Presentation at a forum I organised on Money Follows the Patient hospital payment systems 4 September 2012 John Armstrong is actuary with Aviva in Ireland

1. “Price & Tariff Setting: Considerations for
Ireland”
John Armstrong
Presentation at RCSI, Dublin
4th September 2012
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2. CONTENTS
1. Introduction
2. Objectives in Price and Tariff Setting
3. The Building Blocks for Price Setting
4. Setting the Price
5. Our Initial Challenges
Discussions points are outlined throughout
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3. INTRODUCTION
Key reasons why price setting is an important topic
1. Procedure based pricing project is under development
 Initial findings expected to be issued by year end
2. Work on introducing Universal Health Insurance has commenced
 Being able to trace patient services and contract central to it
 Discussion point: If we want a competitive provider
contracting model then we need the ability of each
medical provider to determine prices for each service.
3. Need to get more out of scarce resources within health system
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4. GROWTH IN HEALTH EXPENDITURE 1998-2003
The growth we have had in health expenditure per capita compared to the rest of the EU,
combined with our economic position means changing what how we reimburse to drive
incentives is fundamental to real health reform,
Growth in per capita expenditures across Europe
7.0%
6.2% 1993-2008
5.0%
4.8%
4.6%
4.2%
3.9% 3.8% 3.8% 3.7%
3.5% 3.4% 3.3% 3.3%
2.9% 2.8% 2.8%
2.2% 2.1%
0
Czech Republic
Germany
Hungary
Slovenia
Finland
Italy
Poland
Greece
OECD
Austria
France
Sweden
Portugal
Spain
Belgium
Denmark
Ireland
United Kingdom
Netherlands
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Source: OECD Data File (2010)

5. OBJECTIVES IN PRICE SETTING
Key Objectives (Summary)
1. To allocation resources
 Effective price setting can reallocate resources between providers based upon the
needs of their patients leading to down-stream efficiency benefits
2. Method of Reimbursement
 Key part of this is being able to trace individual patient services and determine
base price
3. To Improve Efficiency
 Studies from many countries suggest that there is both a direct and indirect
efficiency gain from moving to case-mix based payments (activity based
payments), e.g. UK 2% reduction in length of stay from same treatment as result
of PbR, Australia similar estimates
 Indirect benefit as with more data comes better decision making
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6. OBJECTIVES IN PRICE SETTING
Key Objectives (Summary)
4. Improve Quality
 Price setting mechanism can be used as basis for quality
improvement
 E.g. Quality based payments – Pay for Performance
 Growing evidence that league tables influence quality
outcomes
Discussion points:
1. How can we develop quality outputs within our price setting
mechanism that will encourage the provision of quality care
2. Could we deliver the same efficiency benefits in Ireland?
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7. HIGH LEVEL PRINCIPLES UNDERPINNING PRICE
ANDTARIFF SETTING
• All part of price setting should be
Transparency transparent including the data Key strategic Questions
and the methodology used
1. How can we improve
transparency in our
• Any system should encourage
Efficiency current system?
the efficient use of resources
2. How can trace
• Quality should be encouraged as individual patients
Promoting general concept with good quality throughout the
Quality providers being rewarded & poorer
quality providers being penalised. system?
3. Do we need to price
• Price setting should be based per episode of illness
Patient-Based upon patient level characteristics
rather than provider based
(per diagnosis) or per
episode of treatment?
International • Methodology adopted should
practice reflect best international
standards as far as possible 7

8. KEY PRINCIPLES UNDERPINNING PRICING
Price • Prices should encourage best
practice care Key strategic Questions
Harmonisation
1. Do we need to integrate
Scope of • Prices should encourage best public and private
Benefits practice care providers in terms of
determining national
prices?
Public Private Pricing should not change
Neutrality incentive for patients to be 2. If so, how should it be
treated public or private done?
• Competition should be 3. How can we facilitate
Competition encouraged
competition between
providers
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9. BUILDING BLOCKS OF PRICE SETTING
The framework for determining prices and outputs starts with a clear
understanding of the objectives and then having sufficiently robust data
to determine an adjusted base price and other outputs
Key strategic Questions
Principles & Objectives 1. Do we want a national tariff or
individual prices?
Patient Pricing 2. Do we use sample data or the entire
Classification Methodology picture?
3. How do we develop coding standards
Reliable Cost
Adjustments for non-hospital treatment, e.g. Mental
Data
health?
Activity Based 4. Is there a need to introduce national
Costing ‘Chart of Accounts’ for hospital cost
Standards accounting to allocate resources?
5. Who undertakes this analyses and
Pricing Basis
what is the Governance structure to
support such a system?
6. What are the other outputs? 9

