eMJA Casemix Supplement: The true cost of treating children

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Casemix: moving forward

The true cost of treating children

Ralph M Hanson, Meradith A Phythian, Jenni B Jarvis and Cyndy Stewart

MJA 1998; 169: S39-S41

Synopsis - Introduction - Classification issues: making DRGs child friendly - Age splits and comorbidities - General anaesthesia in children - Children under three years - High nursing dependency - Cost weights - Congenital abnormalities and chronic illness - Future strategies - References - Authors' details

Synopsis

Paediatric patients (compared with adults) require additional time, effort and skill from hospital staff caring for them.

Many suggestions for making successive versions of AN-DRGs more child friendly have not been implemented. Rather than relying on age, the AN-DRG classification should allow a better definition of complexity within DRGs.

The two groups of children who place a disproportionate burden on paediatric teaching centres are children under 3 years and those with congenital abnormalities and chronic illness.

Cost weights are not specific for paediatric patients. The extra costs of caring for children are reflected in nursing costs, highlighting the importance of including nurse dependency data in any costing study.

Introduction
In recent years attention has been drawn to the differing healthcare needs of children compared with adults, and the high cost of caring for children in hospital.^1-6 Children's less-frequent use of inpatient services reflects in part their general well-being, but also a different approach to their care, with every effort being made to keep them out of hospital or to minimise their length of stay. However, children's shorter stay is counterbalanced by their greater dependence, and the intensity of the care they require increases the cost of their hospital stay.
A briefing paper prepared by the National Association of Children's Hospitals and Related Institutions (NACHRI) in the United States clearly outlined the uniqueness of children's healthcare services.¹ Their findings -- that children are more likely to require acute care than long term care, but when they do have a chronic illness the costs of care are high -- apply also to other developed countries, including Australia.
Classification issues -- making DRGs child friendly
Studies in the United States have shown inadequacies in many of the classifications describing paediatric care and also found costs to be higher for paediatric patients, in particular for nursing care.⁷However, the APR-DRG (all patient refined DRG) classification, widely adopted in the United States, better reflects paediatric care and illness severity than previous casemix classifications. Similarly, studies in Australia have highlighted the inadequacy of the AN-DRG classification.⁸ Despite the many changes that have been made to AN-DRGs since they were introduced, they are still not seen as ideal for paediatrics.
Age splits and comorbidities
AN-DRG versions 1 and 2 had a number of adjacent DRGs with an age split at 10 years. These were eliminated from version 3 because they were not supported by length of stay and nurse dependency data. However, in 1996, the Australian Casemix Classification Committee recommended that, for those DRGs with age splits at 10 years, the complications and comorbidities split should take precedence over the age split, so that hospitals caring for a small number of children with complex illnesses would not be disadvantaged. However, because so few children were involved, this was not implemented and remains a major problem for these hospitals.
General anaesthesia in children
AN-DRGs do not recognise the need for a general anaesthetic for children having procedures (eg, a dental procedure, an endoscopy or a minor orthopaedic procedure) for which adults do not normally require anaesthesia. Many of these procedures are in a "medical" DRG rather than a "procedural" DRG, resulting in an inadequate cost weight for the care provided to the child. Some allowance has been made for this in AR-DRG-4 (Australian refined diagnosis-related groups), which was released in July this year. A general anaesthetic is recognised as a complication in some DRGs, but this is dependent upon there being a split for complications in the particular adjacent DRG.
Children under three years
High nursing dependency
An Australian study in 1996, using paediatric nursing service weights, showed that children under 3 years require significantly more nursing care than older children.⁶ In specialist teaching centres, children under 3 years required 37% more nursing time per episode of care than patients aged 3-59 years, and despite their shorter length of stay their use of nursing resources was similar to that of elderly people (Box 1).⁶

