Key messages

  • Funding for emergency department activity is aligned with the patient pathway 
  • Non-admitted emergency funding is predominantly an input funding approach.  Most funding provided through the availability component.  Funding also provided based on the volume of activity.
  • Health service cost data is used to determine the share of the funding. 
  • Initial rebasing will be comprehensive with a re-calculation of the split between availability and activity components.

Emergency department pathways align with funding policy

Funding approaches aim to align the incentives for payment with the objectives of the clinical area.  Reimbursement for patients that present to an emergency department follows the clinical pathway.  Patients that go on to be admitted to the health service after their emergency department presentation are funded through the admitted funding model (WIES), while patients that return to the community are funded through a separate approach called the Non-Admitted Emergency Services Grant (NAESGs). Approximately 70 per cent of patients who present to an emergency department are not subsequently admitted for inpatient care.

In 2015-16 the method of calculating each health service’s share of NAESGs was changed as well as the total amount of funding available for NAESGs funded patients.  Information below explains why the change was undertaken and how indexation, rebasing and growth funding will be applied to NAESGs funding.

NAESGs funding from 2015-16

The fundamentals of NAESGs funding has not changed.  There remains two pools of funding that are divided across health services that provide emergency department services.  The two funding pools continue to reimburse health services for costs associated with being available and for their activity.  The funding is not tied to specific outputs – such as with large portions of admitted activity.  The result of the changes is a much closer link between costs and funding for non-admitted emergency department activity.

The three things that have changed with the new NAESGs approach are

  • The total funding being allocated to the overall NAESGs grant
  • The proportion of funding in the availability and activity pools
  • The data that is used to allocate the funding in each pool to health services

Total NAESGs funding

The total amount of funding available to reimburse non-admitted emergency patients has reduced in 2015-16 compared to the previous year.  The reduction is a result of aligning the total funding with the reported costs for non-admitted patients.  The total funding now excludes patients counted and funded within other funding models.    

The split of funding between admitted (WIES) and non-admitted (NAESGs) patients needed to be adjusted because of changes to the admission policy.  Prior to 2012-13 the admission policy allowed non-admitted patients to ‘earn’ WIES when presenting and receiving all treatment in the emergency department.  This was ceased in 2012-13 and the NAESGs funding pool was increased to reimburse the anticipated higher number of non-admitted patient presentations. 

This admission policy change, along with others, relaxed the criteria and allowed a larger group of patients to be admitted.  This has led to more admissions with an increase in short-stay-unit activity, which is WIES funded, representing a large part of the increase.  The changed admission practice in the sector therefore meant the NAESGs funding pool was too large when compared to the total number of patient presentations, and their total costs, and the WIES pool was too small.

This situation has been addressed in 2015-16, so that NAESGs funding has been reduced and now equals the total reported costs for patients that are not eligible for admission (non-admitted, transfers, died in ED).  The WIES funding pool has been increased.

Proportion of funding in the availability and activity pools

Prior to 2015-16 there was a 50:50 split in the NAESGs funding for availability costs and activity costs.  In 2015-16 this was changed to be an 80:20 split between availability and activity.

This occurred because approximately 80 per cent of the costs for NAESGs funded patients are associated with elements that do not vary depending on the amount of activity.  Clinical and administrative labour costs significantly contribute to these ‘base’ costs.  These costs are incurred irrespective of the number of patient presentations because emergency departments are expected to open at all times.  The new ratio has some validity when the alignment between cubicles and reported ‘base’ costs are compared (figure 1)

Data to determine each health service’s share of funding pools

As explained above the data used to determine the 2015-16 ‘availability’ component was the reported labour costs.  This effectively meant the ‘availability’ component was input funded in 2015-16 with NAESGs funding matching costs.  This represents a change, where previously availability funding was allocated to a health service based on an activity or output measure (total non-same-day emergency activity) not an input cost.

Prior to 2015-16, the activity component was provided to health services in proportion to their share of the total (triage category) weighted emergency presentations.  In 2015-16 the weighting has been removed from the calculation as there is little evidence of an alignment between variable costs associated with treatment and the triage category.  Diagram: relationship between number of ED cubicles and 2014-15 reported 'base' costs for ED activity.

Figure 1: Relationship between ED cubicles and reported costs 

2015-16 NAESGs funding approach

The NAESGs funding approach has full-cost-recovery for the system, but individual services may have higher or lower funding compared to their costs.  The difference for health services relates to the difference between their average activity costs and the overall system average activity costs. 

Figure 2 provides a summary of NAESGs funding calculation. 

  • The total funding pool corresponds to the total reported costs for non-admitted emergency department patients in the most recent year. These costs are adjusted to the current year's prices by applying an average indexation factor which represented the same average level of cost change between the two years.
  • The availability funding pool is 80 per cent of the total funding pool.  Each campus is allocated a share of the availability funding pool that equals 100 per cent of their total reported costs for the salaries of clinical and administrative staff.
  • The activity funding pool is 20 per cent of the total funding pool.
  • The total amount of unweighted non-admitted emergency department activity is determined by summing the activity at each campus.  The percentage of the total activity that each campus contributes to the total is calculated.  This percentage is applied to the activity funding pool to identify the share of funds each campus receives from the funding pool.
  • Funding calculated for each campus of a health service is combined to give the overall funding result.

Diagram representing the 2015-16 NAESGs funding calculation 

Figure 2:  Diagram representing the 2015-16 NAESGs funding calculation

Rebasing

The NAESGs funding approach will not remain a full-cost-recovery model into the future.  This would require uncapped funding, which is not feasible. Rebasing will occur annually in order to distribute the funding equitably across emergency departments.

Rebasing for 2016-17 

The rebasing approach for 2016-17 will firstly reset the new NAESG total funding pool (activity and availability). The total funding envelope  has been established using the 2014-15 reported costs, corrected for missing records and for hospitals not submitting cost data and will be indexed. The next step aims to re-set the ‘availability’ funding pool.  Information to set the size of the pool will be sourced from the 2014-15 reported costs which will be indexed.  The availability funding pool will be 80 per cent of total reported costs. The activity pool will be 20 per cent of reported costs.

Rebasing for 2017-18

The ongoing rebasing approach will hold the total funding pool constant (plus any additional indexation and growth provided in the prior year).  The size of the total funding pool will be informed by the more accurate cost data provided for the 2016-17 rebasing.

It is anticipated the proportion of total funding to be allocated to the availability and activity pools will match the percentage split from the 2016-17 rebasing.  

Each campus’ share of the funding from the availability pool will be matched with their share of the total ‘base’ costs reported by all emergency departments.  The share of the activity funding pool will be calculated in the same way as for the original model – with each campus receiving a share of the funding pool that corresponds to the proportion of the total unweighted activity they undertake.

Indexation

Each year indexation is applied to recognise the additional nominal funding required to reimburse for input price increases.  Both the availability and the activity funding pools will be indexed at the same rate as other health service funding lines.

Growth

If the department receives additional funding in order to provide additional NAESGs funded activity, this will be distributed to emergency departments in line with the hierarchy below.

First – additional availability funding will be allocated to health services that have expanded their capacity.  This may include having additional cubicles open for patients as a result of a capital program.

Second – additional activity funding will be allocated to health services that have experienced above trend and/or above average growth in activity for NAESGs funded patients.

Thirdly – additional funding will be allocated to the total funding pool to flow to health services in line with the proportion of the availability and activity splits.

 

Further information

Manager, Health Service Budgets
Phone: 61 3 9096 8572
Email: Phuong.Nguyen@dhhs.vic.gov.au