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Modelling Options for the Public Funding of Hospital Medicines in Australia THE CURRENT SYSTEM AND PROPOSALS FOR REFORM

PREPARED BYLaurie Brown, Alicia Payne, Binod Nepal, Cathy Gong and Gabrielle Cooper

MARCH 2010

Modelling Options for the Public Funding of Hospital Medicines in Australia

NATSEM March 2010

ABOUT NATSEMThe National Centre for Social and Economic Modelling was established on 1 January 1993, and supports its activities through research grants, commissioned research and longer term contracts for model maintenance and development.

NATSEM aims to be a key contributor to social and economic policy debate and analysis by developing models of the highest quality, undertaking independent and impartial research, and supplying valued consultancy services.

Policy changes often have to be made without sufficient information about either the current environment or the consequences of change. NATSEM specialises in analysing data and producing models so that decision makers have the best possible quantitative information on which to base their decisions.

NATSEM has an international reputation as a centre of excellence for analysing microdata and constructing microsimulation models. Such data and models commence with the records of real (but unidentifiable) Australians. Analysis typically begins by looking at either the characteristics or the impact of a policy change on an individual household, building up to the bigger picture by looking at many individual cases through the use of large datasets.

It must be emphasised that NATSEM does not have views on policy. All opinions are the authors’ own and are not necessarily shared by NATSEM.

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© NATSEM, University of Canberra 2010All rights reserved. Apart from fair dealing for the purposes of research or private study, or criticism or review, as permitted under the Copyright Act 1968, no part of this publication may be reproduced, stored or transmitted in any form or by any means without the prior permission in writing of the publisher.

National Centre for Social and Economic ModellingUniversity of Canberra ACT 2601 Australia170 Haydon Drive Bruce ACT 2617

Phone + 61 2 6201 2780Fax + 61 2 6201 2751Email [email protected] www.natsem.canberra.edu.au

mailto:[email protected]

http://www.natsem.canberra.edu.au/


NATSEM March 2010

AUTHOR NOTE

Laurie Brown is a Professor and Research Director (Health) at the National Centre for Social and Economic Modelling, University of Canberra. At the time of undertaking this research, Alicia Payne, Binod Nepal and Cathy Gong were Research Fellows at NATSEM. Gabrielle Cooper is a Professor and Head of the Discipline of Pharmacy, Faculty of Health, at the University of Canberra.

ACKNOWLEDGEMENTS

The authors would like to thank the following for their professional contribution to this Report through interviews conducted by Professor Gabrielle Cooper:

Professor Michael Dooley BPharm, Vic.Coll.Pharm., Grad.Dip.Hosp.Pharm., Vic.Coll.Pharm., Professor of Clinical Pharmacy (and Director of Pharmacy, Bayside Health), Monash University, Melbourne Victoria,

Mr Andrew Petrie BPharm FSHP, Director Medicines and Pharmacy Services Unit, Queensland Health,

Mr Neil Keens BPharm MBA, Director of Pharmacy, The Canberra Hospital and current President Society of Hospital Pharmacists of Australia

and we acknowledge the assistance provided and the time given to answering our questions and queries by other individuals from Government, AIHW, ABS, the Pharmaceutical Industry and Hospital Pharmacy in Australia.

This project was supported through an untied research grant from Pfizer Australia.

GENERAL CAVEAT

NATSEM research findings are generally based on estimated characteristics of the population. Such estimates are usually derived from the application of microsimulation modelling techniques to microdata based on sample surveys.

These estimates may be different from the actual characteristics of the population because of sampling and non-sampling errors in the microdata and because of the assumptions underlying the modelling techniques.

The microdata do not contain any information that enables identification of the individuals or families to which they refer.

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ABBREVIATIONS

ABS Australian Bureau of Statistics

ACHS Australian Council on Health Care Standards

ACSQHC Australian Commission for Safety and Quality in Health Care

AHCA Australian Health Care Agreements

AIHW Australian Institute of Health and Welfare

ALOS Average length of stay

AR-DRG Australian Refined Diagnosis Related Groups

ATC Anatomical Therapeutic Chemical classification

COAG Council of Australian Governments

CURF Confidentialised unit record file

DoHA Department of Health and Ageing

ICD-10-AM International Statistical Classification of Diseases and Related Health Problems, 10th Revision, Australian Modification

IPA Individual Patient Approval

JATAG Joint Australian Therapeutics Advisory Groups

MSAPs Medical Superintendant Signed Authority Protocols

NHCDC National Hospital Cost Data Collection

NHHRC National Health and Hospitals Reform Commission

NHMD National Hospital Morbidity Database

NPHE National Public Hospital Establishments

PBS Pharmaceutical Benefits Scheme

PBAC Pharmaceutical Benefits Advisory Committee

PHEC Private Hospital Establishment Collection

SDL Standard Drug List (for Queensland Hospitals)

SHPA Society of Hospital Pharmacists of Australia

TGA Therapeutic Goods Administration

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CONTENTS

About NATSEM 2Acknowledgements 3General Caveat 3Abbreviations 4Executive Summary 7Executive Summary 71 Introduction 13

1.1 Methods 142 Background 15

2.1 Public and Private Hospitals in Australia 152.1.1Public hospitals 152.1.2Private hospitals 16

2.2 Overview of Hospital Medicines in Australia 182.2.1Structures of funding for the use of prescribed medicines in

Australia 192.2.2The Pharmaceutical Benefits Scheme and its use in hospitals 202.2.3Hospital formularies 222.2.4Drug Committees 242.2.5The influence of PBS listing on the hospital formulary 252.2.6Off Label- non-TGA approved therapies 262.2.7Ability of Industry to influence formulary applications 26

2.3 Policy Context - National Health and Hospitals Reform Commission 273 Identified Issues with the Current System and Opportunities for

Reform 303.1 Continuity of Care and Health Outcomes 303.2 Cost Shifting 303.3 Inequities of Access and Funding 313.4 Value for Money 313.5 Duplication of Work 31

4 Proposals for Reform 324.1 Society of Hospital Pharmacists of Australia (SHPA) 324.2 Joint Australian Therapeutics Advisory Groups (JATAG) 334.3 Pfizer Australia 34

5 Constructing a System Dynamics Model of the Hospital Medicines System 375.1 Modelling Approach 375.2 Data Sources 38

5.2.1National Hospital Cost Data Collection 38

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5.2.2National Public Hospital Establishments Data Collection 405.2.3National Hospital Morbidity Database 425.2.4Private Hospital Establishment Collection 435.2.5 IMS Health Pharmaceutical Sales Data 445.2.6Quality and Safety of Hospital Care – Adverse Drug Events 44

5.3 Causal Loop Diagram of the Hospital Medicines System 466 General Findings 50

6.1 Use of Medicines in Australia’s Hospitals 506.2 Hospital Medicines by Therapeutic Class 556.3 Adverse Drug Events 566.4 Possible Impacts of the Reform Options 57

7 Conclusions 61References 63

APPENDIX 1 Terms of Reference for the National Health & Hospitals Reform Commission

66APPENDIX 2 Decision Algorithms on the Evaluation of Medicines 67APPENDIX 3 Public and Private Hospital Activity and Cost of Pharmacy by

Selected DRG and by State 68

Boxes, figures and tablesFigure 1 Typology of Australian Hospitals 16Figure 2 Causal Loop Diagram of the Hospital Medicines System 47Figure 3 Share of separations by public hospital peer group, 2006-07 51Figure 4 Average length of stay by public hospital peer group, 2006-07 51Figure 5 Average cost of per separation by public hospital peer group, 2006-0752Figure 6 Average cost of pharmaceuticals per separation by public hospital

peer group, 2006-07 53Figure 7 Average cost of pharmaceuticals per separation as a proportion of

total cost by public hospital peer group, 2006-07 54

Table 1 Australian public hospital peer groups 17Table 2 Number of hospitals and hospital beds by broad public hospital peer

group, 2007-08 17Table 3 Number of public and private hospitals and number of beds per 1,000

weighted population by state and territory, 2007-08 18Table 4 Selected recommendations by the NHHRC and their implications for

hospital medicines. 29Table 5 Percentage of total costs by component, and cost ratio by

component, Public & Private Sector, Round 11 40Table 6 Components of system dynamics model 48Table 7 Cost of hospital medicines by therapeutic class, 2007-08 55Table 8 Separations with adverse events 57

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Table 9 Likely impact for public hospitals of select reform option in addressing key issues 58

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1 EXECUTIVE SUMMARY

The National Health and Hospital Reform Commission (NHHRC) was charged with developing a long term reform plan for the Australian health care system. One area where the funding and regulation is complex and which gives rise to a number of medical and financial problems and concerns is hospital pharmacy. Despite various proposals for change in the public funding of hospital medicines, this has attracted little attention in the reform agenda. This Report seeks to:

review hospital pharmacy in Australia and the current system for the public funding of hospital medicines in Australia;

identify the key issues and problems that exist with the current funding and bureaucratic arrangements;

develop a system dynamics model to estimate the clinical, economic and organisational consequences of proposals for reform; and

identify possible options for reform and evaluate the likely impact of a select few within the policy context of NHHRC deliberations and recommendations.

In undertaking this research, we found that there were many challenges to building a system dynamics model, especially related to the availability of detailed data on the use and cost of medicines; on clinical pharmacy, distribution and management processes that take place within hospitals; and patient outcomes, at the level of individual hospitals. Hence, this Report examines only the nature of the modelling task, scopes the available data upon which the model could be constructed, and details the structure of a system dynamics model through a causal loop diagram.

Hospital Pharmacy in Australia

Prescription medicines are funded and subsidised differently depending on whether they are sold in the ‘community’ or administered in hospital, whether it is a private or public hospital, whether the patient receiving the drugs in hospital is an ‘in’ or ‘out’ patient and the type of drug itself. As of 2007-08, there were 762 public and 552 private hospitals in Australia. There is significant variation between these hospitals, the services they provide, their size and the number of patients they treat. In 2007-08, over $2bn of public funds were spent on covering the cost of medicines in Australian hospitals – medicines in public hospitals costing $1.4bn and in private hospitals around $0.6bn, noting that many medicines dispensed in private hospitals are funded via the PBS. The provision and funding of pharmaceuticals in Australia, both in the community and hospital, is regulated by two main policies: the National Medicines Policy - including its third pillar ‘Quality Use of Medicines’ - which sets out the aims and principles for the supply and use of medicines in Australia; and the Australian Health Care Agreements (AHCA), which are bilateral five year agreements between the Commonwealth and each State/Territory Government.

Medications approved for use in a public hospital are listed in a formulary. Formularies identify to prescribers what medications can be used in a public hospital and for what indications. Unlike the

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PBS for which a list of subsidised drugs is agreed on at the national level, hospitals are generally responsible for selecting their own individual formularies, with some exceptions such as in Queensland and Western Australian where State-wide formularies operate. The complex area of cost effectiveness evaluation requires skills that are often not available in each individual hospital. As a result, there has been the development of specialised therapeutic advisory groups in most States to provide State governments and hospital Drug Committees evidence and cost-effectiveness data with which to make informed decisions on medications availability and indications. Public hospitals will develop policies to refuse direct representation to Drug Committees from pharmaceutical company ‘reps’ to make sure that the decision of inclusion is made on clinical grounds and not as a marketing exercise for industry. One particularly challenging area for public hospitals is the area of use of medications for non-approved (not approved by TGA) uses of medications. Clinicians are keen to provide the best care to patients particularly when few alternatives may be available or the patient has limited time for treatment, and hence public hospitals will develop processes to enable patients to be availed of ‘off-label’ treatment for which there is limited evidence.

Identified Issues with the Current System and Opportunities for Reform

The system of funding and regulation of hospital medicines is complex and fragmented. This has a number of implications. The following were identified as major issues of concern:

Lack of continuity of care and poor health outcomes - a substantial number of adverse drug events and admissions to hospital are attributable to confusion surrounding the overlap of or gaps between community and hospital care;

System incentives for cost shifting e.g. between in- and out-patients, and between State and Commonwealth Governments;

Inequities of access to and funding of medicines - individual formularies in most hospitals mean that the same drugs, or at least, the same brands of drugs are not available across all public hospitals, and many patients in private hospitals are able to access the PBS to cover drugs administered while they are in hospital;

Value for money – the current emphasis is on evaluating the efficacy of drugs and drug committees and TAGs do not necessarily have the expertise to undertake appropriate cost-effectiveness evaluations to ensure ‘value for money’;

Duplication of work and bureaucratic workloads required to maintain the system - the management of a formulary for each individual public hospital represents duplication of work, and State and Commonwealth administrative procedures and requirements impose an unnecessary workload, duplication and waste of resources.

Proposals for Reform

A number of reform options have been proposed. The following three were investigated in this Report:

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1. The Australian government provides funding for all pharmacy services (clinical distribution and management) including all medicines used in hospitals (this is the Society of Hospital Pharmacists of Australia’s (SHPA) Option 5);

2. The extension of the PBS to cover all hospital medicines (this is SHPA’s Option on 2); and3. A national hospital formulary is established with a national committee to administer it and

the Commonwealth Government funding the cost of all pharmaceuticals in hospitals (as proposed by the Joint Australian Therapeutics Advisory Groups).

These reflect the broad interest by key stakeholders.

A System Dynamics Model of the Hospital Medicines System

Hospital medicines are funded, acquired, prescribed and consumed within a system driven by cause and effect, and is characterised by complex ideas and information. The ‘hospital medicines system’ is a complex system in that it is highly coupled with dynamic processes that play out over time, has feedback effects and many outcomes resulting from the interactions that occur between its many parts. System dynamics is a method to enhance the understanding of the functioning and to analyse the behaviour of complex systems over time, with the help of computer simulation. This approach involves system variables, the interactions between them through feedback loops, and the study of the effects of these interactions over time. The utility or power of system dynamics modelling is its simulation capabilities for testing what if scenarios.

There is a broad range of data that ideally is required to populate a system dynamics model of hospital medicines. Most of the publicly available statistical collections do not routinely report data at the fine level – e.g. at the level of an individual hospital - required for the modelling but review of the possible data sources suggest that such information may be made available on request. A combination of datasets would need be used to build the model equations and populate the different stages of the model. Likely sources of data include:

The Commonwealth Department of Health and Ageing National Hospital Cost Data Collection (NHCDC);

The Australian Institute of Health and Welfare (AIHW) National Public Hospital Establishments (NPHE);

AIHW’s National Hospital Morbidity Database (NHMD);

Australian Bureau of Statistics Private Hospital Establishment Collection; and

IMS Health Pharmaceutical Sales Data.

Information on adverse drug events can be obtained from AIHW’s NHMD using ICD-10-AM codes Y40-Y59 which identify separations with an external cause coded as an adverse effect caused by ‘drugs, medicaments or biological substances in therapeutic use’.

The causal loop diagram (CLD) (visual representation of the system dynamics model) developed for the hospital medicines system is provided in the figure below. The model is based on four interacting parts: the industry characteristics and business activities of pharmaceutical companies manufacturing and supplying hospital based medicines; the characteristics of the hospital as an organisational

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entity; features related to hospital pharmacy based around the purchasing, acquisition, prescribing and dispensing of medicines in hospital; and patient-related characteristics and behaviour. Some of the relationships shown in the CLD will be able to be quantified while others will be of a more qualitative nature. The model primary outcome measures (system key performance indicators) are: the cost of hospital medicines (drug expenditure by $ amount and proportion of a hospital budget); expenditure by different funding sources; number of adverse drug events and continuity in medication post-discharge as measures of quality and safety. The model is designed to allow users to answer the basic question of:

How do changes in the characteristics and behaviour of pharmaceutical suppliers, hospitals, hospital pharmacy and/or patients affect the expenditure on hospital medicines, adverse drug events, continuity of care on discharge, and source of funding?

In modelling terms, if we change system parameters or re-define the processes and interactions operating within the system then how will this impact on system outcomes?

The Hospital Medicines System in Australia

Cost of hospitalmedicine ($, %)

Adverse drugevents

Continuity ofmedication on

discharge

Hospitalpharmacy

Formularytype

Case mix

Size ofpharmacy

Roles ofpharmacists

Drug price

Drugpreferences

Tenderingprocess

Patients

No. of seperations

ProportionInpatients

ProportionOutpatientsProprotion

Day-only

Demographics

HospitalPeer group

State

Public/privatesector

Remoteness

Hospitalbudget

Dispensed drugs -volume and type

Cost toCommonwealth

(S100, PBS)

Cost to Hospital(States/Commonwealth)

Average lengthof stay

Drug supply,New drug

Medicationcomplexity

Doctor prescribingbehaviour

Off label use

Role of TAG

PharmaceuticalIndustry

Findings

There is substantial variation in the cost of pharmaceuticals between public sector hospital peer groups, reflecting case mix and scale, and different pharmacy services. The pharmaceutical and pharmacy component of the average total cost per separation increases with the size of the hospital.

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In 2007-08, the proportion of the total cost of a separation attributable to the costs of pharmaceuticals and pharmacy services varies from 2.5 percent in small regional acute (D1) hospitals to 5.1 per cent in major city and regional hospitals. Two ATC categories account for nearly half of all pharmaceutical sales in public and private hospitals - cancer and immunosuppressant therapies (ATC Category L) make up nearly 30 percent of all hospital expenditure on drugs and systemic anti-infection drugs (ATC – J) contribute to a further 20 percent. The number of pharmaceutical companies selling products in the different ATC classes varies considerably - in general, the more companies selling products within a therapeutic class, the lower was the annual growth rate in the cost of drug purchase. By 2007-08, the total number of separations to Australian public and private hospitals had increased to 7.9 million, but a staggering 106,012 separations were reported as having an adverse drug event in hospital i.e. over one in every 75 hospital stays had an adverse drug event that was sufficiently severe that it was reported on the patient’s medical file and coded into official hospital statistics.

The possible impacts of the three chosen reform options on key issues and outcomes were investigated. Extending the PBS or establishing a national hospital medicines formulary funded by the Commonwealth Government offers significant advantages. The first option ‘ Commonwealth Government as single funder’ performs the least well as it does not directly impact on issues around hospital formularies which are central to the public funding of hospital medicines and performance of hospital pharmacy and which are addressed by the other two options. Each of the options:

is universal in that it supports all patients;

increases equity of access to hospital medicines with a focus on meeting the clinical needs of individual patients;

improves the supplies of medicines on discharge;

removes incentives for cost shifting; and

shifts funding to the Commonwealth Government as the single funder, and addresses State-Commonwealth administration issues.

The reform options offer other benefits but these either vary between the options or are less clear, for example: integration with community care (and PBS), including improving continuity of medication on discharge; adherence to QUM principles and improved patient safety; reduction in unnecessary bureaucratic processes, administrative workloads and duplication of work; robust tendering processes and pricing mechanisms; and economic evaluation leading to value for money (cost-effectiveness) and responsible spending. Like all policy reform options, ‘the devil is in the detail’ and these options need further scoping and assessment.

At present, expenditure on hospital medicines is capped through public hospital budgets but under these reform options, expenditure is likely to become uncapped, with funding being ‘activity-based’. Mechanisms need to be put into place to link medicine use to health outcomes, with funding arrangements and formularies allowing for flexibility at the level of the individual hospital to dispense medicines that best suit the clinical needs of the patients while encouraging responsible and cost-effective spending. The introduction of an enhanced PBS-hospital formulary or a national hospital medicines formulary will both positively impact on hospitals through streamlining, at the

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level of the individual hospital, drug-listing, pricing, tendering and other acquisition processes. However, while there is strong support for increasing the clinical role of pharmacists, how these reform options will impact on clinical pharmacy services is uncertain. A possible limitation with both formulary options is the restriction to approved uses only. The impact of these reform options on the total cost of hospital pharmacy and more specifically on the cost of medicines is also uncertain because of the possible incentives for hospitals to use more medicines under an uncapped funding system versus the efficiencies and savings that the Commonwealth could achieve as monopsony funder and purchaser dictating terms to the pharmaceutical companies supplying drugs and through economies of scale. This change in funding arrangements would have major implications for the pharmaceutical suppliers in Australia.