Data from this study also suggest that children under 3 years place higher demands on other hospital services irrespective of their length of stay. For children under 3 years versus those over 3 years, 29 AN-DRGs were identified with a cost variation of greater than 50% and 15 with a cost variation of 25%-49%.⁶
On the basis of these findings and with the restriction that there were to be 10 more DRGs, recommendations were made for future revisions of AN-DRGs:
Additional DRGs should be included to cover the high cost of care of younger patients;

The DRG age split at 10 years should be adjusted to an age split at 3 years; and

If possible, paediatric patients should be shifted from their current DRGs to the adjacent higher-order DRG, if an age split for older patients already existed.
Most of these recommendations were rejected on statistical grounds. A limited number of DRGs with age splits were adjusted to 3 years, but others were removed and replaced with splits based on comorbidities and complications. In the long term, replacement of age splits by splits based on severity of illness is preferred. In AR-DRG-4 the problem of complications and comorbidities is better addressed, but further changes still need to be made (Box 2).

Cost weights
Currently, the cost weights applied to paediatric patients in many States and Territories in Australia are the same as those applied to all other categories of patients. National DRG cost weights have until now been derived by a cost modelling method which allocates costs to DRGs rather than to individual patients (see Phelan). Consequently, it is not possible to compare the costs of caring for children under 3 years derived from actual resource allocation.
However, nursing costs are a good proxy for the increased care these patients require. The "average total nursing time per DRG" is the largest component (about 44%) of the total costs per DRG. It is also the most appropriate and available indicator for comparing costs of caring for children under 3 years with those in other age groups. Nursing costs enable a valid comparison of costs across all Australian States and Territories, irrespective of nursing career structures and award rates of pay.⁹
On average, nursing costs, regardless of the length of stay, are doubled in young children under 3 years -- they account for almost 40% of the throughput of paediatric hospitals. As nursing salaries represent about 35% of all hospital costs and more than 50% of variable costs, this issue needs to be addressed within the payment system.^6,9
Several authors have emphasised the higher costs of teaching hospitals (see Butt and Shann; Hart and Wallace; Phillips). Within paediatrics, however, it is difficult to distinguish between the casemix of specialist and non-specialist teaching centres. Because the AN-DRG classification (both versions 3 and 4) is limited in its capacity to take into account complications and comorbidities, it cannot adequately reflect these differences. In attempting to deal with this inequity, paediatric hospitals in Victoria have lobbied individually to have modifications made to their own hospital's reimbursement to reflect the greater cost of providing care for children.
South Australia has adopted a standardised approach to developing paediatric cost weights based on benchmark costs. This method entails replacing the cost components for nursing, medical and allied health in the national cost weights with benchmark paediatric costs for South Australia. Paediatric cost weights are derived from these data.
Currently, a second national cost weight study is in progress. Data from patient costing systems are being used to update the paediatric cost weights to ensure they are improved for paediatrics. A study into the neonatal services provided by the two intensive care units in South Australia is also in progress.
Congenital abnormalities and chronic illness
Advances in technology have significantly improved clinical outcomes for a wide variety of paediatric patients. A relatively small group of children with chronic or congenital illness, including newborns requiring neonatal intensive care, accounts for a significant proportion of the cost of acute inpatient care. Many of these children require ongoing care and rehabilitation, which is both resource intensive and often delivered in an acute care setting. This adds considerably to the number of children requiring lengthy hospital admissions ("long stay outliers") and the overall cost of care. In Australia, there are limited facilities for providing ongoing care for these children outside acute-care institutions.
Experience in Victoria has highlighted the complexity of children requiring lengthy hospital admissions. A study by Health Solutions⁵ pointed out that most of these children are erroneously judged to be nursing home type patients. They do not necessarily cost the same as children with shorter stays ("inliers") during the same phase of care, nor do they necessarily cost less than the average cost per day for shorter stay children when their stay continues past the "high trim point".
Other specialist paediatric hospitals in Australia and the United States have reported similar problems.^7,10 There is substantial underfunding of children who require lengthy admissions, particularly in the areas of neonatology, oncology, and chronic or congenital diseases.
The high cost of paediatric care has resulted in health funds in the United States being reluctant to fund paediatric hospitals with patients likely to require long and complex care.¹⁰ This situation could easily arise in Australia. Careful case selection by payers or providers in a competitive market can be used to advantage in better risk management within a health plan. Potentially, this can lead to preference being given to children with less-complex conditions, and barriers to access for children requiring longer and more intensive care. With recognition that a relatively small proportion of high cost paediatric patients accounts for almost two-thirds of the expenditure on acute-care paediatric services, it is time for funders to specifically target these children for separate funding so that specialist paediatric hospitals can be more equitably funded.
Future strategies
Having recognised the different care requirements of children, the issue now is how to have them accepted by the wider health community. The strategies that need to be pursued are clear:
The classification should recognise severity rather than rely on age as a proxy;

