Nhcdc round 19 Independent Financial Review

Application of AHPCS Version 3.1

The following section summarises WA 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

The selected hospitals demonstrated through the templates and interview process that costs are reported against admitted acute, emergency, sub-acute, non-admitted, and other products.

It was noted that costs are also created for non-patient products (such as unlinked records) and TTR products. These records with costs are not submitted to the NHCDC.

2. SCP 2.003 – Product Costs in Scope

The WA reconciliation process for financial data used for costing purposes was demonstrated through the interview process. It was also demonstrated 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.

Blood products are not included in the costing process, as they are centrally held by WA Health and not allocated to AHSs.

3. SCP 3.001 - Matching Production and Cost

The application of this standard was demonstrated during the interview and an excel file was produced from the costing system which outlined all transfers and offsets utilised.

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

The selected hospitals were 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. Overhead statistics are applied in accordance with the AHPCS Version 3.1where possible.

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

The application of this standard was demonstrated in the templates. Both WA Health and the selected hospitals provided an overview and documentation of their internal reconciliation process, which demonstrated the allocation of costs to products.

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

Discussions with representatives from the selected hospitals demonstrated that commercial business entities and shared services did not exist.

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

There was no offsetting of costs with revenue with the exception of salaries and wages recoups from internal and external clients.

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

Based on discussions during the review, WA Health and the selected hospitals complete a final reconciliation of its costing system to source documentation. The process appears robust. A variance of $12,419 was noted in the reconciliation of Hedland Health Campus. This variance was 0.001 percent of the total GL for WACHS.

9. GL 2.004 - Account Code Mapping to Line Items

WA Health representatives indicated that total costs were mapped to the standard specified line items; this was reflected in the hospital templates submitted.

Blood products are not included in the costing process, and are therefore not mapped to the specific line item.

10. GL 4A.002 – Critical Care Definition

Royal Perth Hospital as a major tertiary provider operates a standalone Intensive Care Unit (ICU) and standalone Coronary Care Unit (CCU). All direct costs associated with the ICU and CCU are recorded in dedicated cost centres and activity for each is separately identifiable for costing purposes. Critical care costs are captured in accordance with the applicable standard.

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

Costs are allocated to public and private patients in the same manner. This includes costs associated with pathology, medical imaging and prosthesis. Private patient revenue is not offset against any related expenditure.

Costs associated with pathology and medical imaging, for public and private patients are reflected in the AHS 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 is consistent with the principles of the standard which indicates that the true patient level data cost incurred for public and private patients treated by the AHS should be reflected.

Medical officers are paid an allowance in-lieu of private practice arrangements, i.e. there is limited use of private practice funds to supplement the employment costs. These employment costs are allocated to public and private patients.

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

Patients are allocated costs based on their consumption of resources for that reporting period. Where costs are incurred in prior years, only the costs for patients admitted in 2014-15 are included in the final costed data and NHCDC submission.

5. Conclusion

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

• 
  WA Health made a major change to the costing process since the Round 19 NHCDC submission. Emergency Department encounters can now be reported separately to the inpatient episode. In previous rounds of the NHCDC total costs for emergency and subsequent inpatient admissions were reported as single episodes.
  
• 
  There were variances between the GL used for costing and the audited financial statements for each AHS. South Metropolitan AHS (Royal Perth Hospital) had a $2.54 million variance related to reclassification of revenue to expenditure in the GL. WACHS (Hedland Health Campus) had a minor variance of $5,767.
  
• 
  The financial reconciliation demonstrates the transformation of cost data from the original GL extract for each AHS through to the final NHCDC submission for the respective hospitals. Major inclusions to the original GL include costs related to services provided to the AHS and funded centrally by WA Health (such as shared services, licensing fees, HR services, parking etc.). Major exclusions from the original GL data include the removal of other hospitals and services in the respective AHS, internal and external purchasing recoups and special purpose accounts.
  

• 
  WA Health excluded expenditure related to WIP, system-generated patients, unmatched records and teaching, training and research. The largest exclusion related to teaching, training and research for both hospitals.
  
• 
  The basis of the adjustments made by the hospitals and WA Health appears reasonable, with the exception of:
  
• 
  Teaching, Training and Research (all hospitals). The exclusion of these costs may affect the completeness of the NHCDC.
  
• 
  Blood products are not costed at WA sites as the expenditure is held in WA Health cost centres and not allocated to AHSs. The exclusion of this expenditure may affect the completeness of the NHCDC.
  
• 
  WA Health and South Metropolitan AHS should continue to investigate the reasons for unlinked/unmatched activity to patient episodes in future rounds.
  
• 
  A variance of $12,419 was noted in the reconciliation of Hedland Health Campus. This variance was 0.001 percent of the total GL for WACHS.
  
• 
  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 100 percent. 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 Royal Perth Hospital and Hedland Health Campus reconciled to IHPA records.
  

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, WA 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.