Conclusions

Although a number of submissions were made to the National Health and Hospitals Reform Commission, no direct recommendations were made by the Commission concerning the public funding of hospital medicines. The broader issues raised by the Commission are relevant to and overlap the changes proposed in the three reform options examined.

The development of the system dynamics model through the causal loop diagram provided a means to enhance our understanding of the systemic causes of hospital medicine use and costs in Australia. Further work to quantify and operationalise the model will allow the policy levers and reform options discussed, or alternative formulations, to be more thoroughly and rigorously tested on the simulation and the results evaluated for their improvement to key outcomes. Models are a cost-efficient way of testing ‘what-if’ policy scenarios that address real world issues.

It is timely given the release of the NHHRC’s final report on and the Commonwealth Government’s interest in reforming Australia’s health care system that the reform of public funding of hospital medicines is also addressed. The three proposals examined in this Report would all provide benefits. These and other possible alternatives should be studied in much greater detail to provide the Commonwealth Government with the necessary platform to introduce policy change to the publicly funding of medicines in Australian hospitals.

Key words: Hospitals, pharmaceuticals, funding, reform options, system dynamics modelling

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2 INTRODUCTION

Medications are the most common intervention a patient will experience in an Australian public hospital, costing some $1.4 billion dollars annually1. The National Health and Hospital Reform Commission (NHHRC) was charged with developing a long term reform plan for the Australian health care system. One area where the funding and regulation is complex and which gives rise to a number of medical and financial problems and concerns is hospital pharmacy. Despite various proposals for change in the public funding of hospital medicines, this has attracted little attention in the reform agenda.

This Report examines the current system for the public funding of hospital medicines in Australia and investigates possible options for reform. A key aim of the Report is to provide an overview of hospital pharmacy in Australia, and identify the key issues and problems that exist with the current funding and organisational arrangements. Options for change are then canvassed. The development of a system dynamics model to estimate the clinical, economic and organisational consequences of selected funding models-policy options for government, the pharmaceutical industry, hospital administrators, peak health professional bodies (especially hospital pharmacy) and patients is investigated.

In undertaking this research, we found that there were many challenges to building such a model - especially related to the availability of detailed data on the use and cost of medicines, the workings of hospital pharmacies in terms of clinical pharmacy, distribution and management related processes that take place within hospitals, and patient outcomes, at the level of individual hospitals. Hence, this Report examines only the nature of the modelling task, scopes the available data upon which the model could be constructed, and details the structure of a system dynamics model through a causal loop diagram.

In developing the model structure, we identify the key agents, relationships and interactions that occur within Australia’s ‘hospital medicines system’. While we have not as yet quantified the processes nor ‘populated’ the model with data, we have been able to use the model structure to hypothesize the likely impacts of each reform option in terms of both economic and patient outcomes. The Report highlights the next steps needed to build a fully-functional model that can be used to better inform future policy options for the funding, supply and use of medicines in Australia’s public and private hospitals.

This research has been undertaken within the context of the NHHRC’s deliberations and recommendations and with the view to contributing to the policy debate around the supply and use of medicines in hospitals in Australia. A summary of the policy context is given in Section 2.3. Also by way of background, we initially provide a brief overview of public and private hospitals in Australia in Section 2.1 and medicines in Australian hospitals in Section 2.2.

We provide the results of the research in Sections 3–6. Firstly, the findings on the current issues and problems with medicine use in hospitals and related costs are provided; secondly, three possible

1 http://d01.aihw.gov.au/cognos/cgi-bin/ppdscgi.exe?DC=Q&E=/ahs/phe0607_f

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reform options are reviewed; thirdly, the modelling work is described in which system dynamics modelling is introduced as a modelling approach, the data sources are discussed and the structure of a system dynamics model for hospital medicines outlined. In Section 6, we provide the results of some aggregate analyses and speculate on the likely impact of the different reform options. The Report concludes with a brief discussion of these findings and recommendations for future work.

2.1 METHODS

This work is based on a detailed review of the literature on hospital pharmacy and the funding and use of medicines in Australian hospitals. A number of interviews with key stakeholders from both the pharmaceutical industry and hospital pharmacy were also conducted. These interviews provided further information on and insight into the operation of the current system and its problems, as well as on possible options for change.

Administrative statistical collections held by the Australian Institute of Health and Welfare (AIHW), by the Commonwealth Department of Health and Ageing (DoHA), the Australian Bureau of Statistics (ABS), were evaluated as possible data sources for the modelling as well as pharmaceutical sales data collected by IMS Health Australia Pty Ltd in its hospital audit database. Reports and data on the quality use of medicines and patient safety were also reviewed.

Process maps2 were constructed to assist in designing the system dynamics model which was then developed using the software package ‘Vensim’. A number of different software packages are available to construct system dynamics models. Vensim is readily available, is widely used and is well supported.

2 A process map (flowchart) is basically a visual picture of a process (or system). A key element of process mapping is establishing boundaries around processes i.e. identifying where each process starts and finishes, and how each interacts with other processes.

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3 BACKGROUND

3.1 PUBLIC AND PRIVATE HOSPITALS IN AUSTRALIA

In Australia, hospital services account for around one-third of national expenditure on health care (Productivity Commission, 2009). Australian hospitals can be divided into the public and private sectors and within these into further groups based on their patient throughput and the treatments provided, as shown in Figure 1. As of 2007-08, there were 762 public hospitals in Australia to which there were 4.7million admissions, and 552 private hospitals to which there were 3.1 million admissions (DoHA 2009a). In 2009, the Productivity Commission undertook a review of the relative performance of public and private hospitals in Australia. The Commission found that the efficiency of public and private hospitals was, on average, similar and using their experimental cost estimates that, at a national level, public and private hospitals have similar average costs (Productivity Commission, 2009). However, there are significant variations between hospitals, the treatments they provide, their size and the number of separations they treat, and in the composition of their costs.

3.1.1 Public hospitals

The majority of Australia’s hospitals are public, in which all Australians can access treatment free of charge, funded by the government. As will be discussed further in Section 2.2 hospitals are the responsibility of state and territory governments, although some of their funding comes from the Commonwealth Government through the Australian Health Care Agreements. In 2006-07, $27 billion was spent on public hospital services, of which 40 per cent was funded by the Commonwealth Government ($10.8 billion), 53 per cent by state, territory and local governments and the remaining seven per cent came from non-government sources, for example ‘out-of-pocket’ payments by individuals (DoHA, 2009a).

Across all public hospitals there were 56,467 available beds, accounting to 2.5 public hospital beds per 1,000 weighted population (DoHA, 2009a). Half of people admitted to public hospitals were discharged on the same day. The majority of public patients (67 per cent) received acute medical care, 18 per cent underwent surgery, six percent had medical procedures, a further six per cent were admitted to maternity and three per cent to sub-acute services (DoHA, 2009a).

In order to compare hospitals of a similar size and case mix, the ‘peer group’ structure has been developed to classify hospitals. As detailed in Table 1, public hospitals in Australia can be classified into seven main categories, and ten sub-groups within those, based on their number of admissions in a year and location. Specialist psychiatric hospitals form their own grouping. ‘Principal referral’ and ‘specialist’ hospitals are classified as those treating more than 20,000 patients if they are located in a major city and more than 16,000 if they are in regional areas. These major hospitals account for more than half of all available beds, and represent 11 per cent of all public hospitals. ‘Small acute’, ‘small non-acute and multi-purpose services’, psychiatric and ‘other’ hospitals represent 71 per cent of all Australia’s public hospitals, but only 22 per cent of hospital beds (DoHA 2009a). Table 2 shows the number of hospitals and beds in each broad group. Peer group is a key structure for the comparison

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of hospitals, and thus an ideal unit for modelling for this project. Section 5 presents analysis of data comparing the costs and use of public hospitals by peer group.

Figure 1 Typology of Australian Hospitals

Australian Hospitals

Public Private

Ownership

For Profit Not for Profit

Peer Group

1. Principal referral and specialist women's and children's hospitals

2. Large hospitals3. Medium hospitals4. Small acute hospitals5. Small non-acute

hospitals and multi-purpose services

6. Psychiatric hospitals7. Other hospitals

1. Private hospitals2. Private day surgery

Individual Hospital

3.1.2 Private hospitals

While this project focuses on public hospitals, private hospitals and the systems used within them provide a useful comparison with current and proposed systems for public hospitals, thus they are also described. One way to broadly classify private hospitals is on the basis of whether the establishment provides day only surgery – about half of all private hospital are day hospitals. However, another important distinction can relate to the ownership of the hospital. This is generally

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distinguished on the basis of whether the hospital is operated by a for-profit entity or a not-for-profit organisation (denominational/charitable organisations or other not-for-profit entities).

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Table 1 Australian public hospital peer groupsAIHW Peer Group Definition

Principal referral and specialist women’s and children’s

A1 Major city hospitals with >20,000 acute casemix-adjusted separations and Regional hospitals with >16,000 acute casemix-adjusted separations per annum

A2 Specialised acute women’s and children’s hospitals with >10,000 acute casemix-adjusted separations per annum

Un-peered and other hospitals

A9 Prison medical services, special circumstance hospitals, Major city hospitals with <2000 acute casemix-adjusted separations, hospitals with <200 separations etc

Large hospitals B1 Major city acute hospitals treating more than 10,000 acute casemix-adjusted separations per annum

B2 Regional acute hospitals treating >8,000 acute casemix-adjusted separations per annum, and remote hospitals with >5,000 casemix-adjusted separations

Medium hospitals C1 Medium acute hospitals in Regional and Major city areas treating between 5,000 and 10,000 acute casemix-adjusted separations per annum

C2 Medium acute hospitals in Regional and Major city areas treating between 2,000 and 5,000 acute casemix-adjusted separations per annum, and acute hospitals treating <2,000 casemix-adjusted separations per annum but with >2,000 separations per annum

Small acute hospitals D1 Small Regional acute hospitals (mainly small country town hospitals), acute hospitals treating <2,000 separations per annum, and with less than 40% non-acute and outlier patient days of total patient days

D3 Small remote hospitals (<5,000 acute casemixadjusted separations but not 'Multipurpose services' and not 'Small non-acute'. Most are <2,000 separations

Small sub-acute and non-acute hospitals

G Small non-acute hospitals, treating <2,000 separations per annum, and with more than 40% non-acute and outlier patient days of total patient days (D2) plus Multi-purpose service (E2)

Hospices, Rehabilitation, Mothercraft, Other non-acute hospitals

Psychiatric Psychiatric

Source: DoHA (2008b)

Table 2 Number of hospitals and hospital beds by broad public hospital peer group, 2007-08

Hospital type Hospitals Beds

Principal referral and specialist women’s and children’s hospitals (A)

83 31,850

Large hospitals (B) 45 6,405

Medium hospitals (C) 93 5,690

Small acute hospitals (D) 151 3,280

Small non-acute hospitals and multi-purpose services (G)

185 4,428

Psychiatric hospitals 20 2,330

Other hospitals 185 2,485

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Total 762 56,467

Source: DoHA 2009a, adapted from Table 1.3, pp14.

In 2007-08, private hospitals received $7.1 billion in government funding (DoHA 2009a). As will be discussed further in Section 2.2, the way in which pharmaceuticals are paid for in private hospitals is quite different to that in public hospitals, as drugs for the majority of patients are covered by the Commonwealth Pharmaceutical Benefits Scheme (PBS) or patients’ private health insurance. There were 1.3 private hospital beds per 1,000 weighted population, and 66 per cent of patients admitted were discharged on the same day (DoHA, 2009a). The mix of treatments delivered in private hospitals was somewhat different to that in public hospitals, with patients being less likely to receive acute care and more likely to have surgery in private hospitals than in the public system. In private hospitals 34 per cent of patients received acute medical care, 38 per cent had surgery, 20 per cent had medical procedures, three per cent were in maternity and four per cent received sub-acute services (DoHA, 2009a).

Table 3 shows the number of public and private hospitals in each State and Territory, showing that the number of hospitals tends to roughly reflect the population of the state. The Table also shows the number of hospital beds per 1,000 weighted population in each State and Territory. The average across Australia for public hospitals was 2.5, with the Northern Territory having the highest ratio of beds to population at 3.6.

Table 3 Number of public and private hospitals and number of beds per 1,000 weighted population by state and territory, 2007-08

Public hospitals Public beds per 1,000 weighted

population

Private hospitals

Private beds per 1,000 weighted

population

Total number of hospitals

New South Wales 228 2.7 172 0.9 400

Victoria 148 2.3 148 1.3 296

Queensland 177 2.5 106 1.5 283

Western Australia 94 2.5 52 1.7 146

South Australia 80 2.8 55 1.1 135

Tasmania 27 2.3 9 1.9 36

Australian Capital Territory

3 2.6 9 1.2 12

Northern Territory 5 3.6 1 0.6 6

Australia 762 2.5 552 1.3 1,314

Source: DoHA 2009a, adapted from Tables 1.1 and 1.2, pp 11 and 12.

3.2 OVERVIEW OF HOSPITAL MEDICINES IN AUSTRALIA

The current regulation and funding systems for pharmaceuticals in Australia are complex and multi-faceted. Prescription medicines are funded and subsidised differently depending on whether they are sold in the ‘community’ (for example local pharmacies) or administered in hospital, whether it is a private or public hospital, whether the patient receiving the drugs in hospital is an ‘in’ or ‘out’ patient

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(essentially whether they are staying overnight in hospital or a day patient, however the definition differs between hospitals, procedures and admissions) and the type of drug itself. These complexities, disparities between situations and areas of ‘loose’ regulation lead to the issues that have been identified by various pharmacy groups, and constitute the reasons for this Report. This section provides an overview of the structures, regulation and funding of hospital pharmaceuticals in Australia and the processes by which medicines are selected for use in hospitals. While this Report focuses on the issues facing public hospitals, it is important to explain the broader context of pharmaceutical funding in Australia, including community pharmacy and private hospitals in order to appreciate the broader policy context in which pharmaceutical use and funding operates. In preparation of this section of the Report, several key authorities were interviewed to provide insight into those issues that influence medications availability and utilisation within the hospital sector (See the acknowledgements section for details of contributors).

3.2.1 Structures of funding for the use of prescribed medicines in Australia

First, all medications available for therapeutic use in Australia are required to be approved by the Therapeutic Goods Administration as provided by the Therapeutic Goods Act 1989. This Act laid down a framework for the regulation of therapeutic goods in Australia to ensure quality, safety and efficacy of medicines and medical devices. The Therapeutic Goods Act 1989, Regulations and Orders set out the requirements for inclusion of therapeutic goods in the Australian Register of Therapeutic Goods, including advertising, labelling, product appearance and appeal guidelines. Some provisions such as the scheduling of substances and the safe storage of therapeutic goods are covered by the relevant State or Territory legislation. The Therapeutic Goods Administration (TGA) is a unit of the Australian Government Department of Health and Ageing and is responsible for administering the provisions of the legislation. Once a medication has been approved for use by the TGA that medication may be used by a registered health professional for the indication for which it was approved3.

Under this umbrella, the provision of prescribed medicines4 is divided into two main systems: community, including all prescriptions presented to ‘local’ pharmacies, and hospital. The provision and funding of pharmaceuticals in Australia, both in the community and hospital, is regulated by two main policies: the National Medicines Policy including its third pillar ‘Quality Use of Medicines’ which sets out the aims and principles for the supply and use of medicines in Australia; and the Australian Health Care Agreements (AHCA), which are bilateral five year agreements between the Commonwealth and each State and Territory Government. These govern the health funding given from Commonwealth to State and Territory Governments. While the Medical Benefits Scheme (covering the use of GP and specialist services provided outside of hospital) is funded by the Commonwealth Government, hospitals are funded by State and Territory Governments (although a substantial proportion of this funding comes to the states from the Commonwealth through the AHCA).

3 http://www.tga.gov.au/docs/html/tga/tgaginfo.htm4 Prescribed medicines include: a) prescription drugs listed on the PBS (including the Repatriation Pharmaceutical Benefits Scheme). These are either ‘benefit paid pharmaceuticals’ or ‘below copayment medicines’; and b) ‘private medicines’ which are pharmaceuticals dispensed through private prescriptions but are not items listed in the PBS or RPBS, or which do not meet PBS criteria for dispensing through the PBS.

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3.2.2 The Pharmaceutical Benefits Scheme and its use in hospitals

The majority of prescription drugs provided in the community (i.e. not in hospital) are subsidised by the Commonwealth Government through the Pharmaceutical Benefits Scheme (PBS). The PBS subsidises the cost of prescribed medicines that have been assessed by the Pharmaceutical Benefits Advisory Committee (PBAC) and found to be cost-effective in the management of conditions contributing to a significant disease burden in Australia. There is also a subcommittee of the PBAC that addresses pharmacoeconomic issues known as the Economic Sub-committee of the PBAC. This committee has expertise in evaluating the cost effectiveness data provide by industry to justify the inclusion of their product on the PBS. The Scheme works by covering the additional costs of medications above a set co-payment that is made by individuals. The annual co-payment amount that can be made by an individual is also capped through the safety net arrangements to ensure that people with complex and high pharmaceutical needs are not disadvantaged. PBS reimbursements account for approximately 90 per cent of total prescription drug expenditure (Medicines Australia, 2005). Advantaged by the national scale, competitive prices are negotiated keeping the cost of medicines relatively low. The PBS budget is uncapped. In addition to this scheme, the Repatriation PBS (RPBS) is a Commonwealth Government (Department of Veterans’ Affairs) funded scheme providing eligible veterans and their dependants a more comprehensive range of medications and dressings than is available through the PBS (Australian Government Department of Health and Ageing, 2009).

An important point to note here regarding the PBS is that each drug on the PBS is listed for the treatment of a particular ‘indication’, that is, for the treatment of a specific condition or conditions. The drug is only subsidised through the PBS when it is prescribed for that indication. However, sometimes drugs can be useful in treating other conditions that may not be included in the drug’s PBS listed indication. In this case a GP might prescribe the drug as a private prescription, meaning that it is not covered by the PBS, and could be extremely expensive for the patient. Private prescriptions are relatively rare in community pharmacy, however, in hospitals the use of medicines outside their PBS indications is common practice (SHPA, 2008). This has implications for the discussion of suggestions for the PBS to be instituted in public hospitals.

Within a public hospital all drugs are provided by the hospital (with the exception of some very small hospitals and health centres that do not have their own pharmacies). This includes of course any drugs that are prescribed during the patient’s time in hospital, but also any medications that the patient may have been taking before their admission to hospital, for example, for a long-term condition. Thus, when a patient is admitted to hospital, a doctor and pharmacist both take their medication history and if there are any medications that they will need to continue taking during their stay in hospital in addition to any new prescriptions, then these are also provided by the hospital. These medications will be the same molecule but not always be the same brand as the patient was receiving upon admission. On discharge from hospital, the hospital pharmacy will generally provide the patient with a few days’ supply (the number of days differs with the hospital and in some cases the particular patient) of medication to take home, including both any new medications relating to the hospital stay and any existing medications that the patient is recommended to continue taking. The patient then needs to see their GP before this supply runs out in order to be given new scripts to collect from a community pharmacy. As will be explained in the next section, several issues arise from this ‘hand-over’ between hospital and community – in

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particular medication errors arising from the confusion in the substitution of medications between admission and discharge, and the adequacy of the supply of medication post discharge (some States are trialling the use of the PBS on discharge to allow for a months supply of medicines rather than a few days).