The true costs of paediatric care must be reflected in the cost weights; and

Strategies should be implemented to deal with the select group of high cost patients who pose a unique problem to specialist teaching centres.

US experience has shown that dealing with these factors alone can decrease the financial losses of children's hospitals from 30% to about 10%.⁷
AR-DRG-4 allows for better definition of complexity within DRGs. However, the APR-DRGs advocated by NACHRI provide the extensive benefits of a more universal application of grades of severity.
References

National Association of Children's Hospitals and Related Institutions. Children's health care needs are different - why one size won't fit all. A NACHRI briefing paper. Alexandria, Va: NACHRI, 1993: 1-16.
Vertrees JC, Pollatsek JS. Paying for paediatric inpatient care. Final report of the Universal Access for Children Reimbursement Study Project. Conducted for NACHRI. Alexandria, Va: Solon Consulting Group Ltd, 1993.
Berry R. Final report of Children's Hospitals' Casemix Classification Study Project. Conducted for NACHRI. Alexandria, Va: NACHRI, 1986.
Miller H. Final report of Paediatric Costing Study. Conducted for NACHRI. Alexandria, Va: Center for Health Policy Studies, 1993.
Paediatric Costing Study. Kids casemix - more swings than roundabouts. Melbourne: Health Solutions Pty Ltd, 1994.
National Paediatric Nursing Study Phase 2. Adelaide: Paediatric Nursing Study Consortium, 1996: 1-19.
Muldoon J. Paediatrics and DRG casemix classification. In: Goldfield N, Boland P, editors. Physician profiling and risk adjustment. Chapter 24. Gaithersburg, Md: Aspen Publishers, 1996: 252-270.
Phelan PD. Are casemix developments meeting the needs of paediatrics? Med J Aust 1994; 161 Suppl Sep 5: S26-S29.
National Paediatric Nursing Study Phase 1. Adelaide: Paediatric Nursing Study Consortium, 1994: 1-13.
Andrews JS, Anderson GF, Han C, Neff JM. Pediatric carve outs. The use of disease-specific conditions as risk adjusters in capitated payment systems. Arch Pediatr Adolesc Med 1997; 151: 236-242.

Authors' details
New Children's Hospital, Sydney, NSW.
Ralph M Hanson, FRACP, FACEM, Chair, Division of Information Services.
Women's and Children's Hospital, Adelaide, SA.
Meradith A Phythian, RN, RM, Clinical Analyst, Clinical Support Unit.
Jenni B Jarvis, RN, Head, Clinical Support Unit.
Princess Margaret Hospital, Perth, WA.
Cyndy Stewart, RN, BAppSc, Head, Best Practice Unit.
Reprints will not be available from the authors.
Correspondence: Dr R M Hanson, New Children's Hospital, PO Box 3515, Parramatta, NSW 2124.
E-mail: RalphHATnch.edu.au

Go to the next article . . .
Readers may print a single copy for personal use. No further reproduction or distribution of the articles should proceed without the permission of the publisher. For permission, contact the Australasian Medical Publishing Company.
Journalists are welcome to write news stories based on what they read here, but should acknowledge their source as "an article published on the Internet by The Medical Journal of Australia <http://www.mja.com.au>".
<URL: http://www.mja.com.au/> © 1998 Medical Journal of Australia.

