eMJA Casemix Supplement: Teaching and research in a casemix funding environment

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Casemix: moving forward

Teaching and research in a casemix funding environment

Paddy A Phillips

MJA 1998; 169: S53-S55

Synopsis - Introduction - Teaching and research funding and casemix - Is teaching and research a cost or a benefit? - Rewarding patient care outcomes - Acknowledgements - References - Authors' details

Synopsis

Teaching and research are not funded directly under a casemix funding system, and individual Australian State and Territory governments have provided teaching and research grants to teaching hospitals to defray these costs.

Biomedical research funding in Australia lags far behind that of other countries.

The declining per capita expenditure on the health system generally, as well as on universities, is jeopardising teaching and research activities, which are not seen as "core" hospital services.

Studies in the United States have shown that healthcare services associated with teaching and research are more costly but result in better patient outcomes.

It may be time to promote outcome-based funding of teaching and research in the Australian healthcare system.

Introduction
Casemix funding models are essentially output-based funding systems which classify patients into different groups according to their clinical characteristics. Each patient's healthcare is funded on the basis of the average cost of providing care to patients with similar characteristics.
Under a casemix funding system, teaching and research are not funded directly. It is now recognised -- and this view is supported by two large-scale government funded consultancies (Coopers & Lybrand in 1994 and KPMG Peat Marwick in 1996) -- that the costs of teaching and research, at least in Australian teaching hospitals, cannot be accurately separated from the costs of direct patient care. State and Territory health funding agencies have implemented teaching and research grants to supplement casemix payments in recognition of these activities in teaching hospitals (Box).
The first teaching and research grants awarded in Victoria in 1993, based on numbers of trainees and research grants, were clearly a mechanism of providing funds to "top up" the variable casemix payments and ensure continuity of teaching hospitals' historical budgets. The grants were unrelated to the actual costs of teaching and research in the institutions. Teaching and research funding in other States has followed in this direction (Box), but this approach has not been universal, nor has it resulted in similar funding formulas.
Teaching and research funding and casemix
Biomedical research funding in Australia is inadequate, with government expenditure on research and development being 17% below the average for OECD countries.¹ Despite recent increases in funding for medical research announced in the Federal Budget in May 1998, research spending planned by the Federal Government still lags far behind that of other countries. For example, the United States plans to double the budget for the National Institutes of Health (NIH) over the next five years.² The NIH estimates that the approximately US$4.3 billion invested in research supported by the NIH has the potential to realise annual savings of between US$9.3 and 13.6 billion, which translates into a 200%-300% annual return on this research investment.² The question of the future of biomedical research funding in Australia is currently being addressed by the Wills Committee established by the Federal Government. The committee's findings are due later this year, and what impact they may have on funding the significant biomedical research role of teaching hospitals remains to be seen.
University funding per student is steadily declining (Mr S Hamilton, Australian Vice Chancellors' Committee, personal communication). There is decreasing support in real terms for faculties of health sciences and a greater emphasis on students funding their own tertiary education. Reduced funding and support has put further pressure on the teaching and clinical service loads of clinical academic and hospital staff. All clinical staff are already being asked to reduce costs, which can be done by reducing length of hospital stay for inpatients, and substituting ambulatory services, such as hospital-in-the-home or same-day services, for inpatient services; and by increasing the workload in consulting clinics. This is because payments for services provided are based on State government or Medicare Benefits Schedule fee-for-service, and more services bring in more income. All of these changes have reduced the time available for teaching medical undergraduate and postgraduate trainees, and the number of patients available for clinical teaching.