While the PBS is primarily a community pharmacy initiative, there are exceptions under which it does apply in hospitals. While drugs are funded ‘by the hospital’ while a patient is admitted, the source of this funding depends on whether the hospital is public or private, whether the patient is an in or out patient and the type of drug. First, the broad majority of medications in a private hospital are covered by the PBS, and thus Commonwealth funded, or if not by the patient themselves or their insurer. In a public hospital the majority of medications are funded by the hospital, and thus the State. Within a public hospital, the funding of drugs then depends on whether the patient is an in or out patient. Again this definition differs between hospitals, but generally ‘inpatient’ refers to patients who stay overnight in the hospital, while outpatients are those that come in to see specialists or receive treatment, for example chemotherapy, but do not stay overnight in the hospital. A reform introduced in the 1998-2003 Australian Health Care Agreement (AHCA) led to patients being seen at outpatients, admitted as day cases or being discharged from a public hospital in Victoria, Queensland and Western Australia being covered by the PBS.

An the exception to this is the Section 100 scheme through which the Commonwealth Government supports the provision of a group of highly specialised and expensive medications in unique environments. The scheme includes provision of medications for:

(a) Highly Specialised Drugs

These are medicines for the treatment of chronic conditions, which, because of their clinical use or other special features, are restricted to supply through public and private hospitals having access to appropriate specialist facilities. To prescribe these drugs as pharmaceutical benefit items, medical practitioners are required to be affiliated with these specialist hospital units. A general practitioner or non-specialist hospital doctor may only prescribe highly specialised drugs to provide maintenance therapy under the guidance of the treating specialist. Benefits are available for the listed clinical indications only. There is no facility for individual patient approval for indications outside those listed. To gain access to a Commonwealth Pharmaceutical Benefits Scheme funded drug under this program, a patient must attend a participating hospital and be a day admitted patient, a non-admitted patient or a patient on discharge, be under appropriate specialist medical care, meet the specific medical criteria and be an Australian resident in Australia (or other eligible person). A patient will be required to pay a contribution for each supply of a highly specialised drug at a similar rate to the PBS. A Commonwealth subsidy is not available for hospital in-patients (may be an outpatient)

(http://www.pbs.gov.au/html/healthpro/browseby/section100?subbook=HS).

(b) Opiate Dependence Treatment Program

The Australian Government funds the cost of buprenorphine hydrochloride, buprenorphine hydrochloride with naloxone hydrochloride and methadone hydrochloride supplied as pharmaceutical benefits through clinics and pharmacies approved by State and Territory Governments.

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(c) Botulinum Toxin Program

Used for spasticity and spasm with approved indications.

(d) Human Growth Hormone Program

Used for growth assistance due to inadequate hormone secretion.

(e) IVF/GIFT Program

Used for assisted reproduction.

(f) Special Authority Program

Used for provision of specialized treatments for specific types of breast cancer.

While this appears fairly straightforward, the division between in and outpatients is blurry, and it is seemingly common practice for inpatients to be taken to a different part of the hospital to receive certain treatments, for example chemotherapy, where possible so that they can be classified as outpatients and the treatment will be covered by the PBS rather than the hospital’s own budget. A key point to note here is that unlike the PBS, hospital pharmacy budgets are generally capped. Hospitals generally allocate a fixed proportion of the hospital budget for pharmaceuticals, apparent in the fact that expenditure by public hospitals on drug supplies has consistently been five per cent over the past several years (AIHW 2003, 2004, 2005, 2006, 2007, 2008). A high level of financial diligence is required by hospitals to maintain budgetary control over medication expenditure in a climate of the development of high cost therapies with varying levels of evidence for their impact on patient care.

3.2.3 Hospital formularies

Medications approved for use in a public hospital are listed in a formulary. Formularies identify to prescribers what medications can be used in a public hospital and for what indications. Unlike the PBS for which a list of subsidised drugs is agreed on at the national level, hospitals are generally responsible for selecting their own individual formularies, with some exceptions such as in Queensland, to be discussed further.

Public hospitals in conjunction with their state health departments will develop a tender document for the supply of medications listed in the formulary. This tender document is used by public hospitals to optimise their expenditure on medications. Individual hospitals or groups of hospitals will purchase medications that they require from that tender but there is no obligation to do so. The tender document identifies an agreed price for a medication provided by a company. The price provides a starting point at which negotiations may start between the Director of Pharmacy and the company for medications. The practice of “bundling” refers to the negotiations that occur between the Director of Pharmacy and the supplier to find a mutually satisfactory price for a group of medications that may or may not be part of the tender document. For example, a hospital may have a high demand for item X and request a lower price than the tender price but as an added benefit it

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also uses product Y which may not be on the tender document but the price may be negotiated based on the volume required in a given period. In addition bonus stock may be provided by the company if the quantity purchased is above a negotiated level. The other negotiations that may occur are the time of billing of the stock may be deferred to reduce costs to the hospital in a high usage period (i.e. winter) to smooth out financial strain on the organisation during peak periods. Negotiated arrangements are left up to the individual Director of Pharmacy Services in the hospital or group of hospitals. Products purchased by the hospital will be transported by the company to the hospital at the company’s cost. A problem with the current tendering process is that it is frequently delayed, such that prices can become out-of-date and manufacturing schedules and supply affected.

Within states, some hospitals group together to decide on and share a formulary, for example, in Victoria this is quite common. Queensland and Western Australia have adopted state level formularies, so that all drugs across all public hospitals and institutions are negotiated and selected together (Queensland Health, 2009; Pfizer, 2008). The state-wide formulary originated from a Standard Drug List for Queensland Hospitals (SDL) that was first developed in 1973 (Aldous & Petrie, 2008). Maintained by the Queensland Hospitals Drug Advisory Committee, the state-wide formulary has been adopted in an attempt to reduce effort and resources required to ensure safe, rational and cost-effective use of medications in keeping with the Quality Use of Medicines principles 2000, while ensuring equity of access to necessary medications by all hospitals across a large state (Aldous & Petrie, 2008). The “Standard Drug List” is a negotiated medication formulary that applies consistently across the state. Instead of each hospital brokering a price for a medication directly with the supplier this is done centrally. In consolidating this process, those involved (Queensland Health) believe that they can have greater control of expenditure and negotiate better prices for the health system as a whole.

Queensland medications are supplied to a central store in Brisbane and it is Queensland Health’s task to transport medications across the entire state to all hospitals, health care and Aboriginal health centers. The key to this system is a strong Drug Committee (Queensland Hospitals Drug Advisory Committee) structure in approving medications for use in the state and an opportunity for Individual Patient Approval (IPA) and Medical Superintendant Signed Authority Protocols (MSAPs). This process is similar to the approval system within the PBS system where a set of criteria dictate approval or exceptional drugs (usually expensive)5.The use of formularies on a large scale has the potential to make pharmaceutical purchasing very competitive and therefore keep the cost low (Morgan, 2007; Braae et al. 1999; Huskamp et al. 2003).

However, others see the Queensland formulary as being highly constrained as there are limited ranges of brands within some drug categories. This has the potential to leave both the government and suppliers exposed if circumstances were to change, for example, if there was a quality or safety scare on one particular medicine. Other suppliers may not be able to readily deliver the necessary stocks and there would be significant cost implications if large volumes of medicines had to be imported. In addition, given the relatively small size of the hospital pharmaceutical industry in Australia, if a manufacturer is unsuccessful in the tendering process then they may lose access to the entire market.

5 Http://www.health.qld.gov.au/qhcss/mapsu/sdl.asp

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In public hospitals where there is a devolved budget to specialty areas (e.g. oncology) the clinical team will work with the Director of Pharmacy to develop a budget for medications. Given some clinical areas like oncology are proportionally the highest consumers of high cost drugs, there is significant advantage for them to work closely with their specialist pharmacists to rationalise choices of therapy in an attempt to contain costs as much as possible to enable best use of scarce resources.

In most cases the developed formulary will accommodate the needs of most patients within the hospital. When there is a rare occurrence of a need for a non-formulary medication the Director of Pharmacy will decide on the urgency of the situation. If there is a similar medication already on the formulary it may be recommended if clinically appropriate. In consultation with the clinician involved with the patient the Director will seek clinical evidence for the indication and efficacy for the treatment, the cost implications both short term and long term and liaise with the Chair of the Drug Committee and if need be with the Hospital Chief Executive Office to make sure the implications of the supply are recognised. Mostly these situations are “one offs” and can be accommodated by the budget. There are some medications that need to be held by the hospital for rare occurrences. These are often held in the major hospital and shared between a region in the event of rare poisonings or other incidents. It is an accepted role that public hospitals take on for the service of the community in general.

3.2.4 Drug Committees

This complex area of cost effectiveness evaluation requires skills that are often not available in each individual hospital. As a result, there has been the development of specialised therapeutic advisory groups in most states that provide for state governments and drug committees evidence and cost-effectiveness data with which to make informed decisions on medications availability and indications. As a group they are known as the Council of Australian Therapeutic Advisory Groups6. Their role is to investigate and evaluate new initiatives in therapeutics and by doing so promote safe, rational, high quality, cost-effective use of medicines in public hospitals and the wider community in an unbiased and objective manner. These committees specifically support the Drug and Therapeutics Committees in public hospitals across Australia in making informed and rational decisions on applications made for listing medications on the hospital formulary.

Historically, public hospitals across the country have developed drug committees that are delegated to make decisions concerning which medications will be available to patients via a formulary in their hospital or group of hospitals. In general, these committees consist of senior clinicians, clinical pharmacologists and the Director of Pharmacy with support from senior pharmacists who provide clinical trial and data support. It would be unusual for such a committee to have any pharmacoeconomic experience or input.

Drug committees usually meet monthly and the items on the agenda are requests for new medications or indications for a medication directly from a clinician. Generally, drug companies are not permitted to make application directly to these committees. The data presented to the committees is usually presented in a pre-formatted way using application forms developed by the committee. Each hospital tends to have its own forms and approaches to medicines decision-

6 http://www.ciap.health.nsw.gov.au/nswtag/

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making. Frequently data included in the submissions is from drug companies that the clinician has been provided to assist the application. Pharmacoeconomic data is sometimes presented although it is generally based on less complex modeling evaluations than considered by PBAC. Those individuals interviewed identified that access to PBS pharmacoeconomic data would assist hospital drug committees to make more informed decision on the financial impact of a new therapy on their drug budgets. Currently this data is not available to public hospital drug committees as it is “commercial-in-confidence” data. In addition, for many hospital indications, there may be little clinical data specifically relating to hospital uses upon which a full PBS-type decision could be made. This gap in data and evaluation is one of the major hurdles that would need to be overcome if there were to be a move towards a national or harmonized system for funding of medicines between community and hospital sectors.

The governance of hospital drug committees rests with the appointed clinicians. Their role is to make informed decisions on the clinical relevance and importance of a therapy taking into account current evidence on safety and efficacy and other available therapies at a comparative cost. Costs may also include factors such as reduced length of stay or staffing reductions due to the impact of the new therapy.

Most hospitals will not accept a drug for use in the hospitals without approval by the drug committee. This includes the recent practice of “familiarisation programs” where new medication is supplied directly to patients on the approval of a clinician who is participating in such a program7. These programs are offered by the pharmaceutical industry to facilitate deferred costs, cost free or or subsidised access medications that are included on the Australian Register for Therapeutic Goods by the TGA for public hospital patients prior to Pharmaceutical Benefits Scheme (PBS) listing or prior to some other funding arrangement. This method of “product familiarisation” has produced significant patient, clinician and hospital issues around continuance of supply if the medication does not get PBS listing and as such has required the development of Guiding Principles for Product Familiarisation for Public Hospitals from the Council of Australian Therapeutic Advisory Group to make sure the pharmaceutical industry and clinicians are aware of their responsibilities to the patient in such ventures.

The great challenge for many drug committees is to maintain some financial control over the costs of therapeutic agents available in the hospital. Rationalisation of the number of brands and selection of only a few medications from a class of agents is frequently done and this is based on evidence and therapeutic guidelines prepared by the learned societies and prescribing services (e.g. National Prescribing Service or Therapeutic Guidelines or the UK NICE Guidelines) or from the Council of Australian Therapeutic Advisory Groups. Medications required outside those recommendations must be supported by a clinician with significant clinical argument for such variance provided to the committee.

3.2.5 The influence of PBS listing on the hospital formulary

7 http://www.ciap.health.nsw.gov.au/nswtag/publications/guidelines/CATAGPFPGuidingPrinciples.pdf

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Once a medicine is listed on the PBS there is pressure for that medicine to then be listed on a public hospital formulary. This does not automatically occur. A submission must be made to the Drug Committee by the industry for inclusion by a clinician. Given the number of individual products listed on the PBS it is not realistic for a hospital to stock all brands or individual products within a group of medicines on the hospital formulary. Frequently a drug committee will decide to chose select items to be listed on a formulary that address the majority of patient’s needs with clinicians input and trial evidence to support that decision. Multiple brands of the same medication are not stocked. This means patients will receive the same medication in hospital but often receive a different brand that may be a different colour or shape that may cause confusion if they are not properly counselled. It is the role of the clinical pharmacist to ensure patients and clinicians are educated in the variance in all hospital prescribed medications, and that they recognise the potential consequences of changing brands, especially in terms of medication adherence.

3.2.6 Off Label- non-TGA approved therapies

One particularly challenging area for public hospitals is the area of use of medications for non-approved (not approved by TGA) uses of medications. Clinical practice evolves at a much faster rate than legislative or bureaucratic processes or even commercial interest. The rates at which new developments in clinical practice occur make it very difficult for organisations and industry to keep up with the formal application processes to occur in healthcare provision. Clinicians are keen to provide the best patient care to patients particularly when few alternatives may be available or the patient has limited time for treatment (e.g. end of life issues). In this circumstance public hospitals will develop processes to enable patients to be availed of treatment for which there is limited evidence (i.e. recent published data from a reputable journal) but the patients or next of kin will need to give consent.

Interestingly children are the group most often in the situation of needing medications for which they are not approved by TGA. Given the scarcity of clinical trials undertaken in children there is often no approved indication for the use of medications used in adults for this population. In addition there is often no formulation developed for the paediatric population therefore the pharmacy will have to develop an extemporaneous preparation for the very young to enable the medication to be administered in a usable way. In these situations consent needs to be attained for each episode of care and as much information as possible needs to be provided to the patient or carer. Missing will be any long-term data on the treatment in specific clinical situations. When this occurs clinicians are encouraged to submit the cases to the medical literature to build up some body of experience.

3.2.7 Ability of Industry to influence formulary applications

The pharmaceutical industry has recently adopted the 15th edition of the Medicines Australia Code of Conduct8 that governs standards, support, professionalism and promotion of quality use of medicines consistent with the National Medicines Policy9. The development of policies by public hospitals to refuse direct representation to drug committees from industry is to make sure that the decision of inclusion is made on clinical grounds and not as a marketing exercise for industry. When it appears to a Drug Committee that the application has been provided for a clinician by industry without evidence of the clinical need the application may not proceed.

8 http://www.medicinesaustralia.com.au/pages/images/Medicines_Australia_Code_of_Conduct _Edition_15.pdf

9 http://www.health.gov.au/internet/main/publishing.nsf/Content/National+Medicines+Policy-2

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In most public hospitals access to clinicians by the pharmaceutical industry representatives (reps) is limited. Junior medical staff are usually not accessible to reps unless they are sponsoring a meeting at the hospital. Senior staff may receive reps in their offices to keep them informed of new products available.. Attendance at conferences or reviewing current publications in their area of practice is more commonly used as the method of choice for prescribers. Adoption of best practice guidelines developed by the specialist professional societies and other expert groups such as the NPS, Council of Australian Therapetuic Advisory Groups and NICE have more influence on prescribing and clinical practice. Many public hospitals will have policies and behaviours that must be adhered to by pharmaceutical industry representatives while they are in a public hospital.

3.3 POLICY CONTEXT - NATIONAL HEALTH AND HOSPITALS REFORM COMMISSION

The National Health and Hospitals Reform Commission (NHHRC) was established by the Commonwealth Government after the terms of reference were announced by the Council of Australian Governments (COAG) in late 2007. The Commission was charged with the task of providing advice on performance benchmarks and practical reforms to the Australian health system which could be implemented to address problems with access to services, the growing burden of chronic disease, population ageing, costs and inefficiencies generated by blame and cost shifting, and the escalating costs of new health technologies. The NHHRC was required to develop a long term reform plan for a modern Australia and which addressed eight specific issues (see Appendix 1). While all of these can be related in someway to hospital pharmacy, four are of particular relevance, as identified by SHPA (2008):

1. reduce inefficiencies generated by cost-shifting, blame-shifting and buck-passing;

2. better integrate and coordinate care across all aspects of the health sector, particularly between primary care and hospital services around key measurable outputs for health;

3. better integrate acute services and aged care services, and improve the transition between hospital and aged care; and

4. provide a well qualified and sustainable health workforce into the future.

In addition, a set of service design and governance principles were developed to underpin the NHHRC’s thinking about health reform and the design of Australia’s future health system (NHHRC, 2008 & 2009). The Commission identified the service design principles as: people and family centred; equity; shared responsibility; strengthening prevention and wellness; value for money; providing for future generations; recognising broader environmental influences that shape our health; and comprehensive. The governance principles included: taking the long term view; safety and quality; transparency and accountability; public voice; a respectful and ethical system; responsible spending on health, and a culture of reflective improvement and innovation. These principles apply to both the public and private sector, and to both hospital and community based services.

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The Commission recognised that Australia currently has ‘a fragmented health system with a complex division of funding responsibilities and performance accountabilities between different levels of government’ and that ‘it is ill-equipped to respond to these challenges’ (2009, p3). In developing ‘a practical national plan for health reform that will benefit Australians, not just now but well into the future’ (p3, 2009), the NHHRC identified a number of health and health care challenges and made numerous recommendations. However, neither hospital pharmacy nor the funding and use of medicines in hospital were discussed by the NHHRC in its final report. Nonetheless, various priorities/policy levers and recommendations made by the Commission in it’s reform agenda target major changes in the operation and funding of Australian public hospitals. As such they are very relevant to and will impact on the public funding of hospital medicines, the way in which hospital-based pharmacists undertake their work, and on patient outcomes in terms of adverse drug events and continuity of medication use on discharge. These are summarised in Table 4.

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Table 4 Selected recommendations by the NHHRC and their implications for hospital medicines.

Priority/Lever Recommendations Implications of Hospital Medicines Timely access to quality care in public hospitals

Take action to improve timely access to quality care in public hospitals, particularly care in emergency departments and access to planned surgical and medical care

Reducing waiting times for specific hospital services may also reduce, or at least change, patients’ need for and reliance on drugs to manage their health problems.

Connect and integrate health and aged care services

Reshape hospitals by expanding specialty services in the community; separate the provision of elective and emergency services in public hospitals to provide better access to and efficient delivery of planned surgery and procedures; and review public hospital outpatient services to ensure that they are more closely designed around the needs of patients, including providing more of these services in community settings outside hospitals.

New arrangements for the dispensing and funding of pharmaceuticals may be required with increased emphasis on community settings e.g. increased use of the PBS. Integrating health and aged care services may improve the continuity of care and medication use post-discharge.

Modern, learning and supported workforce

Develop a new framework for the education and training of health professionals which moves towards a flexible, multi-disciplinary approach, and incorporates an agreed competency-based framework for all health professionals.The health workforce to be supported by effective communication across all parts of the health system; investing in management and leadership skills; and providing timely relevant data on comparative clinical performance and latest practice knowledge to support best practice and continuous quality improvement.