Synopsis
	Paediatric patients (compared with adults) require additional time, effort and skill from hospital staff caring for them. Many suggestions for making successive versions of AN-DRGs more child friendly have not been implemented. Rather than relying on age, the AN-DRG classification should allow a better definition of complexity within DRGs. The two groups of children who place a disproportionate burden on paediatric teaching centres are children under 3 years and those with congenital abnormalities and chronic illness. Cost weights are not specific for paediatric patients. The extra costs of caring for children are reflected in nursing costs, highlighting the importance of including nurse dependency data in any costing study.
Introduction
	In recent years attention has been drawn to the differing healthcare needs of children compared with adults, and the high cost of caring for children in hospital.^1-6 Children's less-frequent use of inpatient services reflects in part their general well-being, but also a different approach to their care, with every effort being made to keep them out of hospital or to minimise their length of stay. However, children's shorter stay is counterbalanced by their greater dependence, and the intensity of the care they require increases the cost of their hospital stay. A briefing paper prepared by the National Association of Children's Hospitals and Related Institutions (NACHRI) in the United States clearly outlined the uniqueness of children's healthcare services.¹ Their findings -- that children are more likely to require acute care than long term care, but when they do have a chronic illness the costs of care are high -- apply also to other developed countries, including Australia.
Classification issues -- making DRGs child friendly
	Studies in the United States have shown inadequacies in many of the classifications describing paediatric care and also found costs to be higher for paediatric patients, in particular for nursing care.⁷However, the APR-DRG (all patient refined DRG) classification, widely adopted in the United States, better reflects paediatric care and illness severity than previous casemix classifications. Similarly, studies in Australia have highlighted the inadequacy of the AN-DRG classification.⁸ Despite the many changes that have been made to AN-DRGs since they were introduced, they are still not seen as ideal for paediatrics. Age splits and comorbidities AN-DRG versions 1 and 2 had a number of adjacent DRGs with an age split at 10 years. These were eliminated from version 3 because they were not supported by length of stay and nurse dependency data. However, in 1996, the Australian Casemix Classification Committee recommended that, for those DRGs with age splits at 10 years, the complications and comorbidities split should take precedence over the age split, so that hospitals caring for a small number of children with complex illnesses would not be disadvantaged. However, because so few children were involved, this was not implemented and remains a major problem for these hospitals. General anaesthesia in children AN-DRGs do not recognise the need for a general anaesthetic for children having procedures (eg, a dental procedure, an endoscopy or a minor orthopaedic procedure) for which adults do not normally require anaesthesia. Many of these procedures are in a "medical" DRG rather than a "procedural" DRG, resulting in an inadequate cost weight for the care provided to the child. Some allowance has been made for this in AR-DRG-4 (Australian refined diagnosis-related groups), which was released in July this year. A general anaesthetic is recognised as a complication in some DRGs, but this is dependent upon there being a split for complications in the particular adjacent DRG.
Children under three years
	High nursing dependency An Australian study in 1996, using paediatric nursing service weights, showed that children under 3 years require significantly more nursing care than older children.⁶ In specialist teaching centres, children under 3 years required 37% more nursing time per episode of care than patients aged 3-59 years, and despite their shorter length of stay their use of nursing resources was similar to that of elderly people (Box 1).⁶ Data from this study also suggest that children under 3 years place higher demands on other hospital services irrespective of their length of stay. For children under 3 years versus those over 3 years, 29 AN-DRGs were identified with a cost variation of greater than 50% and 15 with a cost variation of 25%-49%.