Nhcdc round 19 Independent Financial Review

Application of AHPCS Version 3.1

The following section summarises SA Health’s application of selected standards from Version 3.1 of the AHPCS (outlined in Appendix C) to the Round 20 NHCDC submission.

1. SCP 1.004 – Hospital Products in Scope

SA Health representatives completed templates for this review for hospitals and demonstrated through the templates and interview process that costs are reported against admitted acute, emergency care, non-admitted and sub-acute products. Teaching and Research costs are costed using PFRACs, but are removed prior to submission to the jurisdiction.

2. SCP 2.003 – Product Costs in Scope

The SA reconciliation process of financial data used for costing purposes was demonstrated through the interview process. It was also stated that all products are costed, which includes costs assigned to products in scope for the NHCDC, unlinked activity, and costs assigned to system-generated patients where there is no activity.

3. SCP 2B.002 - Research Costs

Costs are allocated to Research using PFRACs however; these costs are excluded prior to submission of the NHCDC to IHPA.

4. SCP 3.001 - Matching Production and Cost

Application of this standard was demonstrated during the site visit and an excel file was produced from the costing system which outlined all reclass rules.

5. SCP 3A.001 - Matching Production and Cost – Overhead Cost Allocation

The jurisdiction was able to demonstrate that overhead costs were fully allocated to direct patient care areas via the pre allocation and post allocation data included in the templates.

6. SCP 3B.001 - Matching Production and Cost – Costing all Products

The application of this standard was demonstrated in the template and SA Health provided an overview of their internal reconciliation process, which demonstrated the allocation of costs to products.

7. SCP 3C.001 - Matching Production and Cost – Commercial Business Entities

Based on discussions with SA Health and hospital representatives during the review, in addition to an excel file produced, commercial business entity expenditure was excluded in accordance with the standard.

8. SCP 3E.001 - Matching Production and Cost – Offsets and Recoveries

The application of this standard was demonstrated in the template and confirmed during the consultation process. Recoveries were excluded from the expenditure base for both hospitals. There were no offsets identified.

9. SCP 3G.001 – Matching Production and Cost – Reconciliation to Source Data

Based on discussions during the review, SA Health completes a final reconciliation of its costing system to source documentation.

10. GL 2.004 - Account Code Mapping to Line Items

SA Health mapped total costs to the standard specified line items except for Blood products. These costs are not allocated as part of the costing process and held by SA Health and not allocated to hospitals.

11. GL 4A.002 – Critical Care Definition

One of the hospitals reviewed has a dedicated NICU and PICU. The direct costs associated with ICU areas are allocated to a discrete cost centre and those costs are only applied to patients who used the respective ICU. Critical care costs are captured in accordance with the standard.

12. COST 3A.002 – Allocation of Medical Costs for Private and Public Patients

SA Health does not make specific adjustments to the costing methodology, based on the financial classification of the patient. Applicable costs are allocated to private patients, including pathology, medical imaging and prosthesis, in the same manner as public patients. Private patient revenue is not offset against any related expenditure.

Costs associated with medical imaging services, for public and private patients are reflected in the Hospital GL. These costs are distributed to all patients, public and private, based on the MBS item number for the service utilised by the patient. This approach aligns with the principles of the standard.

Where medical consultants use private patient generated revenue to supplement their employment costs, the portion of the salary generated through private patient revenue is not allocated to patients, public or private.

13. COST 5.002 - Treatment of Work-In-Progress Costs

Discussions revealed that patients are allocated costs based on their consumption of resources for that reporting period. Where costs are incurred in prior years, these are also included in the final costed data and NHCDC submission.

5. Conclusion

The findings of the South Australian Round 20 IFR are summarised below:

• 
  SA Health has not made any significant changes to the costing process since the Round 19 NHCDC submission.
  
• 
  There were minor variances between the GL used for costing and the audited financial statements (based on the LHN data) for each hospital reviewed ($25,986 for WCHN and $267 for CHSALHN). These variances were due to reclassification of revenue to expenditure in the GL and rounding.
  
• 
  The review of the financial reconciliation templates for the Women’s and Children’s Hospital and the Mount Gambier Hospital, demonstrated the transformation of cost data from the source LHN GL to the final NHCDC submission to IHPA. There were minor variances noted through the reconciliation process however these were considered immaterial. The major inclusions to the original GL data related to costs centrally managed by SA Health (ICT and Procurement services) and state wide services overheads associated with Medical Imaging, Pathology and Pharmacy. Exclusions from the source GL data included costs associated with other hospitals and services in the LHN. Post allocation adjustments related mostly to teaching, research and out of scope activity. SA Health made adjustments predominantly for current and prior year WIP.
  
• 
  The basis of the adjustments made by the hospitals and SA Health appears reasonable, with the exception of:
  
• 
  Women’s and Children’s Hospital excluded expenditure related to the disposal of capital assets. This expenditure should be included in accordance with the AHPCS Version 3.1.
  
• 
  Both hospitals excluded Teaching, Training and Research (no research recorded at Mount Gambier Hospital) prior to submission to the NHCDC. The exclusion of these costs may impact on the completeness of the NHCDC.
  
• 
  Blood products are not costed in SA hospitals as the expenditure is held in SA Health cost centres and not allocated to hospitals. The exclusion of this expenditure may impact on the completeness of the NHCDC.
  
• 
  Bad and Doubtful debts. The AHPCS is silent on the specific inclusion or exclusion of bad and doubtful debts. Bad and doubtful debts expenditure relates to the provision for debts that are unrecoverable from patient/clients. It does not have an impact on the cost of patient services provided by the hospital.
  
• 
  The hospitals made no adjustments to activity prior to sending to the jurisdiction. The activity data submitted by the hospitals was adjusted by the jurisdiction for WIP, activity with patient level data unavailable and non-ABF activity e.g. Women’s Assessment Unit.
  
• 
  The number of records linked from source to product at both hospitals reviewed was significant. For both hospitals, the linking percentage for all feeders was greater than 91 percent, apart from the Allied Health feeder for the Mount Gambier Hospital. This suggests that there is robustness in the level of feeder activity reported back to episodes.
  
• 
  WIP was treated in accordance with the COST 5.002 of the AHPCS Version 3.1.
  
• 
  The five sample patients selected for review for Women’s and Children’s Hospital and the Mount Gambier Hospital reconciled to IHPA records (with the exception of a $0.01 variance for one record at Women’s and Children’s Hospital).
  

The IFR is conducted in accordance with the review methodology detailed in Section 1.3 of this report. Based on this methodology and in accordance with the limitations identified in Section 1.1, SA Health has suitable reconciliation processes in place and the financial data is considered fit for NHCDC submission. Furthermore, the data flow from the jurisdiction to IHPA demonstrated no unexplained variances.