Hospital pharmacists may play an increasingly important role in a flexible multidisciplinary clinical team.Improved communication and information on clinical performance and best practice may improve the quality use of medicines in hospitals and reduce the likelihood of adverse drug events.

Smart use of data, information and communication

Use an e-health agenda to drive improved quality, safety and efficiency of health care. Introduce a person-controlled electronic health record for each Australian.

A person-controlled electronic health record is seen as one of the most important systemic opportunities to improve the quality and safety of health care, reduce waste and inefficiency, and improve continuity of care and health outcomes for patients. Adverse drug events are expected to be reduced with a personal electronic health record as it will be easier to manage medicines and their interactions through having access to medical and medication histories.

Well-designed funding and strategic purchasing

To improve the efficiency of both public and private hospitals, introduce the use of efficient ‘activity-based funding’ for hospitals using casemix classifications.

Activity-based funding refers to making payments on the basis of ‘outputs’ delivered by health services. This funding model links funding to the actual services provided such as a separation, emergency department visit or outpatient consultation. It allows funders to compare costs across different health service providers in providing the same health service, and thus may lead to more efficient use of pharmaceuticals in hospitals (noting that implementation will require a measure of efficiency).

Knowledge-led continuous improvement, innovation and research

Make the Australian Commission on Safety and Quality in Health Care a permanent national organisation.

The ACSQHC would promote a nationally consistent culture of safety and quality across the health system, analyse and report on safety and quality, and monitor and assist in its regulation.

Healthy Australia Accord Change the funding arrangements for public hospitals and health care services, with the Commonwealth Government paying State/Territory Governments activity-based benefits for public hospital care and other public health care services.

Under this funding arrangement, the Commonwealth Government would pay 100 percent of the efficient cost of public hospital outpatient services with an agreed, capped activity-based budget; and 40 percent of the efficient cost of every public patient admission to a hospital, sub-acute or mental health care facility and every attendance at a public hospital emergency department (with the possibility of increasing this contribution over time). This would potentially change the

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balance of source of funding for hospital medicines.

4 IDENTIFIED ISSUES WITH THE CURRENT SYSTEM AND OPPORTUNITIES FOR REFORM

As described in the previous section, the funding and regulation of hospital medicines is complex and fragmented. Several issues relating to the costs and funding of hospital medicines have been identified as arising from this and will be discussed here. The system of regulation and funding of hospital medicines has implications for the cost of medicines, equity of access and government funding, the continuity of care and health outcomes and the work required to maintain the system.

4.1 CONTINUITY OF CARE AND HEALTH OUTCOMES

The division of funding and regulation of pharmaceuticals between the community and hospital sectors in Australia has long been identified by pharmacists as an issue of concern in terms of health outcomes (SHPA, 2008; Pfizer, 2008). Although data is somewhat limited, it suggests that a substantial number of adverse drug events and admissions to hospital are attributable to confusion surrounding the overlap of community and hospital care (SHPA 2008, Pfizer 2008). For example an earlier study found that for 72 per cent of patients the list of medications prescribed by the hospital at discharge differed from what the patient’s GP understood the patient to be taking before admission (Mant et al 2000). The practice of patients’ ‘usual’ medications being provided by the hospital while they are admitted along with enough for several days at discharge is a key source of problems in this regard. Patients can become confused when taking home small amounts of medications from the hospital, especially when they may look different or have different names to what they are used to due to branding. Further, patients may be unable to get to the GP following discharge before their supply runs out. Current ‘silo’ funding arrangements also prevent continuing medication management being provided by hospital pharmacists on discharge, and it had been suggested that such management would be useful in preventing adverse drug events following discharge and smoothing the transition from hospital to home (SHPA, 2008).

4.2 COST SHIFTING

Cost shifting, especially between the Commonwealth and State governments, is commonly identified as a problem with the current funding arrangements for medications in Australia (JATAG, 2009; Pfizer, 2008; SHPA, 2008). It could be said to an extent that this is artificial as hospitals receive around half their funding from the Commonwealth via the AHCA (Pfizer, 2008). However, it has been suggested that there are in fact incentives to shift costs embodied in the system, leading to inequities and inefficiencies (SHPA, 2008). First, there are incentives within public hospitals to shift inpatients to outpatients in order to claim Commonwealth funding for medications. Second, the provision of patients’ usual prescriptions while in hospital shifts this cost from the PBS to State funds, and then back to the State at discharge.

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4.3 INEQUITIES OF ACCESS AND FUNDING

Across the hospital system, there are inequities of access to, and funding of, medications between patients in public and private hospitals. Many patients in private hospitals are able to access the PBS to cover drugs administered while they are in hospital, with the remainder being paid by the patient themselves or by their insurer. In public hospitals the majority of drugs are covered by the State or Territory government through the hospital’s budget. While the PBS is not capped, drugs used in public hospitals are part of the hospital budget which is capped and many hospitals may need to stop buying medications especially towards the end of financial year. Individual formularies in most hospitals mean that the same drugs, or at least, the same brands of drugs are not available across all public hospitals. As discussed in the previous section, it is common for drugs to be used for purposes outside of their PBS indications in hospital, and in this case the drug is covered by the hospital budget. However, if the patient were to continue using the drug outside of hospital, it would not be covered by the PBS for this indication. In a private hospital, it is likely such a prescription would be covered by the patient’s insurance or by the patient themselves.

4.4 VALUE FOR MONEY

A key issue surrounding the largely individual formularies for each public hospital is whether this generates the best value for money in drug expenditure when each hospital must negotiate its own price and supply of drugs. Arguably if formularies were put together at a national or state level, drugs would be able to be purchased more cost effectively. However, as identified by Pfizer (2008), drug manufacturers could face difficulties in meeting such supply demands, and the change in market balance would have broad implications for competition and pricing. While efficiency is important, drug efficacy also has to be kept in mind and that formularies need to offer choice in therapy as some patients may not tolerate or respond to certain key medications in a therapeutic class.

4.5 DUPLICATION OF WORK

Further, the management of a formulary for each individual public hospital represents the duplication of work. Arguably greater cost effectiveness would also be achieved by a national or state level committee/s to formulate a national / state level drug list.

State and Commonwealth administrative procedures and requirements are also seen to impose additional administrative activities that are often viewed to be unnecessary, a duplication and a waste of resources.

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5 PROPOSALS FOR REFORM Three key submissions were made to the NHHRC regarding the funding of hospital medicines and their suggestions for reform are briefly outlined here. These suggestions provide examples of the types of questions that would be desirable to ‘answer’ using a model such as that scoped in this Report. Notably the SHPA (2008), the Joint Australian Therapeutic Advisory Group (2008) and Pfizer (2008) submissions all include recommendations for collecting better data on pharmaceuticals used in hospitals for enhanced analysis and planning. The submissions made to the Commission share some similar broad aims including equitable access to medicines for all patients across the care continuum and adherence to Quality Use of Medicines principles. However they differ in the reforms they suggest to reach these aims, and also in some further aims and principles. Discussion with interested stakeholders indicated that these options encompassed the majority of suggestions regarding possible reform.

5.1 SOCIETY OF HOSPITAL PHARMACISTS OF AUSTRALIA (SHPA)

SHPA is the national professional organisation representing pharmacists, pharmacy technicians and associates practicing in public and private hospitals and other health service facilities. SHPA has compared five reform options, including the status quo, across a range of aims. The possible reform directions analysed are as follows (SHPA, 2004 & 2008):

1. Continue the current implementation of Clause 35 of previous AHCA.

2. Expand the availability of medicines on the PBS to better suit the hospital environment e.g. access to inpatients in public hospitals, revised pack sizes and access for inpatients.

3. Introduce a hospital specific PBS list i.e. additional medicines, indications, revised pack sizes and access for inpatients.

4. The Australian government provides funding for all medicines used in hospitals (block funding) and work towards systems to merge with the PBS.

5. The Australian government provides funding for all pharmacy services (clinical distribution and management) including all medicines used in hospitals.

SHPA compare how each of these options with regard to an extensive range of objectives, including (SHPA, 2008):

Supports all patients: in public and private hospitals, non-admitted, inpatients and medicines required on discharge

Builds on local evaluation and monitoring systems used to promote the quality use of medicines and manage the cost of medicines in hospitals

Efficient distribution system for medicines

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Meets the clinical needs of individual patients, this includes access to investigational medicines and medicines for non registered indications

Clinical governance

Corporate governance

Data collection, evaluation and review

Equity of access and remove incentives for cost shifting

Integration with community based PBS and other services

QUM and patient safety

Seamless to prescribers and patients

Staffing requirements

Teaching and research

Technology requirements

Impact on medicines industry

Comparing the expected outcomes of each of the options against these objectives, SHPA suggests that Option 4 or 5 would be most desirable: either the Commonwealth provides funding for all medicines used in hospitals, with a view towards merging the system to the PBS; or, the Commonwealth provide funding for all pharmacy services (clinical distribution and management) including all medicines used in hospitals.

We have selected Options 2 and 5 for evaluation in this study. In Option 5, both the acquisition costs of medicines and the costs of the professional pharmacy services that accompany their use in hospitals are funded together with funds from the Commonwealth. However, SHPA points out that there will still be some medicines that will be funded by the hospital or third parties (e.g. medicines used in clinical trials, new medicines prior to PBS listing or medicines for patients ineligible for services through Medicare).

5.2 JOINT AUSTRALIAN THERAPEUTICS ADVISORY GROUPS (JATAG)

This was formally an individual submission to the NHHRC submitted by Charles Denaro, Chair of JATAG (Denaro, 2008). While the document was not vetted by all stakeholders in the Joint TAGs, it did reflect many ideas canvassed by JATAG and thus we label these reform ideas as those of ‘JATAG’ rather than Assoc. Professor Denaro. In addition to a range of suggested administrative reforms, the major reform suggested that is relevant to this Report is the move towards a national formulary and establishment of a national committee to administer this.

The submission states that this proposal would:

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‘in one single blow – eliminate the current inequity of access to high-cost pharmaceuticals that is occurring across the country, stop cost-shifting and its inherent waste, allow patients to be discharged from hospital with adequate supplies of medications, would allow health professionals moving from one institution to another to work with the same set of medications, policies and procedures’ (Denaro, 2008, p2)

A key issue underlying JATAG’s call for reform is the need for improved and detailed pharmaco-economic evaluation of pharmaceuticals to assist in the decision-making on their listing on hospitals’ (or State) drug formularies. This currently occurs with drugs submitted for listing on the PBS. JATAG indicates that many high-cost pharmaceuticals are suited for in-hospital or public hospital use and are unlikely to be considered by the Pharmaceuticals Benefits Advisory Committee (PBAC), or will have been rejected for PBS-listing on cost-effectiveness grounds. Denaro states ‘the decision to list such pharmaceuticals on hospital formularies is haphazard across the country and in many instances, decisions are made at a local hospital level’ (Denaro, 2008, p1). As a result of this variable decision-making process, access to medicines – especially high cost drugs – in hospitals is inequitable across the country and cost-shifting between hospital services and between State and Commonwealth is common. This results in wastage of resources in unnecessary bureaucratic processes and duplication of work, and in many cases value for money in purchasing medications is not achieved.

In the ‘JATAG’ call for reform, it is also suggested that the lack of uniformity in hospital formularies impacts on patient safety through the risk of adverse drug events. When doctors, nurses or pharmacists move from one institution to another, or between the public and private sector, they may face different formulary listings, different methods for prescribing, and different hospital policies and procedures which may impact on the prescribing and safe dispensing of medicines.

A single national formulary for all public hospitals would require the Commonwealth to fund the cost of all pharmaceuticals in hospitals. This proposal is equivalent to SHPA’s Option 3 ‘a hospital specific PBS list’.

5.3 PFIZER AUSTRALIA

Pfizer’s submission summarises and analyses a range of current and past reform suggestions but with a focus on two of NHHRC’s principles ‘value for money’ and ‘responsible spending on health’.

Pfizer defines eight principles relating to funding and five relating to the safe, appropriate and effective use of medicines in hospitals that they feel should govern any reforms, and compare past and current reform suggestions against these objectives. The principles for reform identified by Pfizer are as follows (Pfizer 2008):

Funding principles

1. Ensuring access to medicines for all Australians in hospital

2. Creating harmony between the hospital and community funding systems

3. Maintaining the integrity of the PBS and RPBS

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4. Preserving individual hospitals’ ability to select their own formularies to meet their local needs

5. Selecting medicines should involve assessing their clinical benefits, not just their cost

6. Exploring better use of medicines data to establish hospital budgets

7. Reducing unnecessary administration

8. Formalising the funding of medicines by private health insurers

Quality principles

9. Enhancing the role of hospital pharmacists and specialist physicians

10. Linking funding of medicines to quality improvement

11. Funding research into medicines and their use

12. Providing the infrastructure necessary for safe and effective medicine use

13. Implementing APAC guidelines

Pfizer then discusses the merit of the following proposed reforms with regard to these principles (Pfizer, 2008):

1. The Australian government should pay for all public hospital medicines (e.g. SHPA Option 5)

2. The extension of the PBS to cover all hospital medicines (e.g. SHPA Option 2)

3. All hospitals use an identical medicines lists [formulary], funded by the Commonwealth (e.g. SHPA option 3 or JATAG proposal)

4. The Commonwealth reimburses all medical services via a voucher system (as general practitioners are reimbursed in the community).

Pfizer highlights potential problems with each of these proposed reforms, and notably rejects the idea of a national formulary, highlighting the issue that manufacturers, both big and small, would have trouble meeting supply for the entire nation, and that companies that did not make the list would likely collapse with broad implications for competition and pricing. Extending the PBS is attractive although like SHPA and JATAG, Pfizer notes that a number of problems would need to be overcome in this approach also. Pfizer identifies some advantages associated with the voucher system, although they believe it would be difficult to administer. Its key advantage is it would eliminate the funding difference between public and private hospitals. The Commonwealth would provide equal baseline for both, but private hospitals would be free to charge additional fees for extra services.

Of the four reform options reviewed by Pfizer, Options 1-3 are already covered in the two SHPA proposals and that by JATAG. The voucher system essentially aims to extend ‘Medicare’ type funding arrangements into hospitals. Given this focuses on broader issues of funding hospital costs – not just those associated with the acquisition of medicines and associated hospital pharmacy costs - this will

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option will not be examined here. However, it can be noted that this proposal calls for the Commonwealth Government to become the primary funder of hospital services, medicines being one component of total costs, and as such has some similarities to the SHPA Option 5 or Pfizer’s Option 1 – a key difference being the opportunity of ‘gap’ payments or above scheduled fees for extra services, and the funding being activity-based i.e. funding is tied to the services provided as advocated by the NHHRC.

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6 CONSTRUCTING A SYSTEM DYNAMICS MODEL OF THE HOSPITAL MEDICINES SYSTEM

6.1 MODELLING APPROACH

Hospital medicines are funded, acquired, prescribed and consumed within a system driven by cause and effect, and is characterised by complex ideas and information. The ‘hospital medicines system’ is a complex system in that it is highly coupled with dynamic processes that play out over time, has feedback effects and many outcomes resulting from the interactions that occur between its many parts.

System dynamics modelling was first developed in the 1950s as a method to enhance the understanding of the functioning and to analyse the behaviour of complex systems over time, now with the help of computer simulation (Homer and Hirsch, 2006; Lyell et al, 2008). This approach involves key system variables, the interactions between them through feedback loops, and the study of the effects of these interactions over time. Coyle (1996, p. 10) defines system dynamics as follows:

‘System dynamics deals with the time-dependent behaviour of a managed system with the aim of describing the system and understanding, through qualitative and quantitative models, how information feedback governs its behaviour, and designing robust information feedback structures and control policies through simulation and optimization’.

Time delays, feedback loops, stocks and flows10, simulation and optimization are the central concepts in a system dynamics approach (Kirkwood, 1998). Coyle (2000) describes 3 stages of system dynamics modelling:

1. description of the system by some type of diagram (e.g. process maps, a feedback and causal loop diagram that links the stocks and flows and sources of information as a graphical notation for representing the system structure);

2. study of the diagram (checking its suitability for the problem, specification of system boundaries, coverage, logic etc.); and

3. quantification (write equations that determine the flows and interactions, estimate parameters and initial conditions, simulate the model and analyse results).

The changing value (behaviour) of one stock (variable) may cause another to change as described by equations and algorithms. Model parameters are established by analysing real data on actual linkages or cause and effect relationships existing at a particular point. Each stock becomes a variable that identifies a quantifiable property of the system that changes over time. Each connecting line can have equations or rules that formalise how one variable affects another. The aim is to establish a predictive framework that allows you to assess changes in target variables and outcomes by changes in specific explanatory variables and processes, for example, to be able to predict the cost of hospital medicines and use of clinical pharmacy services from other system attributes.

10 A stock is any entity that accumulates or depletes over time. A flow is the rate of change in the stock.

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Quantitative modelling is the common practice in system dynamics modelling but Coyle suggests qualitative modelling can also be carried out using a system dynamics approach. An illustration of qualitative or ‘soft’ variables can be found in the system dynamics sub-model of elective care in England, owing to the lack of hard statistics (Royston et al. 1999). Coyle (2000), however, cautions that quantification of essentially qualitative or soft variables, such as motivation, can increase uncertainty in the results.

The utility or power of system dynamics modelling is its simulation capabilities for testing what if scenarios. While initially developed to help corporate managers to improve their understanding of industrial processes, system dynamics is now being used widely for policy analysis, including application in the health field. There are now a number of applications of system dynamics to model issues related to various health care sub-systems in Australia, including a model of hospital medication errors by McDonnell and Heffernan (2005) and national medicines use (PBS drugs)(Heffernan et al, 2004). In the first of these, the model represented the interactions among the key determinants of medication errors, including the complex interactions of patients and staff, information, medications, work practices (including the potential impacts of information and communication technology on work behaviour) and the infrastructure and policies within a hospital environment. This model included qualitative variables such as the quality of interaction. In the second paper, Heffernan and colleagues replicated the demographic projections of first (2002) IGR report and extended the model by incorporating additional detail on medicines use such as drivers of new drug use, feedback of benefits of medicines use on macroeconomics, and structural changes in over, under and misuse of medicines over the next four decades. A further example is that by Gray et al. (2006) who used a system dynamics model enhanced by agent-based modelling techniques to simulate interactions between the acute and aged case systems in Australia. As these researchers comment ‘computer simulations offer an inexpensive, low risk method to test the impact of policy options in health care’ (p450).

6.2 DATA SOURCES

There is a broad range of data that ideally is required to populate the system dynamics model. This Section describes various available datasets providing information that could possibly be useful for the modelling of the funding and use of hospital medicines. Most of these statistical collections do not routinely provide data at the fine level required for the modelling. Customised data requests would need to be made and it is questionable whether unit record data (e.g. at the level of individual hospitals) would be made available. However, the data that is publicly available suggests that the level of data may possibly exist if access to this could be granted.

A combination of datasets would need be used to build the model equations and populate the different stages of the model.

6.2.1 National Hospital Cost Data Collection

The Department of Health and Ageing’s National Hospital Cost Data Collection (NHCDC) database has been identified as perhaps the most useful dataset for this model, and a preliminary analysis is

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provided in Section 6. This Section describes the characteristics of the publicly available dataset which would be useful to the modelling. However, if a higher level of detail could be made available then this would be even more useful to the model.

The NHCDC contains cost and activity data from both public and private acute care hospitals across Australia (DoHA 2008a). The most recent round of published results (2006-07) were based on responses from 47per cent of all public hospitals and 36per cent of all private hospitals, spanning 86per cent and 59 per cent of public and private acute separations respectively.