⁶ On the basis of these findings and with the restriction that there were to be 10 more DRGs, recommendations were made for future revisions of AN-DRGs: Additional DRGs should be included to cover the high cost of care of younger patients; The DRG age split at 10 years should be adjusted to an age split at 3 years; and If possible, paediatric patients should be shifted from their current DRGs to the adjacent higher-order DRG, if an age split for older patients already existed. Most of these recommendations were rejected on statistical grounds. A limited number of DRGs with age splits were adjusted to 3 years, but others were removed and replaced with splits based on comorbidities and complications. In the long term, replacement of age splits by splits based on severity of illness is preferred. In AR-DRG-4 the problem of complications and comorbidities is better addressed, but further changes still need to be made (Box 2). Cost weights Currently, the cost weights applied to paediatric patients in many States and Territories in Australia are the same as those applied to all other categories of patients. National DRG cost weights have until now been derived by a cost modelling method which allocates costs to DRGs rather than to individual patients (see Phelan). Consequently, it is not possible to compare the costs of caring for children under 3 years derived from actual resource allocation. However, nursing costs are a good proxy for the increased care these patients require. The "average total nursing time per DRG" is the largest component (about 44%) of the total costs per DRG. It is also the most appropriate and available indicator for comparing costs of caring for children under 3 years with those in other age groups. Nursing costs enable a valid comparison of costs across all Australian States and Territories, irrespective of nursing career structures and award rates of pay.⁹ On average, nursing costs, regardless of the length of stay, are doubled in young children under 3 years -- they account for almost 40% of the throughput of paediatric hospitals. As nursing salaries represent about 35% of all hospital costs and more than 50% of variable costs, this issue needs to be addressed within the payment system.^6,9 Several authors have emphasised the higher costs of teaching hospitals (see Butt and Shann; Hart and Wallace; Phillips). Within paediatrics, however, it is difficult to distinguish between the casemix of specialist and non-specialist teaching centres. Because the AN-DRG classification (both versions 3 and 4) is limited in its capacity to take into account complications and comorbidities, it cannot adequately reflect these differences. In attempting to deal with this inequity, paediatric hospitals in Victoria have lobbied individually to have modifications made to their own hospital's reimbursement to reflect the greater cost of providing care for children. South Australia has adopted a standardised approach to developing paediatric cost weights based on benchmark costs. This method entails replacing the cost components for nursing, medical and allied health in the national cost weights with benchmark paediatric costs for South Australia. Paediatric cost weights are derived from these data. Currently, a second national cost weight study is in progress. Data from patient costing systems are being used to update the paediatric cost weights to ensure they are improved for paediatrics. A study into the neonatal services provided by the two intensive care units in South Australia is also in progress.
Congenital abnormalities and chronic illness
	Advances in technology have significantly improved clinical outcomes for a wide variety of paediatric patients. A relatively small group of children with chronic or congenital illness, including newborns requiring neonatal intensive care, accounts for a significant proportion of the cost of acute inpatient care. Many of these children require ongoing care and rehabilitation, which is both resource intensive and often delivered in an acute care setting. This adds considerably to the number of children requiring lengthy hospital admissions ("long stay outliers") and the overall cost of care. In Australia, there are limited facilities for providing ongoing care for these children outside acute-care institutions. Experience in Victoria has highlighted the complexity of children requiring lengthy hospital admissions. A study by Health Solutions⁵ pointed out that most of these children are erroneously judged to be nursing home type patients. They do not necessarily cost the same as children with shorter stays ("inliers") during the same phase of care, nor do they necessarily cost less than the average cost per day for shorter stay children when their stay continues past the "high trim point". Other specialist paediatric hospitals in Australia and the United States have reported similar problems.