical record. In addition, the relevant casemix class for the episode should be recorded in the medical record. 17. A facility-level consolidated data set containing 26 relevant UDS data items be submitted annually by each hospital to the purchaser plus the volume of 50 Note that this includes related footnotes 50 51 54 54 66 77 78 81 84 84 Private Rehabilitation Final Report Page x

episodes in each casemix class. 18. A patient-level data set containing 31 items be submitted on each patient to the purchaser. The level of reporting should match the unit of purchase, whatever that may be. 19. The AFRM, purchasers and private hospitals work together to identify an agreed outcome measure that can be implemented within one year. 20. The outcomes of a rehabilitation unit be assessed by reviewing the outcomes achieved by all patients on an annual basis and not by assessing the outcomes of any individual patient. 21. The PRWG organise and coordinate the training and education required to implement the new classification model. 22. The PRWG review the available information technology options and provide information to purchasers, hospitals and software houses providing services to insurers and hospitals on the advantages and disadvantages of each option. 23. Industry protocols be developed to manage issues associated with data ownership, data submission and data processing. 24. These protocols be agreed in collaboration with the managers of the national Hospital Casemix Protocol (HCP). Amendments to the legislative regulations of the HCP will be required for this to occur. 25. Where possible, the data submission processes be amalgamated with the HCP to minimise the need for providers to prepare multiple data sets. In making this recommendation, we recognise that majority of data items being recommended for collection are different from those in the HCP. 26. The PRWG seek the cooperation of hospitals in assembling data sets that can be used by purchasers in modelling the impact of the proposed changes. 27. The PRWG determine a timetable for the new arrangements and determine whether any transitional arrangements (such as shadow payments) will be required. 28. The recommended classification and payment model be implemented in Year 1 so that it is cost-neutral to both purchasers and providers with the goal being to re-allocate prices rather than to increase or decrease prices. 84 84 84 85 85 87 87 87 87 88 88 Private Rehabilitation Final Report Page xi

Introduction and background This is the final report to the National Private Rehabilitation Working Group (PRWG) on the development of a preferred classification and payment system for medical rehabilitation. Background to Private Rehabilitation Arrangements Under current legislative requirements (Schedule 1 paragraph (bf) of the National Health Act 1953) all health funds must cover palliative care, rehabilitation and psychiatric care at least at the level of the default benefit in all hospital insurance products. This requirement resulted from amendments to the Health Legislation (Private Health Insurance Reform) Amendment Act 1995 during its passage through Parliament. It was argued that, without mandated cover, people would choose not to be privately covered for palliative care, rehabilitation and psychiatric care, would not get care when they needed it, and would be forced into an already pressured public system. Under the contractual arrangements (Hospital Purchaser-Provider Agreements 4 - HPPAs) between funds and private hospitals, funds in some cases pay above the required minimum default level. In 1998 a new benefit called the second tier benefits within the Default Table of Benefits (paragraph (bj), Schedule 1 of the National Health Act 1953) was introduced. The benefits are payable to certain private hospitals and day hospital facilities where a health fund does not have a HPPA (or similar agreement) with that private hospital or day hospital facility. To be eligible for second tier benefits hospitals must satisfy particular criteria for the particular episode of care (the Department s Circular HBF 518/PH 291 refers). Circulars issued by the Department s Private Health Industry Branch are available on the Department s Internet home page. The second tier benefits set the level of benefits payable for an episode of care. The benefit is calculated as 85% of the average benefits currently paid by the health fund for the performed episode of care (described using ANDRGs or principal procedure or diagnosis) in all comparable private hospitals or day hospital facilities, with which the health fund has a HPPA (or similar agreement), in the State/Territory in which the treatment is undertaken. If the fund has no HPPA in place in that State/Territory for such an episode of care, then the basic default benefit is payable. The Private Rehabilitation Working Group was formed in late 1998 in response to the following circumstances affecting the private rehabilitation industry: 1. Historically, medical rehabilitation has not been separated from acute health care episodes for classification and funding purposes. Over recent years as the industry has evolved and attention has been increasingly given to rehabilitation practice issues, there is a recognition that this lack of separation is inaccurate and has negative implications for the future identification, classification, costing, and funding of medical rehabilitation. Furthermore, there has to date been no application of a nationally consistent classification of rehabilitation episodes in the private sector. Rehabilitation classes used as a basis of payment of private hospitals by health funds have been variable and not mutually exclusive. Some States (NSW and Victoria) have developed and implemented their own classification systems for private rehabilitation. 4 Under Hospital Purchaser-Provider Agreements introduced in mid 1995, funds can negotiate different agreements with different hospitals. The basis of payment can be per diem, casemix or a blend. Private Rehabilitation Final Report Page 1