A range of hospital groupings are provided for the purposes of comparison across cost components, including number of separations, average length of stay, total days stay, the average total cost per separation and a detailed break down of the components of this cost (including pharmacy) and within these their direct and overhead components, by 666 Diagnosis Related Groups (DRGs). DRG cost weights (the average cost of respective DRGs relative to the average cost of all separations) are produced using the NHCDC, for public and private hospitals, peer groups, teaching and non-teaching hospitals, major urban and non-major urban hospitals, and the five biggest States (NSW, Victoria, Queensland, South Australia and Western Australia). Public hospital funding is commonly allocated using these weights, such that establishment funding is relative to the frequency of separations for each DRG multiplied by associated cost weights. This funding allocation process motivates public hospitals to maintain costs at levels similar to their peers, after accounting for differences in case mix. Peer groups are also derived from the NHCDC for the purposes of cost per case mix-adjusted separation analysis (comparing the costs and activities) across hospitals with similar levels of activity.

Cost data is included for private hospitals also, however, comparison of this data with that for public hospitals is problematic as the range of costs incurred across the two sectors are inherently different. For example, a large share of medical and pharmaceutical expenditure in private hospitals is billed directly to patients, which are subsequently not included in the NHCDC.

The summary data provided in Table 5 quantifies the extent of these differences by comparing the percentage of total costs allocated to each cost component (also referred to as cost buckets), and the ratio of these costs, across the public and private sectors. As shown in the three final columns, cost ratios for thirteen of the sixteen components differ by more than 1.5 times or 150 per cent between the public and private sector, whether in terms of direct costs, overhead costs or both. Considerable caution thus needs to be exercised when comparing average costs between the public and private sectors.

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Table 5 Percentage of total costs by component, and cost ratio by component, Public & Private Sector, Round 11

Public (AR-DRG 5.1) Private (AR-DRG 4.2)

DirectCosts

Over-head

Costs TotalDirectCosts

Over-head

Costs Total

Direct

Costs

Over-head

Costs Total(%) (%) (%) (%) (%) (%) Cost ratio

Ward Medical 14.31 10.91 12.61 1.31 0.41 1.04 10.92 26.61 12.13Ward Nursing 25.67 22.65 24.16 24.72 3.67 18.48 1.04 6.17 1.31Non-Clinical Salaries 2.54 6.84 4.69 1.99 8.14 3.81 1.28 1.19 1.23Pathology 3.79 3.17 3.48 0.15 0.19 0.17 25.27 16.68 20.47Imaging 3.32 2.9 3.11 0.39 0.34 0.37 8.51 8.53 8.41Allied Health 2.35 2.43 2.39 1.36 0.79 1.19 1.73 3.08 2.01Pharmacy 5.54 3.82 4.68 2.66 0.47 2.01 2.08 8.13 2.33Critical Care 8.21 7.37 7.79 6.75 5.18 6.28 1.22 1.42 1.24Operating Room 13.34 12.48 12.91 22.31 21.5 22.07 1.67 1.72 1.71Emergency Department 5.07 4.73 4.9 0.88 0.62 0.8 5.76 7.63 6.13Ward Supplies 3.16 6.06 4.61 2.79 16.41 6.83 1.13 2.71 1.48Specialised Procedure Suits 1.19 1.15 1.17 3.28 2.75 3.12 2.76 2.39 2.67Prosthetics 3.79 2.37 3.08 24.11 2.54 17.71 6.36 1.07 5.75Staff On-costs 4.51 5.45 4.98 3.85 3.82 3.84 1.17 1.43 1.30Hotel Overheads 1.96 4.3 3.13 2.12 23.95 8.59 1.08 5.57 2.74Depreciation 1.25 3.33 2.29 1.34 9.22 3.68 1.07 2.77 1.61

Total 100.00 100.00 100.00100.0

0 100.00 100.00 1 1 1

Cost Ratio – Public hospital costs higher Cost Ratio – Private hospital costs higher

Source: National Hospital Cost Data Collection (2008a).

Although data are retained by DoHA at the hospital establishment level and in many cases the patient level, all publicly available data are de-identified and presented in aggregate format. Written permission from the organisation from which the data originated is necessary to procure disaggregated data at the establishment or other level. This level of data is required in order to make valid cost component comparisons between private and public hospitals with similar functionality or departments.

6.2.2 National Public Hospital Establishments Data Collection

The AIHW’s National Public Hospital Establishments (NPHE) data collection is a census of public hospitals collecting details on capacity, staffing and limited financial information compiled by the Australian Institute of Health and Welfare (AIHW). It is collated from the routine administrative collections of public acute hospitals, psychiatric hospitals, drug and alcohol hospitals and dental hospitals in all States and Territories. Analysis by peer group is possible, meaning that it is feasible to compare operationally similar establishments. Data on recurrent expenditure is available for

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categories such as salaried medical officers, visiting medical officers, drug supplies and repairs and maintenance. However, with both the public data cubes and AIHW standard reports, expenditure data is only available by State and Territory (not type of hospital).

Some data is publicly available in data cubes and requests can be made to access extracts of the data at a unit (hospital) record level. The available data cubes contain data on capacity measures including number of hospitals, number of beds, separations, bed days and occasions of service and financial and staffing measures. The data is also largely published in the annually updated publication Australian Hospital Statistics (see AIHW 2008 for 2006-07 data) which also includes summary tables on public hospital recurrent expenditure and revenues.

The data also includes:Types of services:

• Specialised service indicators (a broad range of indicators relating to sections of the hospital for example including obstetric/maternity service, specialist paediatric service, psychiatric unit/ward, intensive care unit etc).

• Type of non-admitted patient occasions of service (for example accident and emergency, dialysis, pathology, radiology and organ imaging)

• Type of admitted patient episode (for example mental health, alcohol and drug, nursing home type, rehabilitation etc).

Administrative data:• Full time equivalent staff: Salaried medical officers, registered nurses, enrolled nurses,

student nurses, trainee/pupil nurses, other personal care staff, diagnostic and health professionals, administrative and clerical staff, domestic and other staff

• Number of hospitals• Number of available beds for admitted patients

Establishment data:• State or territory of the hospital• Sector (public hospitals only) • Charging status (public patients, private patients, DVA patients, compensable and ineligible

patients)Financial data:

• Total revenue• Patient revenues • Recoveries • Other revenues• Total expenditure• Total salaries and wages expenditure by staffing categories• Total non-salary expenditure (payments to visiting medical officers, drug supplies,

superannuation payments, medical and surgical supplies, food supplies, domestic services, repairs and maintenance, patient transport, administrative expenses, interest payments, depreciation, other recurrent expenditure)

• Average admitted patient cost proportionQuality of care (relative stay index):

• Number of Separations from public hospitals for admitted patients• Number of Patient days for admitted patients

Demographic data:• Sex• Age group (in 5-year groups)• Indigenous status

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As data is collected by each hospital, the actual definitions used by the data providers may vary from year to year and between jurisdictions and sectors. Comparisons between the States and Territories, reporting years and hospital sectors should be therefore made with caution.

6.2.3 National Hospital Morbidity Database

The AIHW’s National Hospital Morbidity Database (NHMD) is a comprehensive census of hospital separations across both the public and private sectors. This database is compiled by the AIHW from data supplied by the State and Territory health authorities and is a collection of records for admitted patients separated from public and private hospitals in Australia. Cost data is not available restricting analysis to epidemiological and administrative metrics. Cross-tabs are publicly reported for a range of variables, including comparisons between the public and private sector for some variables and metrics. However, the data cubes do not permit any more detailed comparisons to be made between the public and private sectors. While requests can be made for either custom data extracts or access to the unit records upon which the collection has been built, this is likely to involve the need to obtain clearance from individual State and Territory authorities which may impose their own restrictions on the use of their data.

This dataset includes information on:Clinical data

• Urgency of admission • Principal diagnosis (the diagnosis established after study to be chiefly responsible for

occasioning the patient's episode of care in hospital) • Additional diagnoses (include co-existing conditions and/or complications) • Procedures (surgical and non-surgical) • Major Diagnostic Category (MDC) and Australian Refined Diagnosis Related Group (AR-DRG) • Care type (for example acute, rehabilitation, palliative, newborn) (from 1995-96 for some

jurisdictions; the newborn category was introduced in 1998-99) • Admission mode (source from which the person was transferred/referred) • Separation mode (status at separation: discharge/transfer/death and place to which person

is released) • Intended length of stay (same day or overnight) • External causes of injury or poisoning • Places of occurrence of external cause • Activity when injured (from 1998-99)

Establishment data• State or territory of the hospital (NSW, VIC, QLD, WA, SA, TAS, ACT, NT)• Sector (public/private hospital) • RRMA (Rural, Remote and Metropolitan Areas) and other characteristics of the hospital (for

public hospitals only) (from 1995-96) • ARIA (Accessibility/Remoteness Index of Australia) of the hospital (from 1998-99, and only

for some jurisdictions) • Remoteness Area of the hospital (from 2000-01).

Financial data• Estimated average cost for the AR-DRG (for the public and private sectors)

Quality of care-Length of stay data• Admission and separation dates • Leave days • Same day flag (to indicate separation/discharge on the same day as admission)

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Patients: Demographic data• Sex • Date of birth • Age, age group (in 5-year groups) • Country of birth (from 1996-97) • Indigenous status • State and local area of residence (Statistical Local Area, Statistical Subdivision, Statistical

Division; from 1997-98) • RRMA Rural (Remote and Metropolitan Areas) of patient's residence (from 1995-96) • Remoteness Area of patient's residence (from 2000-01).

Details on Source of funding• Funding source data elements including Admitted patient election status, Funding source

for hospital patient, Department of Veterans' Affairs patient and Medicare eligibility status

6.2.4 Private Hospital Establishment Collection

Information on private hospitals is compiled by the ABS (not AIHW as for public hospitals). The ABS’s Private Hospital Establishment Collection contains statistical information for 1992-93 to 2006-07 financial years, obtained from an annual census of all licensed private hospitals in Australia. It contains details about the facilities, activities, staffing and finances of all private hospitals, including both private acute and/or psychiatric hospitals and free-standing day hospital facilities.

The dataset includes information on:Clinical data:

• Number of separations • Number of patient days for admitted patients • Average length of stay for admitted patients• The average number of sessions per operating theatre per week• The total number of procedures• Principle diagnosis• Mode of Separation• Occasions of service in non-admitted patients services (value)• Major diagnostic category• Procedure• External causes of principle diagnose• Specialized units: Neonatal Intensive Care unit (level II, level III), Separate Intensive Care

Unit and/or separate Coronary Care Unit, Combined Intensive/coronary care units, High dependency unit, Rehabilitation unit, Hospice care unit.

Administrative data: • Number of hospitals• Number of hospitals with operating theatres, number of operating theatres• Number of hospitals with dedicated day surgery units, number of dedicated day surgery

units• Number of available beds for admitted patients • Full time equivalent staff : Salaried medical officers, Registered nurses, Enrolled nurses,

Student nurses, Trainee/pupil nurses, Other personal care staff, Diagnostic and health professionals, Administrative and clerical staff, Domestic and other staff.

Establishment data:• State or territory of the hospital (NSW, VIC, QLD, WA, SA, TAS, ACT, NT)• Sector (Acute hospitals and Psychiatric hospitals; Free-standing day hospital facilities)

Financial data: • Patient revenues • Recoveries

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• Total expenditure• Total salaries and wages expenditure by staffing categories• Total non-salary expenditure (Payments to visiting medical officers, Superannuation

payments, Drug supplies, Medical and surgical supplies, Food supplies, Domestic services, Repairs and maintenance, Patient transport, Administrative expenses, Interest payments, Depreciation, Other recurrent expenditure)

Average admitted patient cost proportion:• The proportion of patient separations reported as being covered by hospital insurance

Demographic data:• Sex • Age group (in 5-year groups) • Election status (public and private patients, self-paying patients)

Details on source of funding: • Election status (public and private patients, self-paying patients)

6.2.5 IMS Health Pharmaceutical Sales Data

IMS Health Australia Pty Ltd collects confidential data on ‘warehouse’ sales of pharmaceuticals to community (retail) and hospital pharmacies in Australia. These data can be purchased by interested clients (or accessed through third party access agreements). Their National Hospital Audit database contains information at the national level on pharmaceutical sales available by manufacturer, products, packs, molecule, and therapeutic class. IMS Health records both the volume (number of units sold) and the dollar value of the sales. The data are available by month, and although it is collected for both public and private hospitals, it is not broken down by sector in the national hospital audit. While it may be possible to aggregate sales by State/Territory, it is not routinely collated by jurisdiction.

Given the aggregated nature of this dataset, it is unlikely that it could contribute significantly in the model development. However, one advantage is that it can provide information on the use and cost of pharmaceuticals by hospitals by therapeutic class. The cost of pharmaceuticals vary significantly among the different therapeutic classes, hence a hospital’s casemix will impact on its overall pharmaceutical budget.

6.2.6 Quality and Safety of Hospital Care – Adverse Drug Events

Adverse drug events are one performance indicator for monitoring and assessing the quality and safety of hospital care. Adverse drug events can include inappropriate dosages, inappropriate combinations of drugs and use of drugs not recommended for a particular age group (Burgess et al, 2005; Roughead and Semple, 2009). Under the National Health Performance Framework, ‘safety’ has been defined in terms of the avoidance or reduction to acceptable limits of actual or potential harm from health care management or the environment in which health care is delivered (AIHW 2009). Similar definitions are commonly used (Runciman, 2006) - the former Australian Council for Safety and Quality in Health Care, now succeeded by the Australian Commission for Safety and Quality in Health Care (ACSQHC) defined safety as the degree to which potential risk and unintended results are avoided or minimised (www.aihw.gov.au/safequalityhealth/definitions.cfm). From this perspective, an adverse event is an incident in which harm results to a person receiving health care (Runciman, 2006; AIHW 2009). Thus, an adverse drug event is any incident involving a medicine that causes harm to the patient. They include harm that results from known adverse drug reactions,

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medication errors or system failures associated with the manufacture, distribution or use of medicines (NPS, 2009; Roughead and Semple, 2009). At an aggregate level, ‘quality’ is assessed in terms of the extent to which a health care service or product produces a desired outcome. At a more detailed level, as described in the National Health Performance Framework, quality is seen as a guiding principle in assessing how well the health system is performing in its mission to improve the health of Australians (www.aihw.gov.au/safequalityhealth /definitions.cfm).

The Australian Commission for Safety and Quality in Health Care (ACSQHC) was established 1 January 2006 to provide national leadership in health care safety and quality (www.aihw.gov.au/ safequalityhealth/aust_stats.cfm). The ACSQHC publishes a number of reports which provide a general picture of adverse drug events in Australia but has limited data which could be used in quantifying the system dynamics model.

The Australian Council on Healthcare Standards (ACHS) is an independent private sector not-for-profit organisation which aims to improve the quality of health care in Australia through the ongoing review of performance, assessment and accreditation (www.aihw.gov.au/safequalityhealth/aust_ stats.cfm). The ACHS publishes a clinical indicator report based on its Clinical Indicator Program (CIP) (ACHS, 2008). The CIP is a service offered to public and private hospitals in Australia and New Zealand. The CIP has a large number of clinical indicators, ranging across 23 different areas and includes information on selected adverse events, adverse drug reactions being one of these. In 2006, some 159 hospitals provided data on eight clinical indictors for adverse drug events but only two related to non-specific adverse drug reactions, the other six relating to the drug Warfarin. In addition, the Productivity Commission has highlighted a number of weaknesses with this source of data:

participation in the CIP is voluntary, and so the sample may not be representative; the number of reporting hospitals is often small, and so sample sizes may not be sufficient

to reach robust conclusions about the relative performance of the public and private hospital systems; and

the ACSQHC review raised concerns about data collection and validation methods used for the CIP (Productivity Commission, 2009a).

The ACHS is not prescriptive about how participating organisations collect their data and there is no requirement that an organisation monitors a specific number of indicators. However, they must ensure that the data they do collect are in strict accordance with the specified definitions in order to provide consistency in the data submitted to ACHS.

The best source of data to examine adverse drug events as a system outcome measure appears to be AIHW’s National Hospital Morbidity Database (as described above). Using specific ICD-10-AM codes, it is possible to extract adverse event data for both public and private hospitals from the NHMD. The NHMD separations data include ICD-10-AM diagnoses, places of occurrence, and external causes of injury and poisoning which indicate that an adverse event was treated and may have occurred during the hospital admission (AIHW, 2009). However, other ICD-10-AM codes may also indicate that an adverse event occurred or was treated, and some adverse events are not identifiable using these codes i.e. it is likely that the data will be an underestimate as adverse events that are not explicitly described or recorded in hospital medical records will not be ascribed to the ICD-10-AM codes. The data contained in the NHMD collection should therefore be interpreted as representing selected

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adverse events that have resulted in, or have affected, hospital admissions, rather than all adverse events that occurred in hospitals (AIHW, 2009).

ICD-10-AM codes Y40-Y59 (within Chapter XIX Injury, poisoning and certain other consequences of external causes) identify separations with an external cause coded as an adverse effect caused by ‘drugs, medicaments or biological substances in therapeutic use’. These hospital stays represent those caused by an adverse drug event as a complication of medical and surgical care. However, the AIHW states in its 2009 publication ‘Australian Hospital Statistics 2007-08’ that ‘the data [on adverse events] for public hospitals are not comparable with the data for private hospitals because their case mixes differ and recording practices may be different’ (pg 53).

Unfortunately, the AIHW does not routinely report on this specific category of hospital separations, favouring the broader category of ‘complications of medical and surgical care’ (ICD-10-AM codes Y40-Y84) and data on adverse drug event separations are suppressed on the NHMD online data cube. However, customised requests can be made to the AIHW to get Y40-Y59 separations broken down by a range of variables e.g. age and gender, hospital peer group, or State and Territory (conditional on sample size).

In addition, the ABS also uses the ICD-10-AM codes Y40-Y59 to report the annual number of deaths in Australia caused by adverse drug events in hospitals. Again only aggregate numbers are readily accessible and the small numbers limit the extent of disaggregation by other variables.

6.3 CAUSAL LOOP DIAGRAM OF THE HOSPITAL MEDICINES SYSTEM

In this Section we describe the causal loop diagram (CLD) (visual representation of the system dynamics model) of the current system of hospital medicines. As discussed in Section 5.1, the CLD identifies the key agents/elements in the system, the interactions and feedbacks that link them, and the system outcomes that are of interest.

48

47

Modelling O

ptions for the Public Funding of Hospital M

edicines in Australia

Figure 2 Causal loop diagram of the hospital medicines system in Australia


Adverse drugevents


discharge

Hospitalpharmacy

Formularytype

Case mix

Size ofpharmacy

Roles ofpharmacists

Drug price

Drugpreferences

Tenderingprocess

Patients

No. of seperations



Day-only

Demographics

HospitalPeer group

State


Remoteness

Hospitalbudget


Cost toCommonwealth(S100, PBS)






Off label use

Role of TAG

PharmaceuticalIndustrysupplier


Adverse drugevents


discharge

Hospitalpharmacy

Formularytype

Case mix

Size ofpharmacy

Roles ofpharmacists

Drug price

Drugpreferences

Tenderingprocess

Patients

No. of seperations



Day-only

Demographics

HospitalPeer group

State


Remoteness

Hospitalbudget


Cost toCommonwealth(S100, PBS)






Off label use

Role of TAG

PharmaceuticalIndustrysupplier


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Following our investigations, points of concern identified with the existing system and proposed changes identified in the three reform options, we have designed the model around four interacting partial models. As shown in Figure 2, these model the industry characteristics and business activities of pharmaceutical companies manufacturing and supplying hospital based medicines; the characteristics of the hospital as an organisational entity; features related to hospital pharmacy based around the purchasing, acquisition, prescribing and dispensing of medicines in hospital; and patient-related characteristics and behaviour. Some of the relationships shown in the CLD will be able to be quantified while others will be of a more qualitative nature, for example, changing the role of the pharmacist to become an integral member of the clinical team and have a more active role in actual medication management and decision-making.

