A number of key observations were made during the Round 20 IFR. Specifically:
A number of key initiatives were implemented by jurisdictions that contributed to a more robust costing process for Round 20 submissions to the NHCDC, including: improved governance over the costing output in Victoria, Australian Capital Territory (ACT) and New South Wales (NSW) (NSW and ACT also improved linking of activity and feeder data); improved reconciliation processes in Victoria and Queensland; separation of Emergency and Inpatient episodes in Western Australia (WA); Victoria incorporated the submission of cost data for each phase of care for palliative care patients and improved the cost bucket matrix to better reflect types of costs; NSW improved the costing methodology for Teaching, Training and Research (TTR) and non-admitted patients and refined the Relative Value Units (RVUs) for the Emergency Department, oral health, Patient Transport Services and mental health; and ACT improved costing methodologies for acute, non-admitted services and TTR services.
The review of the reconciliation between the expenditure reported in the audited financial statements and the general ledger (GL) extracted for costing identified minor variances for seven of the 14 hospitals/LHNs sampled. All variances were considered insignificant to the NHCDC submission.
The review of the data flow from the hospital/LHN to jurisdiction identified variances for 10 of the 14 hospitals/LHNs sampled. All identified variances were considered insignificant to the NHCDC submission.
The review of the data flow from the jurisdiction to IHPA, identified variances for two of the 14 hospitals/LHNs sampled. All identified variances were considered insignificant to the NHCDC submission. Of particular note was the variance identified in Tasmania’s sampled hospital which related to resubmitted NHCDC data for the hospital post the completion of the site visit. IHPA reviewed the impact of this on the jurisdiction-level collection and considered it immaterial.
Hospitals/LHNs and jurisdictions made a number of adjustments to the financial data both pre and post allocation of costs to patients. KPMG relied upon the assertions made by hospital/LHN staff and jurisdictional representatives (and the information presented in the templates) in forming a view as to the reasonableness of the basis of the adjustments. The basis of most adjustments appears reasonable, with common exceptions noted for Teaching, Training and Research, depreciation, amortisation and other capital related expenditure, and blood products.
Feeder system information provided for all sampled hospitals/LHNs highlighted that the number of records linked from source to product was significant. The majority of feeder systems in all hospitals had at least a 90 percent link or match. The average linking ratio across all sampled hospitals/LHNs and their feeders was 99.15 percent.
Common variances were noted in pharmacy and diagnostic imaging systems, where the provision of services was outside the date range in the linking rules (such as repeat prescriptions being filled up to 12 months from the original encounter and where the activity related to services provided to external clients. Other issues for other feeder systems related to data quality at source.
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, jurisdictions have 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.
Findings and recommendations
The following findings and associated recommendations have been identified during the Round 20 IFR:
Unmatched/unlinked and out-of-scope activity
The review found that financial reconciliation processes are suitable for all jurisdictions and occur at the hospital/LHN level and also at the jurisdictional level. Hospitals/LHNs and jurisdictions made a number of adjustments to the financial data, including for unlinked/unmatched and out-of-scope activity. While the basis of these exclusions appears reasonable, it is important that the reasons for this unlinked/unmatched and out-of-scope activity are continually investigated and addressed if necessary. This recommendation was identified in Round 19 and is repeated here as it is a continual process to ensure appropriate treatment in future rounds.
Recommendation
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Hospitals and jurisdictions should continue to investigate reasons for unlinked/unmatched and out-of-scope activity to ensure appropriate treatment in future rounds.
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The Independent Financial Review
As jurisdictions and hospitals are continuously improving their reconciliation processes, linking of feeders and the utilisation of cost data for decision-making purposes, it is important the IFR also continues to evolve. Feedback during the Round 20 site visits suggested that jurisdictions see the need for further evolution of the IFR, to ensure it remains valuable and meets its intended objectives. The current scope of the IFR includes a reconciliation of expenditure and activity to ensure that all relevant costs/activity are included/excluded as necessary. However, it only considers that relevant hospital expenditure is allocated to patients, not how the expenditure is allocated to patients. How expenditure is allocated is extremely valuable to jurisdictions and IHPA to better understand the variances that exist between hospitals, locations, and jurisdictions.
The objectives of the Round 20 IFR are detailed in Section 1 of this report. Moving forward, KPMG considers it important that these objectives are maintained. However, there are measures that can be implemented both at the point of NHCDC submission to IHPA and via the scope of the future IFRs that can cement it as a learning tool which continues to add value to IHPA’s stakeholders.
IHPA has commenced the implementation of measures that will assist in addressing the first three objectives at the point of NHCDC submission. IHPA will require for future rounds:
A financial and activity reconciliation to be submitted with the NHCDC data for each hospital/costing site. This is currently being piloted for Round 20 and includes a summary of costing and adjustments made at the hospital/costing site and the jurisdiction levels.
A declaration statement from jurisdictions to confirm that they have applied the AHPCS, or identify where the standards were not applied and reasons therefore.
These measures are an important step for the IFR process and form a basis for considering changes to the scope of future IFRs.
Recommendation
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In addition to these implemented measures, IHPA may wish to consider adding to the scope of the IFR. Examples of additional review methods are summarised below:
Cost methodology review - a series of templates could be designed to demonstrate the cost allocation approaches within various health services. This will aim to promote dialogue and discussions between health services/jurisdictions, demonstrate alignment with the AHPCS and further systems intelligence regarding feeders and cost allocation.
Sample patient reconciliation at the intermediate product level – the sample patient testing can be improved by targeting a particular cohort of patients (such as non-admitted patients from a range of Tier 2 clinics) and requesting that the intermediate product costs per patient are presented.
Measuring cost completeness - include sample testing of like patients across various health services to measure the underlying costs at intermediate product level to review the types of resources that comprise patient level costs. This could be mapped to the clinical pathway of this cohort to assist in measuring the degree of cost completeness within costed records.
KPMG still considers it important that the IFR includes reviews of the financial and activity data as part of the IFR, however, it may not need to be as detailed as per the current scope. IHPA may wish to consider the following:
Reviewing costing sites, rather than hospitals. For example, in NSW, QLD, WA and SA, costing is undertaken at the Local Health Network level, rather than at the hospital level. This would simplify the reconciliations required from jurisdictions at NHCDC submission and may require a reconsideration of the sampling framework that was piloted in Round 20.
Review of financial and activity data on an exceptions basis for each hospital/health service (i.e. where there are discrepancies in the reconciliations provided by jurisdictions at the point of NHCDC submission).
IFR templates that detail adjustments (such as WIP, out of scope items etc.) to the financial and activity data. KPMG can then target review questions at items that require clarification, rather than detailed line-by-line questioning of the templates.
Simplified reporting of application of the AHPCS. This would be on an exceptions basis, rather than for each standard/business rule and will be informed by the declaration accompanying the NHCDC submission.