2. Until recently, few indicators had been produced, nationally collected or reported as to the unique characteristics, quality benchmarks, or varying patterns of resource consumption within rehabilitation. This too has led to intrinsic difficulties in quantifying costs and arriving at standard payment structures and definitions for private rehabilitation. 3. In its 1997 Report Private Health Insurance, the Industry Commission recommended that compulsory coverage for in-hospital rehabilitative and palliative care should no longer be required in every hospital table (Recommendation 6). The Commission argued that rehabilitation and palliative care are not inherently different to other forms of care, which do not have this form of protection from normal market forces. It argued that funds are providing adequate cover for all other forms of care, and there is no reason to believe that funds would abandon the market for rehabilitation and palliative care. The Commission further argued that retaining the existing mandatory minimum cover would be inconsistent with a deregulated product market, and does not protect consumers from substantial out-of-pocket costs when using the private sector for these forms of care. The Commission s inquiry elicited a wide range of responses to this issue. Funds were generally supportive of the Commission s recommendation to remove compulsory cover for rehabilitation care, arguing that they should have the freedom to decide whether or not to cover these types of care. However, many industry and community groups argued that these services should be protected because they are inherently different to other forms of care (subject to long term need for care and therefore less attractive to health funds because of higher drawing rates). They argued that consumers would be exposed to an unprotected environment for health care services, which consumers may perceive as unnecessary to cover. They further argued that giving funds the freedom not to cover these areas will lead to increasing premiums for the types of specialised products that would cover these forms of care (ie a form of risk rating, thus undermining community rating), and would increase pressure on the public sector through cost transfers. Some provider groups supported the development of appropriate admission criteria, and supported limiting the requirement to cover rehabilitation, psychiatric and palliative care to programs which applied those criteria. The Government decided in July 1997 that: a Second Tier Default Benefit would apply where there is no contract between a private hospital and a fund, but where there are informed financial consent and simplified billing arrangements in place and evidence of an appropriate level of quality and treatment; the requirement for funds to provide cover for in-hospital rehabilitation and palliative care in all hospital tables be continued, with guaranteed cover to be limited to care which meets appropriate hospital admission criteria developed between the funds, hospitals and clinicians. this arrangement would be reviewed in two years in conjunction with the review of compulsory cover for psychiatric care. The timetable for the Department s review of the Default Benefits arrangement is now scheduled for completion by the end of 1999. Private Rehabilitation Working Group The Private Rehabilitation Working Group s terms of reference are to facilitate the development of a nationally adopted classification system and funding models for private rehabilitation services by: Working to obtain agreement on a system for classifying patients by reviewing classification systems in Australia and overseas; Working to obtain agreement on a system which supports the measurement of outcomes in Private Rehabilitation Final Report Page 2

rehabilitation across all settings; Considering and recommending to the Minister an appropriate model of funding which may be linked to a classification system; Working to obtain agreement on the definition and boundaries of rehabilitation episodes within episodes of illness; Considering and recommending to the Minister issues in relation to implementation including an appropriate phasing for implementation of the classification and funding model; Considering and recommending the appropriate role for an Australian clearinghouse for a data set for rehabilitation; Recognising the rights of consumers and facilitating the provision of information to consumers on access to rehabilitation services and out-of-pocket costs (if any), and ensuring that the information is as transparent as possible. The Centre for Health Service Development at the University of Wollongong was commissioned to prepare this report, to recommend a preferred national classification system for private rehabilitation services, and to recommend a preferred payment model for private rehabilitation services linked to the classification system. The report has been prepared in close consultation with the Private Rehabilitation Working Group, and is intended to inform the Department s advice to the Minister for Health and Aged Care. Terms of Reference The Centre for Health Service Development was asked to: 1. Review the literature on rehabilitation classification systems in Australia and overseas (both systems in place and systems being proposed); 2. Provide clear reasons for recommending that any classification systems should not be further considered; 3. Demonstrate that any classification systems recommended are:? based on an agreed definition of rehabilitation? cost-effective, simple to administer and practical? able to be used for both clinical and funding purposes? robust, comprehensive and consistent in its treatment of care types? suitable for the collection of data sets, and suitable for benchmarking at the local, state and national level;? in line with international best practice; and? consistent with the collection of data on quality of care and patient health outcomes, and enable dissemination of this information to continuously improve quality for consumers. 4. Explore the issue of boundaries between stages of care (eg acute care compared to rehabilitative care); 5. Compare rehabilitation data in the public and private sectors; 6. Examine any trends in rehabilitation care; 7. Formulate appropriate outcomes measures for linkage with a classification system; 8. Ensure that recommendations are consistent with National Health Data Committee developments and legislative requirements at the Commonwealth and State levels; 9. Address the key issues involved in implementing the model. Private Rehabilitation Final Report Page 3