Far more detailed decision algorithms have been developed by other researchers and health professionals for some specific aspects represented in the model. As indicated earlier, the hospital medicines system is very complex and individuals and health organisations have studied particular components and processes. For example, the NSW Therapeutic Advisory Group has developed decision algorithms for both the evaluation of medicines for formulary listing in public hospitals and for individual patient use (IPU) approval. These are provided in Appendix 2.

Ideally, the model would draw on information on the following:

Table 6 Components of system dynamics modelPharmaceutical Supplier

Hospital Establishment Hospital Pharmacy Patients

Products manufactured/supplied (including new drugs, generics etc)

Public / private sector Size of pharmacy Breakdown of inpatients, outpatients and day only patients

Therapeutic area(s) Hospital peer group (for public hospitals)

Role of pharmacists Number of separations

Sales volumes, share of market

State/Territory Formulary type (i.e. state-wide / campus / individual)

Average length of stay

Tendering processes Remoteness Role of TAG Patient demographicsBusiness practices Hospital budget Drug preferences Case mix (DRGs)Industry competition Doctor prescribing

behaviourMedication complexity

Off-label useNew drugsDrug pricesTendering processes

Data on drugs and costs is central to the model, and ideally it should be informed by data broken down by drug class and other system variables.

The model primary outcome measures (akin to system key performance indicators) are:

The cost of hospital medicines (drug expenditure by $ amount and proportion of a hospital budget)

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Expenditure by different funding sources

Number of adverse drug events (as a complication of surgical and medical care) as a measure of quality and safety

Continuity in medication post-discharge (e.g. measured by having a medication action plan, supply of medicines information to patient or sufficient supply of drugs is provided on discharge).

The model contains a number of stocks and allows for a wide range of comparative analyses. If the model can be appropriately populated with data then it is theoretically possible to extract information, for example, on the range, volume and cost of drugs dispensed by different hospital peer groups by State/Territory by DRG. The model should be able to illustrate the effect of having a centralised State-wide formulary versus an individual hospital based formulary, or indicate - at least qualitatively - the effect of having multi-disciplinary and flexible clinical teams involved in medication management and decision-making.

In summary, the model has been designed to allow users to answer the basic question of:

How do changes in the pharmaceutical industry, characteristics and behaviour of hospitals, hospital pharmacy and/or patients affect the expenditure on hospital medicines, adverse drug events, continuity of care on discharge, and source of funding?

In modelling terms, if we change system parameters or re-define the processes and interactions operating within the system then how will this impact on system outcomes?

At present, the model has been constructed with the view that the basic unit of analysis is an individual hospital establishment. However, if unit record data cannot be obtained then the model could be operationalised using public hospital peer groups and private hospitals as the unit of analysis.

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7 GENERAL FINDINGS

7.1 USE OF MEDICINES IN AUSTRALIA’S HOSPITALS

This Section presents analysis of selected data from the Department of Health and Ageing’s National Hospital Cost Data Collection, 2006-07. This section focuses on comparisons of the number of separations, average length of stay (ALOS), average total cost, average cost of the pharmacy component of a separation, and the pharmacy component as a percentage of average total cost per separation by public hospital peer group and state and territory, in order to present a snapshot of some of the variation in hospital ‘use’ and cost by peer group and state with a view towards informing the modelling of pharmaceutical funding in hospitals.

Data presented in this Section largely refers to the overall average per separation, in order to present an overview. However, the case mix and number of admissions in hospitals of different peer groups of course has major impacts on this. Data in the collection is available at the level of 666 Diagnostic Related Groups (DRGs), between which there is extreme variation. All DRGs do not apply to all hospitals, and between DRGs there is a great deal of variation in terms of separations, ALOS, cost and the pharmaceutical component of treatment. In order to compare hospitals using this data, AIHW have identified a list of 20 DRGs that are useful for the comparison of hospitals on the basis of:

• Homogeneity where variation can be attributed to the performance of the hospital;

• Representativeness across clinical groups;

• Differences between jurisdiction or sectors; and

• Policy interest (AIHW, 2009).

Tables comparing hospital indicators for these selected DRGs by peer group and State and Territory are provided in Appendix 3, and are referred to throughout this Section.

In 2006-07, the total cost of medicines (including the cost of containers but not pharmacy service costs) dispensed in Australian public acute and psychiatric hospitals was $1.4bn (AIHW, 2009). Unfortunately, recurrent expenditure on drug supplies by private hospitals is reported as part of the broader category of ‘drug, medical and surgical supplies’. In 2006-07, this amounted to $1.7bn. In the public sector drug costs represent about 36 percent of the expenditure on drug, medical and surgical supplies. If this is similar in the private sector then private hospitals would have purchased around $630m worth of drugs (ABS, 2008). Furthermore, about a third of medicines used in private hospitals are reimbursed directly from the PBS and these costs are not counted in the $630m (Pfizer, 2008). IMS Health in their hospital audit for 2006-07 recorded an almost identical level of total expenditure on pharmaceuticals by Australian hospitals at $2.03bn.

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In 2007-08, there were 4.7 million separations to public hospitals and 3.1 million to private hospitals. Half of patients admitted to public hospitals and two-thirds of patients in private hospitals were ‘day-only’ (same day) patients. There were over 16 million outpatient clinical services provided and over 7.1 million presentations to emergency departments in public hospitals – one in three individuals attending an emergency department were admitted to hospital or referred for treatment

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Figure 3 Share of separations by public hospital peer group, 2006-07

A167%

B110%

B25%

C17%

C24%

D10%

G0%

A26%

D31%

Peer group A1 – principal referral and specialist women’s and children’s hospitals – accounts for around two thirds of separations in 2006-07 (Figure 3). This is unsurprising as, as shown earlier in Table 2, group A1 and A2 hospitals account for 56 per cent of public hospital beds nationally. As shown in the Appendix 3, A1 hospitals have the most separations of the peer groups and represent the greatest proportion of separations for each of the selected DRGs. The most frequent DRG of the selected group for each of the public hospital peer groups except G, and in fact the private sector, is the vaginal delivery of babies without Cscc. In hospitals in peer group G the most common DRG of those selected is Chronic Obstructive Airway Disease Cscc, however the number of separations for this group across DRGs are significantly lower than the order of separations in larger hospitals. As shown in Appendix 3 some DRGs, even within the selected ‘representative’ group are not included in the case mix of some of the smaller hospital peer groups, for example hip and knee replacements.

Figure 4 Average length of stay by public hospital peer group, 2006-07

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3.22.9

2.7 2.6 2.5 2.6

3.8

2.4

3.4

00.5

11.5

22.5

33.5

4

A1 A2 B1 B2 C1 C2 D1 D3 GPeer group

Ave

rage

Len

gth

of S

tay

(Day

s)

Figure 4 compares the ALOS across all DRGS by public hospital peer group, and shows that at the aggregate level there is variation between peer groups. The longest overall ALOS is in peer group D1 hospitals – small acute regional hospitals – of 3.8 days, and the shortest of 2.4 in D3 remote acute hospitals. When ALOS is compared for the selected DRGs by peer group in Appendix 3 the variation between DRGs can be seen. The longest ALOS for most of the peer groups is for Major Affective Disorders A<70 (without Cscc). The average stay is longest in the private sector, of 19.8 days, compared to 13.7 in an A1 public hospital. The length of stay for this DRG generally decreases with hospital size, suggesting that the most serious cases are perhaps referred to the major hospitals. This long-stay DRG is most common in the private sector with an estimated 12,163 separations and A1 public hospitals with 6,435 separations; however each hospital peer group has separations within this DRG, including small sub-acute and non-acute hospitals.

Figure 5 compares the overall average cost per separation. The greatest cost per separation is in A2 public hospitals which include specialised acute women’s and children’s hospitals with more than 10,000 acute case mix adjusted separations per year. The most common DRGs in these hospitals include births and bronchitis and asthma A<50 without Cscc. While the costs for these most common treatment groups at A2 hospitals are roughly on par with A1 hospitals, the average cost per separation for some other DRGs are significantly higher in these hospitals that A1 hospitals, as shown in Appendix 3, perhaps due to the hospitals’ specialisation. For example in an A2 hospital the average cost per separation for Major Affective Disorders A<70-Cscc is $18,617 compared to $10,055 for an A1 hospital. For heart failure and shock without Cscc the average cost per separation is $12,770 in an A2 hospital compared to $4,377 in an A1 hospital.

Figure 5 Average cost of per separation by public hospital peer group, 2006-07

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4,079

4,871

3,106 2,986 2,8722,571

2,9353,305

2,727

0

1,000

2,000

3,000

4,000

5,000


Ave

rage

tota

l co

st p

er s

epar

atio

n ($

)

Overall A1 hospitals have the second highest average total cost per separation, and then there is less variation in the average cost per separation between the smaller peer groups, which range from $2,571 to $3,305. The estimated overall average total cost per separation in private hospitals is $2,754 roughly about average in comparison to the public hospital peer groups, although the calculation of costs for the public and private sectors includes different components and thus comparison is problematic. Across the private sector and public sector peer groups (excluding, A2, D1, D3 and G which do not have separations under these DRGs) the DRGs with the greatest average total cost per separation are Hip Replacements without Cscc and Knee Replacement and Reattachment. For Hip Replacements without Cscc the average cost ranges from $14,366 in a C1 public hospital to $17,719 in a private hospital. For Knee Replacement and Reattachment the average cost ranges from $15,382 in a private hospital to $19,726 in a C2 hospital. Notably most separations under both these DRGs are in the private sector, although as noted comparisons between the private and public sectors with this data should be treated with caution.

As shown in Figure 6 there is substantial variation in the cost of pharmaceuticals between public sector peer groups, most likely related to case mix and scale, and pharmacy services. Similar to total cost, the greatest average pharmaceutical costs per separation are in A2 specialist women’s and children’s hospitals, at $219 per separation on average. A1 hospitals have a similar pharmaceutical cost per separation at $209, and then costs generally fall with hospital size, with the exception of D3 hospitals which have relatively higher pharmaceutical costs than other smaller hospitals, which is also similar to the pattern of average total costs shown in Figure 5.

Looking at the costs of pharmaceuticals by DRG in Appendix 3 it is clear there is substantial variation in the costs of pharmaceuticals per separation by DRG. The highest pharmaceutical costs per

Figure 6 Average cost of pharmaceuticals per separation by public hospital peer group, 2006-07

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209 219

140122

82 77 72

106

72

0

50

100

150

200

250


Ave

rage

tota

l pha

rmac

y co

st p

er

sepa

ratio

n ($

)

:

separation among the selected DRGs are for Lymphoma and Non-Acute Leukaemia- Ccc, ranging from $282 in a D3 hospital to groups, although the range of costs varies greatly across the peer groups. For example while $282 is the highest pharmaceutical cost for a DRG among those selected in a D3 hospital, there are several other DRGs with similar pharmaceutical costs, while in an A1 hospital the second highest cost after that associated with a Lymphoma and Non-Acute Leukaemia- Ccc separation of $1,947 is that of $330 for Major Affective Disorders A<70 without Cscc. This disparity could reflect the seriousness of cases in major hospitals, or scale issues.

Figure 7 Average cost of pharmaceuticals per separation as a proportion of total cost by public hospital peer group, 2006-07

5.14.5 4.5

4.1

2.9 3.02.5

3.22.6

0

1

2

3

4

5

6


Ave

rage

pha

rmac

y co

st a

s %

of t

otal

av

erag

e co

st p

er s

epar

atio

n (%

)

:

The proportion of the total cost of a separation made up of the pharmaceutical component varies from 2.5 per cent in a D1 hospital to 5.1 per cent in an A1 hospital (Figure 7). Notably the pharmaceutical component of average total cost per separation increases with the size of the hospital. This could be related to the cost of staffing in larger hospitals, as some smaller hospitals may not have pharmacy departments in the same sense as larger hospitals do. This also relates to the hospital case mix. Similarly, for the costs of pharmaceuticals in dollar terms, there is substantial

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variation in the cost of pharmaceuticals as a proportion of the total cost of separations by DRG. Again the costs of pharmaceuticals for separations within the Lymphoma and Non-Acute Leukaemia- Ccc DRG is an outlier, especially in larger hospitals, for example forming 27.5 per cent of the total costs of a separation in an A1 hospital.

State is also a useful unit for comparing hospitals as it gives some reflection of the systems by which pharmaceuticals are funded and purchased within the hospitals. Data from the DoHA Cost Collection gives is publicly available by DRG for New South Wales, Queensland, South Australia, Victoria and Western Australia, but not for the smaller jurisdictions of Tasmania and the territories. Comparison of the share of separations between the five states covered showed that just under a third all public hospital separations are in each of NSW and Victoria, 18 per cent in Queensland, ten per cent in WA and nine in South Australia. Comparison of ALOS, total cost, pharmaceutical cost and pharmaceutical cost as a proportion of total costs showed that at this aggregate level there was little variation between the states, and these charts have been included in Appendix 3.

7.2 HOSPITAL MEDICINES BY THERAPEUTIC CLASS

The tables and figures above show that hospitals will spend differently on pharmaceuticals according to their hospital type. Hospitals have different case mixes and their formularies need to span therapeutic classes in accordance with their patient case loads. It is well known that some types of medicines are far more expensive than others – cancer drugs for example – and there will be different costs and risks associated with different drugs between and within therapeutic classes. Table 7 provides a broad picture of pharmaceutical sales to Australian hospitals in 2007-08 by therapeutic category (top level ATC classes) using IMS Health’s National Hospital Audit data.

IMS Health recorded total sales of $2bn. in 2007-08, with expenditure growing by over 8 percent per year over the two previous financial years. Two ATC categories accounted for nearly half of all sales -cancer and immunosuppressant therapies (ATC Category L) accounting for nearly 30 percent of all hospital expenditure on drugs and systemic anti-infection drugs (ATC – J) contributing to a further 20 percent.

Table 7 Cost of hospital medicines by therapeutic class, 2007-08ATC Category Number of

companies selling products in ATC Category

Sales Annual growth in expenditure

2005-06 to 2007-08 (%)$ million % Total

A - Alimentary tract and metabolism 56 79.52 3.9 3.6B - Blood and blood forming organs 29 227.06 11.2 -0.9C - Cardiovascular System 38 67.56 3.3 3.3D - Dermatologicals 41 8.80 0.4 0.1G – Genito-urinary system and Sex Hormones

31 23.02 1.1 10.0

H - Systemic hormonal preparations, excl. sex hormones and insulins

18 42.73 2.1 14.4

J - Anti-infectives for systemic use 41 414.77 20.4 10.7

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K - Hospital Solutions 16 120.30 5.9 4.8L – Anti-neoplastic and immunomodulating agents

38 584.00 28.7 12.8

M - Musculo-skeletal System 33 64.35 3.2 6.0N - Nervous System 52 269.06 13.2 5.3P - Antiparasitic products, insecticides and repellents

9 1.15 0.1 15.3

R - Respiratory System 27 34.67 1.7 9.4S - Sensory Organs 19 26.91 1.3 29.6T - Diagnostic Agents 24 26.96 1.3 19.3V - Various 28 41.99 2.1 18.6All 2,032.85 100.0 8.3

IMS Health Confidential and Propriety: Source IMS Health Australia Pty Ltd, and National Hospital Audit – topline therapeutic class information

Also provided in Table 7 are the number of pharmaceutical companies selling products in the different ATC classes. In 2007-08, hospitals accessed ‘alimentary tract and metabolism’ or ‘nervous system’ products from over 50 suppliers, but in contrast, only 9 companies sold ‘anti-parasitic products, insecticides and repellents’. In general, the more companies selling products within a therapeutic class, the lower was the annual growth rate in the cost of drug purchase (a simple linear regression analysis indicates that the number of companies selling products within an ATC category explained over 25 percent of the variation in the growth in annual drug expenditure per category – suggesting competition does influence cost).

7.3 ADVERSE DRUG EVENTS

Some 2-4 percent of all hospital separations are medication related with as many as 30 percent of unplanned admissions in older Australians (who typically have complex health problems and are on multiple medications) being due to adverse drug events (Runciman et al, 2003; National Medicines Safety and Quality Scoping Study Steering Committee, 2009; Roughead and Semple, 2009). The majority of adverse drug events occur within the community, leading to hospital admission or re-admission (Roughead and Bedford, 2008). The risk of medication error is particularly high immediately after a patient is discharged from hospital when discontinuities and a lack of co-ordination may occur in their care (Mant et al, 2001; Roughead and Semple, 2008). In a survey of GPs in Sydney, Mant and colleagues found that consultation with the GP about the patient’s medication during the hospital stay occurred in only 11 per cent of patients recently discharged from hospital and that medication management was documented in the discharge plan of only 13 per cent of patients (Mant et al, 2001).

Of the approximate 7 million separations in 2004-05 to Australian public and private hospitals, there were around 320,000 separations recorded as having complications of surgical and medical care (ICD-10-AM Codes Y40-Y84). This means that an adverse surgical or medical event occurred in nearly 5 in every 100 separations. Nearly 30 percent of these separations or over 90,000 separations were due to adverse drug events occurring in hospital (Y40-Y59). Thus, adverse drug events occur in over one

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in every 100 separations. As shown in Table 8 by 2007-08, the total number of separations to Australian public and private hospitals had increased to 7.9 million, but a staggering 358,117 separations were now coded as having a complication of medical and surgical care (AIHW, 2009). Seventy percent of these separations occurred within public hospitals. Of concern is that the number of separations recorded as having an adverse drug event increased at a higher rate (around 4.3 percent per annum) than the growth in all hospital separations or those due to complications of surgical and medical care (Y40-Y84) (both having an annual increase of 3.0 percent per year over the period 2004-05 to 2007-08).

Poor communication of medical information at key transition points appears to be responsible for up to 50 percent of all medication errors in hospital and 20 percent of adverse drug events (Victorian Department of Human Services, 2005). Omission or overdose of medication is the most frequent type of medication incident reported in hospitals (Roughead and Semple, 2009).

In 2007, Y40-Y59 ‘drugs, medicaments and biological substances causing adverse effects in therapeutic use’ was recorded as the underlying cause of death for 59 Australians (ABS, 2009).

Table 8 Separations with adverse events Year Total

separations Complications of surgical and

medical care (Y40-Y84)Adverse drug events

(Y40-Y59)Y40-Y59 as

proportion of Y40-Y84

separationsseparations

with adverse events

separations with adverse

events per 100 separations


events


events per 100 separations

%

2004-05 7,019,000 319,637 4.55 90,371 1.29 28.272005-06 7,312,000 331,711 4.54 96,436 1.32 29.072006-07 7,603,000 348,145 4.58 101,003 1.33 29.01

2007-08 7,874,000 358,117 4.55 106,012 1.35 29.60Source: AIHW, Australian Hospital Statistics, 2004-05 to 2007-08.

7.4 POSSIBLE IMPACTS OF THE REFORM OPTIONS

The possible impacts of the three chosen reform options on key issues are summarised in Table 9. These relate to public hospitals only, and in terms of the system dynamics model primarily reflect changes in hospital pharmacy interactions (see Figure 2) and system outcomes.

Each of the options:

is universal in that it supports all patients;

increases equity of access to hospital medicines with a focus on meeting the clinical needs of individual patients;

improves the supplies of medicines on discharge;

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removes incentives for cost shifting; and

shifts funding to the Commonwealth Government as the single funder, and addresses State-Commonwealth administration issues.

