Hospital financing reform and case-mix measurement: an international review

Health Care Financing Review, Summer, 1992 by Miriam M. Wiley

Ireland

The Irish health care system has two main components: a predominant public health system financed from general taxation and a small private sector based on a system of voluntary health insurance. Approximately 85 percent of total health expenditure comes from government sources with the remainder coming from the private health insurance system.

The whole population is entitled to hospital services within the public health system. A small per diem charge is levied with a fixed upper ceiling and people under a predefined income limit are exempt from this charge. Public hospitals are financed on the basis of prospectively determined global budgets which are determined primarily on historic expenditure, adjusted for inflation, pay awards, projected changes in service provision, and government policy on overall public expenditure.

The approach to health service financing and funding was critically reviewed by the Commission on Health Funding in a report published in 1989. The Commission attributed the main weakness in the prevailing approach to the financing of hospital services to the fact that "it sustains, over time, the cost differences between efficient hospitals and resource-wasting ones" (Stationery Office, 1989). The main recommendation proposed by the Commission in response to this problem was that hospitals should receive global budgets for the provision of an agreed service level. The calculation of these budgets should be based on an assessment of the activity level implied by the hospital's agreed role and catchment area, and the case-mix based cost of meeting this."

A study of activity and costs in Irish hospitals that tested the application of HCFA DRGs to Irish data came to a similar conclusion in recommending the application of a case-mix adjustment within a prospective global budgeting approach to resource allocation for acute hospital services (Wiley and Fetter, 1990). The recent commitment by the Department of Health in Ireland to "developing a resource allocation system which would link hospital budgets to the type and volume of services to be provided" is consistent with the direction proposed in the recommendations emerging from these studies (Stationery Office, 1990). Since 1990, the Voluntary Health Insurance Board in Ireland has been using HCFA DRGs to analyze claims on a case-mix basis for the private hospitals. Case-mix reports are now produced on a quarterly basis and are provided to each major private hospital showing the length of stay for the top categories of admission and comparing the results for peer group hospitals on an anonymous basis. A case-mix adjustment is also built into payment agreements with a number of major private hospitals to enable adjustments to be made for substantial changes in case-mix intensity over the period of the agreement.

The Irish government attaches a high priority to ensuring that an acceptably high standard of care is delivered through the health services. This is indicated by the fact that a recent national agreement between all the social partners included a commitment to the establishment of a performance audit unit within the Department of Health "to assist the Minister in assessing the efficiency and effectiveness of the health services" (Stationery Office, 1991).