Key messages

  • AN-SNAP v4 based funding model used from 2016-17. 
  • Episodic funding approach for rehabilitation and geriatric evaluation and management (GEM)
  • Bed day funding approach for palliative care and maintenance care
  • Episodic funding based on an additive boundary policy, with inlier boundaries set a +/- four days from the average length of stay
  • The 2016-17 funding model is constructed using 2014-15 Victorian cost data with targets set using activity data from 1 Mary 2015 to 29 February 2016.

Summary of funding policy

AN-SNAP based funding model

The funding model is based on the AN-SNAP v4 classification system. The model uses 94 of the classification system’s classes across four care types (rehabilitation, GEM, palliative care and maintenance care). Each class has been allocated a cost weight to determine the level of funding.

Rehabilitation and GEM

Rehabilitation and GEM activity is reimbursed on an episode basis, that is, each separation is counted and funded. Palliative care and maintenance care is reimbursed on a bed day basis. For the episodic funded care types, the funding model describes an inlier length of stay by defining a low and high boundary point. The boundary points are defined in a consistent manner across all classes, with the low boundary point being four days less than the average length of stay and the high boundary four days higher than the average length of stay for the class.

Determining inlier / outlier status and calculating episode funding

Under episodic-based funding, episodes that have a length of stay shorter than the low boundary (low outliers) receive the published cost weight (multiplied by the price) for each day of care. Inlier episodes receive one payment regardless of the length of stay that equals the published cost weight multiplied by the price. Reimbursement for high outlier episodes comprises an inlier payment (calculated the same as for an inlier episode) plus a high outlier payment that is equal to the number of days over and above the high boundary multiplied by the published high outlier cost weight and multiplied by the price.

Palliative and maintenance care

The model provides bed day weights for palliative and maintenance classes. For maintenance care, the bed day cost weight is the same regardless of the class. The cost weights for palliative care differ only for the phase of care component of the classification. For each palliative care episode, the patient may be classified into multiple classes as their phase of care changes. Palliative care is the only care type which allows sub-episodic class changes. For all other care types, the patient stays in the same class for their entire episode of care.

Calculating bed day funding

Under bed day funding reimbursement for maintenance care is equal to the number of days in the episode multiplied by the cost weight (multiplied by the price). For palliative care, the total reimbursement is determined by summing the reimbursement for each phase (if there are two or more), where the funding for each phase is calculated by multiplying the number of days in the phase by the cost weight (multiplied by the price).

Cost weight construction

The cost weights for the model are built using the cost data reported by Victoria health services each year. The cost weights provide a relative comparison between classes of the average level of resources used by health services to deliver an episode, or day, of care.

Activity targets

The targets provided to each health service are based on their activity reported to the department each year. The activity is used to understand the mix of patients across the classes and the total number of episodes they are able to undertake. From this information the department calculates a target for the health service. The target is the sum of the cost weights across each admitted subacute episode of care for a health service. When this is multiplied by the price, it provides the total annual funding the health service will receive.

Justification for the funding policy approach

The funding policy for admitted subacute is based on:
  • Episode-based funding approach for rehabilitation and GEM
  • AN-SNAP v4 classification
  • +/- 4 day additive boundary policy
  • Bed day cost weights for palliative and maintenance care

Episode-based funding approach

The department is continuing the move towards funding episodes of care and not days of care through the introduction of a new funding approach from 2016-17. The move to episode-based funding is to provide further incentive for the system to find further efficiencies.

The experience of the department is that the episodic funding approach used for admitted acute activity has realised significant efficiency gains. The structure of (dis)incentives within episodic funding illustrates how the funding policy continually (dis)encourages (longer) shorter lengths of stay.

Costs and funding accrued by length of stay under an episode-based funding model

Figure 1: Cost and funding accrued by length of stay under an episode-based funding model.

Figure 1 shows costs and funding accrued by length of stay under an episode based funding model. Costs are lower than funding for episodes that are low outliers or for episodes with a length of stay in the lower half of the inlier boundary. When episodes are longer, the health service will have, on average, costs that are higher than the total funding received. This illustrates how the funding model can be used to reward shorter lengths of stay and provide a modest disincentive for longer lengths of stay.

AN-SNAP v4 classification

The department is using the AN-SNAP v4 classification system as the basis of its episodic funding approach because it is the best in the world for grouping subacute patients into clinically meaningful groups. The first version of AN-SNAP was developed in 1997 and since that time the University of Wollongong has made evidence based and clinically informed improvements to the classification. The current fourth version reflects contemporary models of care and has been constructed using recent cost and resource use data directly sourced from Australian settings, including Victoria.

Boundary policy

The boundary policy is the set of parameters used to define where the high and low boundary points will lie. The role of the boundary policy is to share the financial risk between health services and the department. If the boundary policy defines a wide inlier length of stay range, the risk is proportionally borne more by health services because a larger portion of episodes will receive the one funding amount. If the boundary policy defines a narrow inlier area, the department will bear more financial risk as it will pay a bed day price for more patients which reimburses the health service for each day of care.

The boundary policy chosen spreads the financial risks. This can be seen by the proportion of rehabilitation and GEM episodes that are inlier and outlier and the proportion of costs that are inlier and outlier.

Table: Proportion of episodes and costs that fall into the different episode categories under a +/- four days additive boundary policy

Care type
Low outlier Inlier 
High outlier 
Costs (%) Episodes (%) Costs (%) Episodes (%) Costs (%) Episodes (%)
Rehabilitation 19 39 28 35 52 26
GEM 22 48 21 23 56
Bed day costs for palliative care and maintenance care

The department did not have sufficiently accurate cost data for palliative care phases of care and maintenance care episodes that allowed the development of phase of care / episodic weights for these care types. In order not to delay the introduction of the funding model, the department decided to retain bed day costs for these two care types. This approach mirrors the approach that has been in place for numerous years prior to the shift to this funding approach.

The department will move to phase of care / episodic costs weights for the palliative care and maintenance care classes when the cost data from the health services is available and appropriately structured. Costs at the phase level are required for palliative care.

Further information

Assistant Director, Continuing Care
Phone: 61 3 9096 1390
Email: Rosangela.Merlo@dhhs.vic.gov.au