This is not to say that the challenges of changing work practices should not be addressed. However, in times of declining per capita expenditure on the health system generally, as well as on universities, pressure inevitably comes to bear on teaching and research activities, which are not necessarily seen as "core" hospital services. There is no doubt that patients can be treated in an environment that eschews teaching and research, but the logical extension of this -- that no patient care should encompass teaching and research -- is ludicrous. This would require that Australia import the clinical expertise and the research (or products of research) that it might need.
Is teaching and research a cost or a benefit?
Under current medical student and postgraduate training systems, a significant proportion of teaching must occur in teaching hospitals. This applies to all medical undergraduate courses and all postgraduate training programs (including those for general practitioners). But what evidence is there that this is of benefit to society, apart from the training of doctors?
Garber et al³ investigated this issue in the 1980s at Stanford University Hospital, California. They studied 2025 hospital admissions and measured differences in casemix costs and hospital deaths according to whether patients were admitted to services staffed by full time faculty members (with resident medical officers and students) or to non- faculty, community-based services (in which two-thirds of patients received no care from resident medical staff). The faculty service had more patients with costly diagnoses, and their costs were 11% higher (95% confidence interval [CI], 4%-18%) after adjustment for casemix. However, the faculty service provided a much better patient outcome. After adjusting for casemix and socioeconomic characteristics, the community service patients were 34% (95% CI, 1%-66%) more likely to die in hospital. This difference was most pronounced for the highest risk patients, who also had the largest cost differential. The mortality rate advantage for faculty service was maintained for at least six months after discharge, but by nine months there was no difference.
More recently, Zimmerman et al⁴ prospectively surveyed the resource use and outcomes of 15 297 intensive care patients in 35 teaching and non-teaching hospitals in the United States. Patients in teaching hospital intensive care units had more severe illnesses, but these units had a greater staff-patient ratio. Service provision in the teaching hospital intensive care units also came at an extra cost, which was related to an increased use of diagnostic testing and invasive procedures. However, the extra cost was associated with a significantly better risk-adjusted outcome in hospitals that were members of the Council for Teaching Hospitals (odds ratio, 1.21; 95% CI, 1.06-1.38).
Obviously, there are differences between these US service provision models and those in Australia, but no similar appropriately controlled studies are available in Australia. What these studies show is that a service associated with academic activities may have an advantage for patient outcomes, but this comes at an extra cost. It is interesting that the extra cost should be so close to the 10%-20% described anecdotally and in various studies⁵ as the extra cost of teaching hospitals (compared with non-teaching hospitals) in Australia.
No one denies that quality of care requires adequate funding. Nor do most people believe that efficiency and cost-effective use of healthcare funding should be ignored. However, it is increasingly recognised within the medical profession, and by external monitoring bodies such as the Victorian State Auditor General,⁶ that the simultaneous introduction of major budget cuts and casemix funding has had a negative impact on the quality of hospital care. This decrease in quality of care was thought to be related to the budget cuts, with the added pressures on clinical staff⁶ probably affecting their teaching and research activities.⁷
Rewarding patient care outcomes
The basic rationale for casemix funding of patient services is that it is output based. Teaching and research also need to be recognised as outputs. If they do not receive adequate, appropriate and identifiable funding (over and above the costs of patient care), the marketplace will dictate that staff, facilities and other infrastructure support associated with teaching and research will become eroded so as to preserve the funding of the "core" clinical services. Many clinical academics believe that this is already happening.⁷
The concept of rewarding patient care outcomes rather than patient care services has been raised in other forums,⁸ despite difficulties determining the methods by which this could occur. It has not been raised with regard to teaching and research. Perhaps now is the time to promote outcome-based funding of teaching and research so that they become more than just of theoretical value in the Australian healthcare system.
Acknowledgements
I would like to thank Oon Ying, Deniza Mazevska, Art Huston, Susan Mirls, Danni Caminiti, Ric Marshall, Jim Pearse, Vicki Rundle, and Elizabeth Rohwedder for providing details of their State or Territory teaching and research formulas.
References