The first option ‘ Commonwealth Government as single funder’ performs the least well as it does not directly impact on issues around hospital formularies which are central to the public funding of hospital medicines and performance of hospital pharmacy and which are addressed by the other two options.

While the proponents of the reform options may claim other benefits, these are less clear and vary between the options, for example,

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Table 9Likely impact for public hospitals of select reform option in addressing key issuesIssue Option For Reform

‘Comm. Govt. Single Funder’

(SHPA Option 5)

‘Extension of the PBS’

(SHPA Option 2)

‘National Formulary’

(JATAG)Patient coverage: - all public hospitals

- non-admitted and inpatients

QUM & Patient safety- judicious, appropriate, effective use ? ? ? - adverse drug events ? ?()

Continuity of care- adequate supplies of medicines on discharge

- continuity of medication use on discharge

? ?()

Integration with community PBS - ?()

Pharmacy services- clinical pharmacy ? ? ?- drug distribution services ?

- management services ? ? ?

Formulary – Drug Listing & Acquisition - access (adequacy of formulary – range of drugs - to meet clinical needs of individual patients)

?()

- off-label use - X ?(X)- hospital management of formulary -

- hospital purchasing & acquisition administrative workload

?

- duplication of work ?

- cost-effectiveness evaluation (value for money)

-

- transparency in decision-making ? ? ?

Costs

- total cost of hospital pharmacy (level of individual hospital)

? ?() ?()

- cost of medicines (level of individual hospital)

? ?() ?()

- cost-shifting

- ability to manage costs in hospital ?

- change in funding source (shift to Commonwealth Govt.)

Note: improvement/positive impact; - no change; X deterioration/negative impact; ? not known; ?( ) potentially an improvement; ?(X) potentially a deterioration

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integration with community care (and PBS), including improving continuity of medication on discharge;

adherence to QUM principles and improved patient safety;

reduction in unnecessary bureaucratic processes, administrative workloads and duplication of work;

robust tendering processes and pricing mechanisms; and

economic evaluation leading to value for money (cost-effectiveness)and responsible spending.

Like all policy reform options, ‘the devil is in the detail’ and these options need further scoping. It is not clear the degree to which individual hospitals will implement cost-control mechanisms and incentives when funding is provided by the Commonwealth. At present, expenditure on hospital medicines is capped through public hospital budgets but under these reform options, expenditure is likely to become uncapped, with funding being ‘activity-based’ (similar to the PBS). Mechanisms need to be put into place to link medicine use to health outcomes, with funding arrangements and formularies allowing for flexibility at the level of the individual hospital to dispense medicines that best suit the clinical needs of the patients while encouraging responsible and cost-effective spending.

A recent hospital pharmacy workforce study has shown that 47 percent of pharmacists’ time is spent on clinical pharmacy services for individual patients, providing drug information to doctors and nurses, and training and education; 38 percent on drug distribution services in terms of acquiring, manufacturing and dispensing medicines; and 15 percent on management services involving managing the medicine and personnel resources of the pharmacy service and hospital-wide activities, such as institutional drug policy management (O’Leary and Allinson, 2009). The introduction of an enhanced PBS-hospital formulary or a national hospital medicines formulary will both positively impact on hospitals through streamlining at the level of the individual hospital drug-listing, pricing, tendering and other acquisition processes. However, while there is strong support for increasing the clinical role of pharmacists, how these reform options will impact on clinical pharmacy services is uncertain. None of the options specifically target clinical pharmacy services which have a major impact on the use of medicines, and consequently pharmaceutical expenditure, as well as adverse drug events. JATAG believe that a national formulary will reduce adverse drug events because health professionals will be able to move between hospitals but still work from the same drug list, using the same prescribing, dispensing and evaluation procedures and policies.

An extended PBS ‘formulary’ should operate in a similar way but because of essential differences between medicines used in the community and hospital-based medicines, this may not be the case. The range of drugs differs and in hospital settings, there are different patterns of use including off-label use and trialling medications for short periods of time. A possible problem with both formulary options is the limitation in off-label use (e.g. non-PBS indications or non-registered indications), and use of ‘investigational’ medicines. Applying a PBS type funding mechanism to hospital medicines further raises the question as to whether or not patient copayments would apply to current PBS-listed medicines prescribed in hospital and to maintain consistency would copayments be introduced for ‘hospital-only’ medicines.

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The impact of these reform options on the total cost of hospital pharmacy and more specifically on the cost of medicines is uncertain because of the possible incentives for hospitals to use more medicines under uncapped funding systems versus the efficiencies and savings that the Commonwealth could achieve as sole funder. With the Commonwealth Government becoming the single funder of hospital medicines and especially if it became the sole ‘purchaser’ through the operation of an extended PBS or national hospital formulary, it is likely that it would exert monopsony purchasing power. It could bring economies of scale and dictate terms to the pharmaceutical companies supplying drugs. This would have major implications for the pharmaceutical industry in Australia. Companies would have to enter robust tendering processes with the Commonwealth and not States or individual hospitals as is the current system, and provide cost-effective evaluations for formulary listing of their medicines – noting that direct transference of PBS listing and pricing processes into the hospital sector is likely to be problematic given the nature of hospital medicines e.g. for the funding of high-cost medicines where the cost per individual unit dose is very high. Currently, the evaluation of drugs for use in hospitals focuses mainly on efficacy and not value for money. JATAG (2008) suggest that for a national hospital formulary not all members of a drug class need to be listed, a strategy of selecting only some members of a class of drugs where there is not much difference between the members (me-too drugs) will improve price competitiveness in the tendering process.

As suggested it is uncertain how such a system might play out – if hospitals introduce cost control mechanisms and efficiency gains accrue at the Commonwealth level then there will be overall improvements in expenditure. However, in their submission to the NHHRC, Pfizer paints an alternative picture with higher prices and jeopardised drug supply being the outcomes:

‘To take a hypothetical example: if three manufacturers currently supply Medicine X in Australia, and if the Commonwealth placed only one of these brands on a national medicines formulary, the other two companies would quickly cease to supply Medicine X in Australia. Without competition, there would no longer be any reason for the sole supplying manufacturer to keep its prices low—and the Commonwealth would no longer have a mechanism to contain aggressive cost increases. And the Commonwealth would have no alternative sources of supply’ (Pfizer, 2008, p8).

With a fully functional system dynamics model it would be possible to evaluate the impact of different Industry behaviours in response to other system changes on costs and drug supply.

The possible outcomes for the three reform options have been modelled for public hospitals. The extension of the PBS (SHPA Option 2) would offer public patients a similar level of access as private patients (recalling that about one third of their medicines use in private hospitals is already being funded through the PBS). Also JATAG suggest that there is no reason why private hospitals could not base their drug acquisition decisions on a national hospital formulary, although it by no means mean that the Commonwealth Government would assume the extra cost burden of funding all private hospital medicine use.

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8 CONCLUSIONS

This Report addresses the issues that influence the development of public hospital formularies in Australia. Clinical need drives most inclusions with representation of new items primarily coming from the clinicians themselves, as Industry mostly is not able to directly influence the inclusion of their products. Tender processes enable Directors of Pharmacy in collaboration with their Health Departments to select items that have been listed through a competitive process. There is no obligation in most cases to only purchase from the tender with the exception of Queensland Health.

Directors of Pharmacy can directly negotiate with Industry to achieve an outcome that addresses their hospital’s needs. Bundling of products (i.e. purchasing a range of products at a negotiated reduced price) and creative payment options can be an attractive option for some hospitals to spread payments across financial periods particularly during high throughput periods.

The PBS can influence the items listed on a formulary but in general restrictions apply to the range of items listed by selection of key items within therapeutic groups based on evidence-based recommendations. Organisations such as the National Prescribing Service and the Council of Australian Therapeutic Advisory Groups assist Drug Committees in all public hospitals to rationalise the size of their formularies but address therapeutic need in the most cost effective way. The challenge the Drug Committees face in rationalisation of therapies is limited access to usable pharmacoeconomic data such as that provided to the PBAC for product listing on the PBS. In addition, there is little access to qualified pharmacoeconomists to interpret data at a hospital level. Currently most Directors of Pharmacies in Australian public hospitals feel they have systems that work adequately for them to address patient need. They do identify the increase in high cost drugs and the possibility of across the board use of the PBS for hospital discharges as a challenge for the future both in cost, continuity of care, infrastructure requirements and junior prescriber education.

Various reform options have been put forward in the public domain by stakeholders to improve key outcomes in Australia’s hospital medicines system. Although a number of submissions were made to the National Health and Hospitals Reform Commission, no direct recommendations were made by the Commission concerning the public funding of hospital medicines. However, as shown, the broader issues raised by the Commission have relevance and overlap changes proposed or identified by the Society of Hospital Pharmacists of Australia, the Joint Australian Therapeutics Advisory Groups and Pfizer. The NHHRC, SHPA, JATAG and Pfizer all call for improvements in quality and safety, improved access and continuity of care, appropriate economic evaluation and funding models, removing incentives for cost-shifting, transparency and accountability in decision-making, and enhancing the role of health professionals (hospital pharmacists) through shared responsibilities, flexibility and multi-disciplinary clinical teams.

It was not be possible to develop a fully functional system dynamics model within the timeframe and budget of the current project, largely because of the significant limitations in the publicly available data. However, understanding how the hospital medicines system works – whether this be the current system or one of the alternative funding options – and the way in which key outcomes might

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change at an aggregate or descriptive level because of changes to the system elements and processes is a good first step in advocating and evaluating policy change.

The initial development of the model through the causal loop diagram provided a means to enhance our understanding of the systemic causes of hospital medicine use and costs in Australia. It could be used in a qualitative manner to hypothesize the likely impacts of the three reform options studied.

Further work to quantify and operationalise the model will allow the policy levers and reform options identified in the reform proposals discussed, or alternative formulations, to be more thoroughly and rigorously tested on the simulation and the results evaluated for their improvement to the system outcomes. The usefulness of the model ultimately will depend on how well it represents the real world. This in turn depends on the underlying assumptions, the construction of the causal relationships and feedback loops, whether the appropriate concepts, processes, relationships and interactions are captured and the quality of the input data.

However, in undertaking this review of the issues and challenges in hospital pharmacy and the funding of hospital medicines in Australia, and in scoping the development of the system dynamics model, it has become clear that action needs to be taken by Government sooner than later. Models are a cost-efficient way of testing ‘what-if’ policy scenarios that address real world issues. Expenditure on pharmaceuticals vary greatly between hospitals and patients have different access to medicines depending on where and what type of hospital they are admitted to. One in every 100 separations from Australian public and private hospitals involves an adverse drug event that was sufficiently severe that it was reported on the patient’s medical file and coded into official hospital statistics. It is timely given the release of the NHHRC’s final report on reforming Australia’s health care system that the reform of public funding of hospital medicines is also addressed. The three proposals examined in this Report would all provide benefits. These and other possible alternatives should be studied in much greater detail to provide the Commonwealth Government with the necessary platform to introduce policy change to the public funding of medicines in Australian hospitals.

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O’Leary, K., and Allinson, Y.M. (2009). Snapshot of the Australian Public Hospital Pharmacy Workforce in 2007. Journal of Pharmacy Practice and Research, 39(1), 28-33.

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Roughead, E.E and Semple, S. (2009). Medication safety in acute care in Australia: where are we now? Part 1: a review of the extent and causes of medication problems 2002-2008. Australia and New Zealand Health Policy, 6(1), 18.

Roughead, E.E and Semple, S. (2008). Literature Review: Medication Safety in Acute Care in Australia. Report to Australian Commission on Safety and Quality in Healthcare.

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Runciman, W.B. (2006). Shared meanings: preferred terms and definitions for safety and quality concepts. MJA, 184 (10), S41-S43.

Runciman, W.B., Roughead, E.E., Semple, S.J. and Adams, R.J. (2003). Adverse drug events and medication errors in Australia. International Journal for Quality in Health Care,15, 149-159.

Society of Hospital Pharmacists of Australia (2008). ‘Submission to the National Health and Hospitals Reform Commission’, May 2008.

Society of Hospital Pharmacists of Australia (2004). Moving Forward – the Fundingof Medicines in Australia’s Hospitals. Discussion Paper, SHPA, Melbourne, Vic.

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APPENDIX 1 TERMS OF REFERENCE FOR THE NATIONAL HEALTH & HOSPITALS REFORM COMMISSION

The Commission will report on a long-term health reform plan to provide sustainable improvements in the performance of the health system addressing the need to:

a. reduce inefficiencies generated by cost-shifting, blame-shifting and buck-passing;

b. better integrate and coordinate care across all aspects of the health sector, particularly between primary care and hospital services around key measurable outputs for health;

c. bring a greater focus on prevention to the health system;

d. better integrate acute services and aged care services, and improve the transition between hospital and aged care;

e. improve frontline care to better promote healthy lifestyles and prevent and intervene early in chronic illness;

f. improve the provision of health services in rural areas;

g. improve Indigenous health outcomes; and

h. provide a well qualified and sustainable health workforce into the future (NHHRC, 2008).

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APPENDIX 2 DECISION ALGORITHMS ON THE EVALUATION OF MEDICINESNSW Therapeutic Advisory Group (February 2008)

a) Decision Algorithm for evaluation of medicines for formulary listing in public hospitals

b) Decision Algorithm for evaluation of medicines for individual patient use (IPU) approval.

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APPENDIX 3 PUBLIC AND PRIVATE HOSPITAL ACTIVITY AND COST OF PHARMACY BY SELECTED DRG AND BY STATE

Number of separations for selected DRGs by sector and public hospital peer group, 2006-07Public Peer Groups

DRG DRG Description

Private Sector -

EstimatedPublic Sector A1 A2 B1 B2 C1 C2 D1 D3 G

E62C Respiratory Infectn/Inflamm-Cc 4,635 21,942 10,310 1,251 2,241 1,048 1,657 878 198 350 86E65B Chrnic Obstrct Airway Dis-Cscc 5,052 21,937 10,766 214 2,357 1,043 1,815 1,622 265 231 142E69C Bronchitis & Asthma A<50 -Cc 1,484 26,050 11,307 5,293 2,371 1,181 1,715 1,170 128 134 78F62B Heart Failure & Shock - Ccc 6,660 22,672 12,169 19 2,140 1,142 1,471 1,430 251 219 117F71B N-Mjr Arythm&Condctn Dsrd-Cscc 11,131 28,819 16,312 101 2,732 1,881 1,729 1,655 225 178 122G07B Appendicectomy - Cscc 5,640 17,983 10,471 1,338 1,792 1,283 906 303 12 141 ******G08B Abdom & Oth Hrn Pr 0<A<60-Cscc 7,114 7,294 3,212 359 858 479 800 435 22 49 16G09Z Inguinal&Femoral Hernia Pr A>0 22,803 17,614 7,135 635 2,291 1,119 2,182 1,114 78 83 46H08B Lap Cholecystectmy-Cde-Cscc 16,605 19,080 9,879 45 2,624 1,371 2,182 867 26 88 0I03C Hip Replacement - Cscc 11,561 7,250 4,552 ****** 919 421 669 107 ------ 0 0I04Z Knee Replacemt & Reattach 20,861 11,476 6,652 ****** 1,756 730 1,327 135 ****** 0 0I16Z Other Shoulder Procedures 24,499 5,841 3,166 18 649 334 704 201 27 ****** ******L63B Kdny & Unry Trct Inf A>69/+Scc 4,184 15,804 9,021 93 2,039 606 1,071 787 102 73 76M02B Transurethral Prostectomy-Cscc 12,011 6,527 3,283 0 984 489 498 294 41 14 ------N04Z Hysterectomy For Non-Malignanc 12,655 12,201 5,342 1,005 1,491 1,004 1,151 579 67 64 33N06Z Fem Repr Sys Reconstructive Pr 9,707 6,712 2,923 496 908 540 567 331 38 31 39O01C Caesarean Delivery -Cscc 30,159 42,901 21,678 4,776 4,339 2,544 2,112 1,709 137 263 30O60B Vaginal Delivery -Cscc 37,273 105,050 52,886 11,772 11,949 5,943 4,807 3,788 342 685 84R61B Lymphma &N-Acute Leukaemia-Ccc 6,574 8,095 5,221 254 904 274 207 322 50 35 16U63B Major Affective Dsrd A<70-Cscc 12,163 10,311 6,435 93 649 370 903 395 60 88 35

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Average length of stay (days) for selected DRGs by sector and public hospital peer group, 2006-07Public Peer Groups

DRG DRG DescriptionPrivate Sector -


E62C Respiratory Infectn/Inflamm-Cc 5.1 3.4 3.4 2.5 3.1 3.2 3.0 6.0 5.0 3.7 4.2E65B Chrnic Obstrct Airway Dis-Cscc 7.1 4.7 4.6 3.7 4.6 4.7 4.5 4.9 6.2 5.3 6.8E69C Bronchitis & Asthma A<50 -Cc 2.1 1.6 1.7 1.4 1.5 1.6 1.6 1.7 1.6 2.1 1.8F62B Heart Failure & Shock - Ccc 7.8 5.1 4.8 7.2 5.2 4.8 5.3 5.9 6.0 4.2 8.7F71B N-Mjr Arythm&Condctn Dsrd-Cscc 2.2 2.3 2.2 2.8 2.3 2.5 2.3 2.5 2.7 2.0 2.3G07B Appendicectomy - Cscc 2.5 2.8 2.7 3.4 2.6 2.8 2.6 2.7 2.7 2.5 ******G08B Abdom & Oth Hrn Pr 0<A<60-Cscc 1.4 1.6 1.8 1.0 1.4 1.6 1.4 1.3 1.6 1.8 1.3G09Z Inguinal&Femoral Hernia Pr A>0 1.4 1.4 1.5 1.1 1.2 1.6 1.3 1.2 1.5 1.3 1.3H08B Lap Cholecystectmy-Cde-Cscc 1.8 1.9 2.1 2.4 1.6 2.0 1.5 1.6 1.5 2.9 0.0I03C Hip Replacement - Cscc 7.2 7.0 7.2 ****** 6.7 6.2 6.1 6.9 ------ 0.0 0.0I04Z Knee Replacemt & Reattach 7.4 7.4 7.8 ****** 6.8 6.7 6.6 6.9 ****** 0.0 0.0I16Z Other Shoulder Procedures 1.6 1.6 1.7 1.6 1.5 1.5 1.5 1.5 2.2 ****** ******L63B Kdny & Unry Trct Inf A>69/+Scc 7.1 5.1 4.9 5.2 5.0 5.1 5.4 5.7 7.2 5.2 6.2M02B Transurethral Prostectomy-Cscc 3.1 2.9 3.1 0.0 2.7 3.0 2.5 2.8 2.6 3.1 ------N04Z Hysterectomy For Non-Malignanc 4.1 3.8 3.9 3.9 3.6 3.6 3.8 3.5 3.8 3.7 3.3N06Z Fem Repr Sys Reconstructive Pr 3.0 2.7 2.7 3.0 2.6 2.6 2.7 2.7 3.6 2.1 1.9O01C Caesarean Delivery -Cscc 5.1 4.3 4.1 4.5 4.1 4.3 4.3 4.4 5.7 4.6 4.6O60B Vaginal Delivery -Cscc 4.2 2.9 2.8 2.9 2.7 3.0 3.0 3.2 4.6 3.4 3.3R61B Lymphma &N-Acute Leukaemia-Ccc 4.4 4.7 5.2 3.9 4.5 4.0 3.6 2.9 5.6 2.1 2.7U63B Major Affective Dsrd A<70-Cscc 19.8 12.3 13.7 10.0 13.3 11.3 11.7 4.6 6.6 3.9 6.1

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Average total cost per separation for selected DRGs by sector and public hospital peer group, 2006-07Public Peer Groups