Statistical terms In order to understand the literature and the results presented later in this report, it is important to understand the relevant statistics of interest. Accordingly, this section provides a brief description of the key statistical terms. Casemix classifications are developed by use of a statistical method known as Classification and Regression Tree Analysis. Cost is used as the response variable. Explanatory variables are selected from the variety of demographic and clinical measurements that can be recorded for patients. The question of interest is Which of the possible explanatory variables best explains the cost of the care that different patients receive? The best classification tree is that which accounts for the largest proportion of variation in the cost of care, the response variable. The ultimate aim is to form distinct groups or classes, such that patients within each class are similar to each other, but different from patients in other classes. Similarity and dissimilarity between patients is measured by the cost of care, and groups are defined in terms of clinical and other attributes of the patients. The best classification is one that gives minimum variation within each class and maximum variation across classes. Reduction in variation within classes is normally measured by the Coefficient of Variation (CV). The overall classification model is assessed statistically by measuring the Reduction in Variance (RIV). This statistic is the R 2 of regression analysis. It can be interpreted as the proportion of variability in the response variable that can be accounted for by the model. Mathematically, it is the ratio of the variability between the groups (rather than within the groups) to the total variability. In summary, the higher the RIV and the lower the CV, the better the classification. Outliers are atypical cases. Regardless of the statistical performance of the classification, there will always be outliers. For statistical analysis, outliers are trimmed from the data set so as not to skew the results. Special rules are required for how to deal with outliers for payment purposes. Consultation program Consultation has been a very important part of this project and has complemented the literature review and the statistical analysis that was undertaken. Consultation occurred with the following groups and individuals as part of the project: Private Rehabilitation Working Group. Commonwealth Department of Health and Aged Care. National Private Hospitals Rehabilitation Group. Private Health Funds. State level consultations with health funds and providers as part of broader consultations with the industry organised by the Commonwealth. Rehabilitation Medicine Association. Australasian Faculty of Rehabilitation Medicine. Australian Geriatric Society. Australian Healthcare Association. Department of Veteran Affairs. Consumers Health Forum. Private Rehabilitation Final Report Page 4

Critical Issues for Consumers Consultation during the course of the project indicates that a range of issues are of critical importance to consumers 5. They are: 1. The provision of clinically appropriate care. Consumers want appropriate health care and do not want payment models to create financial incentives to provide inadequate or inappropriate care. 2. Access to appropriate care. If a trade-off has to be made between access and quality, the impact on consumers needs to be carefully considered and justified. 3. The payment model should include provision for auditing quality and outcomes. If a payment model contains incentives to reduce length of stay, there should be inbuilt mechanisms to monitor the impact on consumers and carers in terms of both quality and outcome. 4. Consumers with chronic conditions and those admitted to care directly from home should not be disenfranchised from receiving health care in the private sector. The payment model should not result in cost-shifting to the public sector nor should it result in consumers being denied appropriate care in the private sector. 5. Consumers want minimum or nil out-of-pocket expenses. 6. Consumers want their privacy protected. Whilst acknowledging that purchasers are entitled to information about the services they are paying for, consumers argue that this does not entitle the purchaser to confidential information about the patient. The consumer is entitled to know what information about them is being provided to the purchaser. 7. Consumers want to give informed consent and to make informed decisions about their entitlements. Signing a piece of paper at admission does not necessarily represent an informed choice. 5 The contribution of Ms Rosemary Miller, CHF representative on the PRWG to this section is acknowledged. Private Rehabilitation Final Report Page 5