Commonwealth Department of Science, Industry and Tourism. Table of international research and development performance. In: Australian science and technology at a glance. Canberra: AGPS, 1997.
Clinton W. Catalyzing scientific progress: special address from the President. Science 1998; 279: 1111.
Garber AM, Fuchs VR, Silverman JF. Case mix, costs and outcomes; differences between faculty and community services in a university hospital. N Engl J Med 1984; 310: 1231-1237.
Zimmerman JE, Shortell SM, Knaus WA, et al. Value and cost of teaching hospitals: a prospective, multicenter, inception cohort study. Crit Care Med 1993; 21: 1432-1442.
New South Wales Department of Health. The costs of teaching hospitals: a review of the literature. Sydney: NSW Department of Health, 1993.
Victorian Auditor General. Acute health services under casemix -- a case of mixed priorities. Melbourne: Victorian Auditor General, 1998. (Special Report No. 56.)
Phillips PA, Kennedy JT, Segal GR, et al. Perspectives on casemix-based funding in Victoria. Med J Aust 1995; 162: 655-657.
Braithwaite J, Hindle D, Phelan PD, Hanson R. Casemix funding in Australia. Med J Aust 1998; 168: 558-562.

Authors' details
Flinders University of South Australia, and Divisions of Medicine, Flinders Medical Centre and Repatriation General Hospital, Adelaide, SA.
Paddy A Phillips, DPhil, FRACP, Professor and Head of Medicine.
Reprints will not be available from the author. Correspondence: Professor P A Phillips, Professor and Head of Medicine, Flinders University of South Australia, Bedford Park, SA 5042.
E-mail: paddy.phillipsATflinders.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
	Teaching and research are not funded directly under a casemix funding system, and individual Australian State and Territory governments have provided teaching and research grants to teaching hospitals to defray these costs. Biomedical research funding in Australia lags far behind that of other countries. The declining per capita expenditure on the health system generally, as well as on universities, is jeopardising teaching and research activities, which are not seen as "core" hospital services. Studies in the United States have shown that healthcare services associated with teaching and research are more costly but result in better patient outcomes. It may be time to promote outcome-based funding of teaching and research in the Australian healthcare system.
Introduction
	Casemix funding models are essentially output-based funding systems which classify patients into different groups according to their clinical characteristics. Each patient's healthcare is funded on the basis of the average cost of providing care to patients with similar characteristics. Under a casemix funding system, teaching and research are not funded directly. It is now recognised -- and this view is supported by two large-scale government funded consultancies (Coopers & Lybrand in 1994 and KPMG Peat Marwick in 1996) -- that the costs of teaching and research, at least in Australian teaching hospitals, cannot be accurately separated from the costs of direct patient care. State and Territory health funding agencies have implemented teaching and research grants to supplement casemix payments in recognition of these activities in teaching hospitals (Box). The first teaching and research grants awarded in Victoria in 1993, based on numbers of trainees and research grants, were clearly a mechanism of providing funds to "top up" the variable casemix payments and ensure continuity of teaching hospitals' historical budgets. The grants were unrelated to the actual costs of teaching and research in the institutions. Teaching and research funding in other States has followed in this direction (Box), but this approach has not been universal, nor has it resulted in similar funding formulas.
Teaching and research funding and casemix
	Biomedical research funding in Australia is inadequate, with government expenditure on research and development being 17% below the average for OECD countries.¹ Despite recent increases in funding for medical research announced in the Federal Budget in May 1998, research spending planned by the Federal Government still lags far behind that of other countries. For example, the United States plans to double the budget for the National Institutes of Health (NIH) over the next five years.² The NIH estimates that the approximately US$4.3 billion invested in research supported by the NIH has the potential to realise annual savings of between US$9.3 and 13.6 billion, which translates into a 200%-300% annual return on this research investment.² The question of the future of biomedical research funding in Australia is currently being addressed by the Wills Committee established by the Federal Government. The committee's findings are due later this year, and what impact they may have on funding the significant biomedical research role of teaching hospitals remains to be seen. University funding per student is steadily declining (Mr S Hamilton, Australian Vice Chancellors' Committee, personal communication). There is decreasing support in real terms for faculties of health sciences and a greater emphasis on students funding their own tertiary education. Reduced funding and support has put further pressure on the teaching and clinical service loads of clinical academic and hospital staff. All clinical staff are already being asked to reduce costs, which can be done by reducing length of hospital stay for inpatients, and substituting ambulatory services, such as hospital-in-the-home or same-day services, for inpatient services; and by increasing the workload in consulting clinics. This is because payments for services provided are based on State government or Medicare Benefits Schedule fee-for-service, and more services bring in more income. All of these changes have reduced the time available for teaching medical undergraduate and postgraduate trainees, and the number of patients available for clinical teaching. This is not to say that the challenges of changing work practices should not be addressed. However, in times of declining per capita expenditure on the health system generally, as well as on universities, pressure inevitably comes to bear on teaching and research activities, which are not necessarily seen as "core" hospital services. There is no doubt that patients can be treated in an environment that eschews teaching and research, but the logical extension of this -- that no patient care should encompass teaching and research -- is ludicrous. This would require that Australia import the clinical expertise and the research (or products of research) that it might need.