DRG DRG Description

Private Sector -


E62C Respiratory Infectn/Inflamm-Cc 2,563 3,084 3,270 3,374 2,576 2,670 2,677 5,063 3,546 4,982 2,820E65B Chrnic Obstrct Airway Dis-Cscc 3,022 3,862 4,141 4,905 3,268 3,086 3,309 3,509 3,907 6,706 3,990E69C Bronchitis & Asthma A<50 -Cc 1,334 1,876 1,882 2,078 1,656 1,899 1,816 1,693 1,446 2,846 1,582F62B Heart Failure & Shock - Ccc 3,533 4,206 4,377 12,770 4,030 3,386 4,263 3,892 3,972 4,875 5,518F71B N-Mjr Arythm&Condctn Dsrd-Cscc 1,688 1,976 2,105 4,618 2,056 1,892 1,828 1,510 1,482 3,015 1,441G07B Appendicectomy - Cscc 2,976 5,075 5,129 5,866 4,759 4,459 5,495 4,206 3,674 6,401 ******G08B Abdom & Oth Hrn Pr 0<A<60-Cscc 2,185 3,570 3,932 1,676 3,394 3,607 3,423 3,211 2,739 3,794 3,469G09Z Inguinal&Femoral Hernia Pr A>0 2,356 3,514 3,810 1,625 3,288 3,567 3,263 3,270 2,929 3,623 3,489H08B Lap Cholecystectmy-Cde-Cscc 3,197 5,118 5,475 5,674 4,571 4,701 4,438 4,775 4,354 6,348 0I03C Hip Replacement - Cscc 17,719 15,587 15,500 ****** 17,044 15,093 14,366 16,995 ------ 0 0I04Z Knee Replacemt & Reattach 15,382 17,351 17,238 ****** 17,718 17,045 16,939 19,726 ****** 0 0I16Z Other Shoulder Procedures 3,449 5,213 5,477 4,869 5,246 4,980 4,631 4,456 4,590 ****** ******L63B Kdny & Unry Trct Inf A>69/+Scc 3,481 4,156 4,286 5,563 3,663 3,658 4,076 3,881 5,002 6,274 4,295M02B Transurethral Prostectomy-Cscc 3,081 4,957 5,100 0 4,773 4,730 4,411 4,954 4,714 6,248 ------N04Z Hysterectomy For Non-Malignanc 4,929 7,199 7,497 7,996 6,644 6,411 6,988 5,981 6,526 8,885 7,361N06Z Fem Repr Sys Reconstructive Pr 4,327 5,518 5,467 7,837 5,194 4,940 5,221 4,786 5,697 6,601 5,465O01C Caesarean Delivery -Cscc 5,097 7,085 6,883 6,181 6,803 7,121 8,962 8,242 7,349 10,696 5,982O60B Vaginal Delivery -Cscc 4,090 4,205 3,947 4,049 4,078 4,264 5,371 5,885 4,931 7,129 3,382R61B Lymphma &N-Acute Leukaemia-Ccc 3,168 6,617 7,073 9,231 7,107 4,529 4,071 4,219 5,147 4,022 3,241U63B Major Affective Dsrd A<70-Cscc 7,915 9,719 10,055 18,617 9,598 11,273 9,528 5,310 6,823 6,463 5,463

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Average total pharmacy cost per separation for selected DRGs by sector and public hospital peer group, 2006-07Public Peer Groups

DRG DRG Description

Private Sector -


E62C Respiratory Infectn/Inflamm-Cc 52 112 140 116 75 90 79 208 78 136 79E65B Chrnic Obstrct Airway Dis-Cscc 71 192 250 228 140 127 132 133 101 278 118E69C Bronchitis & Asthma A<50 -Cc 35 58 68 63 33 47 44 46 43 82 50F62B Heart Failure & Shock - Ccc 59 151 181 349 118 113 124 121 92 138 108F71B N-Mjr Arythm&Condctn Dsrd-Cscc 18 63 76 126 42 46 47 49 41 94 51G07B Appendicectomy - Cscc 57 96 94 131 80 93 107 117 63 116 0G08B Abdom & Oth Hrn Pr 0<A<60-Cscc 26 56 63 30 44 74 47 49 38 79 64G09Z Inguinal&Femoral Hernia Pr A>0 28 56 60 28 45 89 48 58 50 45 40H08B Lap Cholecystectmy-Cde-Cscc 42 83 90 107 66 94 70 83 70 87 0I03C Hip Replacement - Cscc 128 204 221 0 158 222 147 113 0 0 0I04Z Knee Replacemt & Reattach 115 222 248 0 153 241 159 122 0 0 0I16Z Other Shoulder Procedures 51 74 77 57 47 99 61 115 82 0 0L63B Kdny & Unry Trct Inf A>69/+Scc 73 164 192 330 116 145 128 131 104 219 121M02B Transurethral Prostectomy-Cscc 65 110 111 0 97 133 77 119 150 112 0N04Z Hysterectomy For Non-Malignanc 77 129 143 203 81 120 96 131 98 129 53N06Z Fem Repr Sys Reconstructive Pr 54 99 108 191 60 86 78 86 80 85 37O01C Caesarean Delivery -Cscc 93 121 120 145 93 115 110 141 79 178 150O60B Vaginal Delivery -Cscc 51 68 74 70 51 71 57 63 36 170 77R61B Lymphma &N-Acute Leukaemia-Ccc 426 1,716 1,947 2,065 1,964 1,001 502 756 527 282 793U63B Major Affective Dsrd A<70-Cscc 98 285 330 185 159 253 224 175 131 189 205

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Average pharmacy cost as a percentage of average total cost per separation for selected DRGs by sector and public hospital peer group, 2006-07Public Peer Groups

DRG DRG Description

Private Sector -


E62C Respiratory Infectn/Inflamm-Cc 2.0 3.6 4.3 3.4 2.9 3.4 3.0 4.1 2.2 2.7 2.8E65B Chrnic Obstrct Airway Dis-Cscc 2.3 5.0 6.0 4.6 4.3 4.1 4.0 3.8 2.6 4.1 3.0E69C Bronchitis & Asthma A<50 -Cc 2.6 3.1 3.6 3.0 2.0 2.5 2.4 2.7 3.0 2.9 3.2F62B Heart Failure & Shock - Ccc 1.7 3.6 4.1 2.7 2.9 3.3 2.9 3.1 2.3 2.8 2.0F71B N-Mjr Arythm&Condctn Dsrd-Cscc 1.1 3.2 3.6 2.7 2.0 2.4 2.6 3.2 2.8 3.1 3.5G07B Appendicectomy - Cscc 1.9 1.9 1.8 2.2 1.7 2.1 1.9 2.8 1.7 1.8 *G08B Abdom & Oth Hrn Pr 0<A<60-Cscc 1.2 1.6 1.6 1.8 1.3 2.1 1.4 1.5 1.4 2.1 1.8G09Z Inguinal&Femoral Hernia Pr A>0 1.2 1.6 1.6 1.7 1.4 2.5 1.5 1.8 1.7 1.2 1.1H08B Lap Cholecystectmy-Cde-Cscc 1.3 1.6 1.6 1.9 1.4 2.0 1.6 1.7 1.6 1.4 *I03C Hip Replacement - Cscc 0.7 1.3 1.4 * 0.9 1.5 1.0 0.7 * * *I04Z Knee Replacemt & Reattach 0.7 1.3 1.4 * 0.9 1.4 0.9 0.6 * * *I16Z Other Shoulder Procedures 1.5 1.4 1.4 1.2 0.9 2.0 1.3 2.6 1.8 * *L63B Kdny & Unry Trct Inf A>69/+Scc 2.1 3.9 4.5 5.9 3.2 4.0 3.1 3.4 2.1 3.5 2.8M02B Transurethral Prostectomy-Cscc 2.1 2.2 2.2 * 2.0 2.8 1.7 2.4 3.2 1.8 *N04Z Hysterectomy For Non-Malignanc 1.6 1.8 1.9 2.5 1.2 1.9 1.4 2.2 1.5 1.5 0.7N06Z Fem Repr Sys Reconstructive Pr 1.2 1.8 2.0 2.4 1.2 1.7 1.5 1.8 1.4 1.3 0.7O01C Caesarean Delivery -Cscc 1.8 1.7 1.7 2.3 1.4 1.6 1.2 1.7 1.1 1.7 2.5O60B Vaginal Delivery -Cscc 1.2 1.6 1.9 1.7 1.3 1.7 1.1 1.1 0.7 2.4 2.3R61B Lymphma &N-Acute Leukaemia-Ccc 13.4 25.9 27.5 22.4 27.6 22.1 12.3 17.9 10.2 7.0 24.5U63B Major Affective Dsrd A<70-Cscc 1.2 2.9 3.3 1.0 1.7 2.2 2.4 3.3 1.9 2.9 3.8

77


NATSEM March 2010

Number of separations for selected DRGs by state, 2006-07

DRG DRG Description NSW QLD SA Victoria WAE62C Respiratory Infectn/Inflamm-Cc 8,303 3,493 1,530 5,700 1,577E65B Chrnic Obstrct Airway Dis-Cscc 8,289 3,860 1,825 5,001 1,699E69C Bronchitis & Asthma A<50 -Cc 10,188 3,580 2,564 6,805 1,857F62B Heart Failure & Shock - Ccc 8,525 3,512 1,874 5,962 1,764F71B N-Mjr Arythm&Condctn Dsrd-Cscc 10,363 4,742 2,348 7,758 2,109G07B Appendicectomy - Cscc 6,203 3,127 1,223 4,336 2,084G08B Abdom & Oth Hrn Pr 0<A<60-Cscc 2,379 1,481 585 1,761 788G09Z Inguinal&Femoral Hernia Pr A>0 5,981 3,210 1,382 4,565 1,773H08B Lap Cholecystectmy-Cde-Cscc 6,780 3,334 1,568 4,877 1,805I03C Hip Replacement - Cscc 2,446 1,121 630 1,731 885I04Z Knee Replacemt & Reattach 4,354 1,867 888 2,513 1,405I16Z Other Shoulder Procedures 1,738 1,029 513 1,263 1,012L63B Kdny & Unry Trct Inf A>69/+Scc 6,216 2,480 1,236 4,032 1,218M02B Transurethral Prostectomy-Cscc 2,035 801 728 2,223 537N04Z Hysterectomy For Non-Malignanc 3,727 2,095 1,104 3,404 1,324N06Z Fem Repr Sys Reconstructive Pr 2,070 1,233 596 1,806 758O01C Caesarean Delivery -Cscc 14,463 9,287 2,819 10,450 3,838O60B Vaginal Delivery -Cscc 36,204 19,733 6,807 27,698 9,620R61B Lymphma &N-Acute Leukaemia-Ccc 2,792 969 706 2,533 644U63B Major Affective Dsrd A<70-Cscc 1,728 2,589 1,790 1,863 1,579

Average length of stay for selected DRGs by state, 2006-07

DRG DRG Description NSW QLD SA Victoria WAE62C Respiratory Infectn/Inflamm-Cc 3.6 3.2 3.5 3.1 3.3E65B Chrnic Obstrct Airway Dis-Cscc 5.0 4.6 4.7 4.1 4.8E69C Bronchitis & Asthma A<50 -Cc 1.6 1.6 1.8 1.5 1.7F62B Heart Failure & Shock - Ccc 5.7 4.7 5.5 4.4 4.8F71B N-Mjr Arythm&Condctn Dsrd-Cscc 2.5 2.1 2.4 2.3 1.8G07B Appendicectomy - Cscc 3.0 2.5 2.9 2.6 2.6G08B Abdom & Oth Hrn Pr 0<A<60-Cscc 1.6 1.4 1.9 1.5 1.7G09Z Inguinal&Femoral Hernia Pr A>0 1.4 1.3 1.5 1.5 1.3H08B Lap Cholecystectmy-Cde-Cscc 1.9 1.7 1.9 2.0 2.0I03C Hip Replacement - Cscc 7.1 7.2 6.9 7.1 6.0I04Z Knee Replacemt & Reattach 7.2 7.2 6.4 8.0 7.7I16Z Other Shoulder Procedures 1.6 1.5 1.7 1.7 1.4L63B Kdny & Unry Trct Inf A>69/+Scc 5.5 5.0 5.6 4.3 5.4M02B Transurethral Prostectomy-Cscc 3.2 2.8 3.0 2.8 2.6N04Z Hysterectomy For Non-Malignanc 3.9 3.5 3.7 3.9 3.9N06Z Fem Repr Sys Reconstructive Pr 2.9 2.3 2.9 2.6 2.8O01C Caesarean Delivery -Cscc 4.3 3.7 4.6 4.6 4.3O60B Vaginal Delivery -Cscc 3.0 2.6 2.9 2.9 2.9R61B Lymphma &N-Acute Leukaemia-Ccc 5.0 4.9 4.8 4.1 4.8U63B Major Affective Dsrd A<70-Cscc 10.7 13.3 11.3 11.9 13.8

78


NATSEM March 2010

Average total cost per separation for selected DRGs by state, 2006-07

DRG DRG Description NSW QLD SA Victoria WAE62C Respiratory Infectn/Inflamm-Cc 3,012 3,005 3,317 2,770 3,742E65B Chrnic Obstrct Airway Dis-Cscc 3,613 4,052 3,694 3,522 4,981E69C Bronchitis & Asthma A<50 -Cc 1,828 1,786 2,078 1,654 2,609F62B Heart Failure & Shock - Ccc 4,148 4,331 4,329 3,649 5,377F71B N-Mjr Arythm&Condctn Dsrd-Cscc 1,836 2,300 1,892 1,805 2,258G07B Appendicectomy - Cscc 4,908 5,435 5,206 4,644 5,287G08B Abdom & Oth Hrn Pr 0<A<60-Cscc 3,512 3,710 3,334 3,186 4,194G09Z Inguinal&Femoral Hernia Pr A>0 3,315 3,827 3,408 3,322 3,885H08B Lap Cholecystectmy-Cde-Cscc 4,711 5,566 5,022 4,883 5,986I03C Hip Replacement - Cscc 14,428 16,968 16,635 15,593 14,552I04Z Knee Replacemt & Reattach 16,438 17,948 17,813 17,430 17,572I16Z Other Shoulder Procedures 4,585 5,170 4,786 5,271 6,156L63B Kdny & Unry Trct Inf A>69/+Scc 4,020 4,383 4,623 3,548 5,509M02B Transurethral Prostectomy-Cscc 4,626 5,103 5,232 4,776 5,407N04Z Hysterectomy For Non-Malignanc 5,920 8,065 7,413 7,112 8,831N06Z Fem Repr Sys Reconstructive Pr 4,739 5,652 6,323 5,454 6,748O01C Caesarean Delivery -Cscc 6,593 6,738 6,775 7,139 8,596O60B Vaginal Delivery -Cscc 4,804 3,547 3,449 3,705 4,809R61B Lymphma &N-Acute Leukaemia-Ccc 6,653 7,596 5,569 6,163 7,115U63B Major Affective Dsrd A<70-Cscc 2,962 12,023 9,050 9,248 14,599

:

Average total pharmacy cost per separation for selected DRGs by state, 2006-07

DRG DRG Description NSW QLD SA Victoria WAE62C Respiratory Infectn/Inflamm-Cc 108 123 114 106 110E65B Chrnic Obstrct Airway Dis-Cscc 182 218 213 187 171E69C Bronchitis & Asthma A<50 -Cc 50 74 72 47 57F62B Heart Failure & Shock - Ccc 143 187 153 139 156F71B N-Mjr Arythm&Condctn Dsrd-Cscc 58 84 59 60 60G07B Appendicectomy - Cscc 106 94 78 86 113G08B Abdom & Oth Hrn Pr 0<A<60-Cscc 61 50 49 55 66G09Z Inguinal&Femoral Hernia Pr A>0 65 40 46 65 51H08B Lap Cholecystectmy-Cde-Cscc 95 70 64 89 66I03C Hip Replacement - Cscc 182 227 193 220 218I04Z Knee Replacemt & Reattach 173 235 209 281 272I16Z Other Shoulder Procedures 84 69 83 82 53L63B Kdny & Unry Trct Inf A>69/+Scc 160 190 183 135 196M02B Transurethral Prostectomy-Cscc 109 105 94 122 87N04Z Hysterectomy For Non-Malignanc 149 99 87 138 146N06Z Fem Repr Sys Reconstructive Pr 113 70 87 107 102O01C Caesarean Delivery -Cscc 147 86 93 120 124O60B Vaginal Delivery -Cscc 81 63 52 53 77R61B Lymphma &N-Acute Leukaemia-Ccc 1,763 1,871 1,270 1,987 835U63B Major Affective Dsrd A<70-Cscc 125 404 235 290 304

79


NATSEM March 2010

Average pharmacy cost as a percentage of average total cost per separation for selected DRGs by sector and public hospital peer group, 2006-07

DRG DRG Description NSW QLD SA Victoria WAE62C Respiratory Infectn/Inflamm-Cc 3.6 4.1 3.4 3.8 2.9E65B Chrnic Obstrct Airway Dis-Cscc 5.0 5.4 5.8 5.3 3.4E69C Bronchitis & Asthma A<50 -Cc 2.7 4.1 3.5 2.8 2.2F62B Heart Failure & Shock - Ccc 3.4 4.3 3.5 3.8 2.9F71B N-Mjr Arythm&Condctn Dsrd-Cscc 3.2 3.7 3.1 3.3 2.7G07B Appendicectomy - Cscc 2.2 1.7 1.5 1.9 2.1G08B Abdom & Oth Hrn Pr 0<A<60-Cscc 1.7 1.3 1.5 1.7 1.6G09Z Inguinal&Femoral Hernia Pr A>0 2.0 1.0 1.3 2.0 1.3H08B Lap Cholecystectmy-Cde-Cscc 2.0 1.3 1.3 1.8 1.1I03C Hip Replacement - Cscc 1.3 1.3 1.2 1.4 1.5I04Z Knee Replacemt & Reattach 1.1 1.3 1.2 1.6 1.5I16Z Other Shoulder Procedures 1.8 1.3 1.7 1.6 0.9L63B Kdny & Unry Trct Inf A>69/+Scc 4.0 4.3 4.0 3.8 3.6M02B Transurethral Prostectomy-Cscc 2.4 2.1 1.8 2.6 1.6N04Z Hysterectomy For Non-Malignanc 2.5 1.2 1.2 1.9 1.7N06Z Fem Repr Sys Reconstructive Pr 2.4 1.2 1.4 2.0 1.5O01C Caesarean Delivery -Cscc 2.2 1.3 1.4 1.7 1.4O60B Vaginal Delivery -Cscc 1.7 1.8 1.5 1.4 1.6R61B Lymphma &N-Acute Leukaemia-Ccc 26.5 24.6 22.8 32.2 11.7U63B Major Affective Dsrd A<70-Cscc 4.2 3.4 2.6 3.1 2.1

Share of separations by state separation by public hospital peer group, 2006-07

NSW32%

SA9%

VIC31%

WA10%

QLD18%

80


NATSEM March 2010

Average length of stay by state, 2006-07

3.3

2.9

3.1

2.7

2.9

2.42.52.62.72.82.9

33.13.23.3

NSW QLD SA VIC WAState

Ave

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Len

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(Day

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Average total cost per separation by state, 2006-07

3,924 3,763 3,6073,255

4,297

0

1,000

2,000

3,000

4,000

5,000


Ave

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81


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Average cost of pharmaceuticals per separation by state, 2006-07

174158

140

201181

0

50

100

150

200

250


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Average cost of pharmaceuticals per separation as a proportion of total cost by state, 2006-07

4.4 4.2 3.9

6.2

4.2

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1

2

3

4

5

6

7


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82


NATSEM March 2010

83

report - university of · web viewnatsem research findings are generally based on estimated...

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