^7,10 There is substantial underfunding of children who require lengthy admissions, particularly in the areas of neonatology, oncology, and chronic or congenital diseases. The high cost of paediatric care has resulted in health funds in the United States being reluctant to fund paediatric hospitals with patients likely to require long and complex care.¹⁰ This situation could easily arise in Australia. Careful case selection by payers or providers in a competitive market can be used to advantage in better risk management within a health plan. Potentially, this can lead to preference being given to children with less-complex conditions, and barriers to access for children requiring longer and more intensive care. With recognition that a relatively small proportion of high cost paediatric patients accounts for almost two-thirds of the expenditure on acute-care paediatric services, it is time for funders to specifically target these children for separate funding so that specialist paediatric hospitals can be more equitably funded.
Future strategies
	Having recognised the different care requirements of children, the issue now is how to have them accepted by the wider health community. The strategies that need to be pursued are clear: The classification should recognise severity rather than rely on age as a proxy; The true costs of paediatric care must be reflected in the cost weights; and Strategies should be implemented to deal with the select group of high cost patients who pose a unique problem to specialist teaching centres. US experience has shown that dealing with these factors alone can decrease the financial losses of children's hospitals from 30% to about 10%.⁷ AR-DRG-4 allows for better definition of complexity within DRGs. However, the APR-DRGs advocated by NACHRI provide the extensive benefits of a more universal application of grades of severity.
References
	National Association of Children's Hospitals and Related Institutions. Children's health care needs are different - why one size won't fit all. A NACHRI briefing paper. Alexandria, Va: NACHRI, 1993: 1-16. Vertrees JC, Pollatsek JS. Paying for paediatric inpatient care. Final report of the Universal Access for Children Reimbursement Study Project. Conducted for NACHRI. Alexandria, Va: Solon Consulting Group Ltd, 1993. Berry R. Final report of Children's Hospitals' Casemix Classification Study Project. Conducted for NACHRI. Alexandria, Va: NACHRI, 1986. Miller H. Final report of Paediatric Costing Study. Conducted for NACHRI. Alexandria, Va: Center for Health Policy Studies, 1993. Paediatric Costing Study. Kids casemix - more swings than roundabouts. Melbourne: Health Solutions Pty Ltd, 1994. National Paediatric Nursing Study Phase 2. Adelaide: Paediatric Nursing Study Consortium, 1996: 1-19. Muldoon J. Paediatrics and DRG casemix classification. In: Goldfield N, Boland P, editors. Physician profiling and risk adjustment. Chapter 24. Gaithersburg, Md: Aspen Publishers, 1996: 252-270. Phelan PD. Are casemix developments meeting the needs of paediatrics? Med J Aust 1994; 161 Suppl Sep 5: S26-S29. National Paediatric Nursing Study Phase 1. Adelaide: Paediatric Nursing Study Consortium, 1994: 1-13. Andrews JS, Anderson GF, Han C, Neff JM. Pediatric carve outs. The use of disease-specific conditions as risk adjusters in capitated payment systems. Arch Pediatr Adolesc Med 1997; 151: 236-242.
Authors' details
	New Children's Hospital, Sydney, NSW. Ralph M Hanson, FRACP, FACEM, Chair, Division of Information Services. Women's and Children's Hospital, Adelaide, SA. Meradith A Phythian, RN, RM, Clinical Analyst, Clinical Support Unit. Jenni B Jarvis, RN, Head, Clinical Support Unit. Princess Margaret Hospital, Perth, WA. Cyndy Stewart, RN, BAppSc, Head, Best Practice Unit. Reprints will not be available from the authors. Correspondence: Dr R M Hanson, New Children's Hospital, PO Box 3515, Parramatta, NSW 2124. E-mail: RalphHATnch.edu.au

	Go to the next article . . . Readers may print a single copy for personal use. No further reproduction or distribution of the articles should proceed without the permission of the publisher. For permission, contact the Australasian Medical Publishing Company. Journalists are welcome to write news stories based on what they read here, but should acknowledge their source as "an article published on the Internet by The Medical Journal of Australia <http://www.mja.com.au>". <URL: http://www.mja.com.au/> © 1998 Medical Journal of Australia.