Is teaching and research a cost or a benefit?
	Under current medical student and postgraduate training systems, a significant proportion of teaching must occur in teaching hospitals. This applies to all medical undergraduate courses and all postgraduate training programs (including those for general practitioners). But what evidence is there that this is of benefit to society, apart from the training of doctors? Garber et al³ investigated this issue in the 1980s at Stanford University Hospital, California. They studied 2025 hospital admissions and measured differences in casemix costs and hospital deaths according to whether patients were admitted to services staffed by full time faculty members (with resident medical officers and students) or to non- faculty, community-based services (in which two-thirds of patients received no care from resident medical staff). The faculty service had more patients with costly diagnoses, and their costs were 11% higher (95% confidence interval [CI], 4%-18%) after adjustment for casemix. However, the faculty service provided a much better patient outcome. After adjusting for casemix and socioeconomic characteristics, the community service patients were 34% (95% CI, 1%-66%) more likely to die in hospital. This difference was most pronounced for the highest risk patients, who also had the largest cost differential. The mortality rate advantage for faculty service was maintained for at least six months after discharge, but by nine months there was no difference. More recently, Zimmerman et al⁴ prospectively surveyed the resource use and outcomes of 15 297 intensive care patients in 35 teaching and non-teaching hospitals in the United States. Patients in teaching hospital intensive care units had more severe illnesses, but these units had a greater staff-patient ratio. Service provision in the teaching hospital intensive care units also came at an extra cost, which was related to an increased use of diagnostic testing and invasive procedures. However, the extra cost was associated with a significantly better risk-adjusted outcome in hospitals that were members of the Council for Teaching Hospitals (odds ratio, 1.21; 95% CI, 1.06-1.38). Obviously, there are differences between these US service provision models and those in Australia, but no similar appropriately controlled studies are available in Australia. What these studies show is that a service associated with academic activities may have an advantage for patient outcomes, but this comes at an extra cost. It is interesting that the extra cost should be so close to the 10%-20% described anecdotally and in various studies⁵ as the extra cost of teaching hospitals (compared with non-teaching hospitals) in Australia. No one denies that quality of care requires adequate funding. Nor do most people believe that efficiency and cost-effective use of healthcare funding should be ignored. However, it is increasingly recognised within the medical profession, and by external monitoring bodies such as the Victorian State Auditor General,⁶ that the simultaneous introduction of major budget cuts and casemix funding has had a negative impact on the quality of hospital care. This decrease in quality of care was thought to be related to the budget cuts, with the added pressures on clinical staff⁶ probably affecting their teaching and research activities.⁷
Rewarding patient care outcomes
	The basic rationale for casemix funding of patient services is that it is output based. Teaching and research also need to be recognised as outputs. If they do not receive adequate, appropriate and identifiable funding (over and above the costs of patient care), the marketplace will dictate that staff, facilities and other infrastructure support associated with teaching and research will become eroded so as to preserve the funding of the "core" clinical services. Many clinical academics believe that this is already happening.⁷ The concept of rewarding patient care outcomes rather than patient care services has been raised in other forums,⁸ despite difficulties determining the methods by which this could occur. It has not been raised with regard to teaching and research. Perhaps now is the time to promote outcome-based funding of teaching and research so that they become more than just of theoretical value in the Australian healthcare system.
Acknowledgements
	I would like to thank Oon Ying, Deniza Mazevska, Art Huston, Susan Mirls, Danni Caminiti, Ric Marshall, Jim Pearse, Vicki Rundle, and Elizabeth Rohwedder for providing details of their State or Territory teaching and research formulas.
References
	Commonwealth Department of Science, Industry and Tourism. Table of international research and development performance. In: Australian science and technology at a glance. Canberra: AGPS, 1997. Clinton W. Catalyzing scientific progress: special address from the President. Science 1998; 279: 1111. Garber AM, Fuchs VR, Silverman JF. Case mix, costs and outcomes; differences between faculty and community services in a university hospital. N Engl J Med 1984; 310: 1231-1237. Zimmerman JE, Shortell SM, Knaus WA, et al. Value and cost of teaching hospitals: a prospective, multicenter, inception cohort study. Crit Care Med 1993; 21: 1432-1442. New South Wales Department of Health. The costs of teaching hospitals: a review of the literature. Sydney: NSW Department of Health, 1993. Victorian Auditor General. Acute health services under casemix -- a case of mixed priorities. Melbourne: Victorian Auditor General, 1998. (Special Report No. 56.) Phillips PA, Kennedy JT, Segal GR, et al. Perspectives on casemix-based funding in Victoria. Med J Aust 1995; 162: 655-657. Braithwaite J, Hindle D, Phelan PD, Hanson R. Casemix funding in Australia. Med J Aust 1998; 168: 558-562.
Authors' details
	Flinders University of South Australia, and Divisions of Medicine, Flinders Medical Centre and Repatriation General Hospital, Adelaide, SA. Paddy A Phillips, DPhil, FRACP, Professor and Head of Medicine. Reprints will not be available from the author. Correspondence: Professor P A Phillips, Professor and Head of Medicine, Flinders University of South Australia, Bedford Park, SA 5042. E-mail: paddy.phillipsATflinders.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.