10. SETTING THE PRICE
A crucial question for consideration is what services are within the
scope of any pricing system?
Key Issues (Summary)
1. Scope of Services
 Hospital: Use of DRG good starting but not suitable for all treatments
 Emergency: Urgent Care Pathways
 Non-Hospital Care
2. High Cost Areas
 How should how cost items be handled, e.g. Prosthesis, High cost drugs
Discussion points:
1. Given that DRG system is not used in private hospital system how
can we get a system-wide view?
2. What treatments are absolutely essential to price in the first
instance and can a broad approach be used for other treatment? 10

11. AT WHAT LEVEL SHOULD THE PRICE BE SET?
To determine a national tariff it will be important to choose a basis that is realistic but does
not encourage inefficient use of resources. It should be also consistent with appropriate
medical practice.
Key Issues (Summary)
 Average – Does not encourage efficiencies?
 Best practice
 Below average, e.g. Trimmed by percentile
Discussion points:
1. We need to be consistent with the best clinical pathways for care
in determining prices?
2. By using the average current in-efficiencies are being replicated
into future periods
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12. ADJUSTMENTS TO DETERMINE THE BASE PRICE
Any base price will need to be adjusted to allow for changes going
forward
Key Issues (Summary)
1. Change in mix of case
2. Indexation for growth in utilisation rates
3. Indexation for cost increases
4. Changes in the population profile including ageing
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13. OTHER ISSUES TO CONSIDER
There are many other issues that need to be considered as part of the
calculation process.
Key Issues (Summary)
1. Allowance for Capital Costs
2. Medical Education
3. Coding of certain types of care, e.g. Mental Health Care
Discussion points:
1. Given that medical education is both a significant cost
to the health system and a source of cheap labour
how it is treated in the calculations must be carefully
considered
2. This is particularly relevant to large teaching hospitals
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14. OTHER ISSUES TO CONSIDER
There are many other issues that need to be considered as part of the
calculation process.
Key Issues (Summary)
4. Frequency of data collection, e.g. Quarterly or Annually
5. Validation of data
6. Use of many different accounting / patient systems in hospitals
7. Differences in distribution of costs
 By Length of Stay
 By Hospital
 By Patient – Cherry Picking needs to be discouraged
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15. INITIAL CHALLENGES – KEY MILESTONES
Key milestones
1. Generate National Health Accounts
2. Identify Scope of Benefits to be Included akin to establishing
National Standardised Benefit Package
3. Create National data set
 Discussion point: Identify all primary sources of data
within the health system & consolidate into central
repository
4. Extend coding beyond ICD / DRG System, e.g. Primary care,
National Drugs Coding & Formulary
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16. INITIAL CHALLENGES – KEY MILESTONES
Key milestones
5. Establish Cost Accounting Standards at National Level
 Discussion point: Potential to standardise the
accounting systems within all hospitals
6. Identify sample ‘Proof of Concept’ hospitals & other providers
7. Introduce Patient Costing Software within these institutions
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17. INITIAL CHALLENGES – KEY MILESTONES
Key milestones
8. Develop a ‘Pay for Performance’ framework with identification
of key output measures
 Should be extend to pricing setting – Bonus payment
 Discussion point: Could be similar to Quality &
Outcomes Framework (QOF) for GPs in United
Kingdom based upon clinical, organisational, patient
experience & additional services
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18. OUR INITIAL CHALLENGES – KEY MILESTONES
Key milestones
9. Establish National Pricing Authority for Health
10.Determine national efficient price
11.Consider extension beyond central tariff
12.Individual contracting for each public hospital as key part
for introduction of provider competition under UHI model
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