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 I) to the Round 19 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, Training and Research is costed using PFRACs by the hospitals, but is excluded prior to NHCDC submission.

2. SCP 2.003 – Product Costs in Scope

SA Health representatives demonstrated through the interview process that the SA Health reconciliation process for financial data is used for costing purposes. 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. Unlinked activity is not submitted to the NHCDC.

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.

11. GL 4A.002 – Critical Care Definition

One of the hospitals reviewed has a dedicated ICU, the other had a combined ICU/HDU. The direct costs associated with ICU are allocated to a discrete cost centre and those costs are only applied to patients who used the ICU. The costs associated with the combined ICU/HDU are allocated to all patients that use the facility. 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.

Medical costs are allocated to private patients in the same manner as public patients. Private patient revenue is not offset against any related expenditure.

The majority of medical consultants use private patients’ generated revenue to supplement the employment costs. These employment costs are not allocated to public and private patients.

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 19 IFR are summarised below:

• 
  SA Health has not made any significant changes to the costing process since the Round 18 NHCDC submission. Costing data for non-admitted patients was submitted for the first time in Round 19.
  
• 
  The review of the financial reconciliation templates for Royal Adelaide Hospital and The Queen Elizabeth 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 insignificant. The major inclusions to the original GL data related to costs centrally managed by SA Health (ICT and Procurement services). Exclusions from the source GL data included costs associated with other hospitals and services in the LHN, state-wide services hosted by the LHN, SA Pathology and SA Medical Imaging,
  
• 
  There was a variance of $64,952 noted between the LHN GL data used for costing and the audited financial statements of the LHN. This equates to a variance of 0.003 percent of the expenditure in the audited financial statements.
  
• 
  The basis of the adjustments made by the hospitals and SA Health appears reasonable, with the exception of:
  
• 
  Royal Adelaide Hospital excluded expenditure related to the gain and loss of sale of capital infrastructure within the LHN. This expenditure should be included in accordance with the AHPCS Version 3.1.
  
• 
  SA Health excluded Teaching, Training and Research prior to submission to the NHCDC. The exclusion of these costs may impact on the completeness of the NHCDC. SA Health is awaiting the outcome of the TTR project undertaken by IHPA to provide sufficient guidance on how to cost TTR.
  
• 
  Both hospitals and SA Health should investigate the reasons for unlinked activity to ensure appropriate treatment in future rounds.
  
• 
  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 activity data submitted by the hospitals was adjusted by the jurisdiction for WIP, activity with patient level data unavailable, unlinked to Admitted Patient Care data and removal of Tier 2 records related to diagnostic services in a non-admitted setting.
  
• 
  A variance was observed between the costs submitted by SA and that received by IHPA, due to SA’s new submission method containing more decimal places than permitted by IHPA’s automated collection portal. IHPA reviewed the impact of this on the jurisdiction-level collection and considered it immaterial and less than 0.02 percent of total jurisdiction expenditure (Royal Adelaide Hospital - $119,567, The Queen Elizabeth Hospital - $60,172).
  
• 
  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 89 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. SA Health did not apply any escalation factors to the costs associated with WIP for prior years as part of the Round 19 submission to the NHCDC. It was noted that SA Health had applied an escalation factor for previous submissions and the escalation costs were removed for the Round 19 submission.
  
• 
  The five sample patients selected for review for Royal Adelaide Hospital and The Queen Elizabeth Hospital reconciled to IHPA records, with only minor variances noted (all less than $1) for the five patients at each hospital.
  

Based on discussions held during the site visits, and a review of the financial reconciliations provided, SA Health has robust reconciliation processes in place. As such, nothing was identified to suggest that the financial data is not fit for NHCDC submission. Furthermore, the data flow from the jurisdiction to IHPA demonstrated no unexplained variances.

6.