costing report of designated services (an initial experience) · costing exercise for “designated...
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IRqeh
September 2017
Report on Costing
of Designated Services
Year 2012/13 to 2015/16
To facilitate analysis under the Refined Population-based Model
to inform Resource Allocation
Report on Costing of Designated Services
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Report on Costing of Designated Services
Preface Page 3
Preface
The “Steering Committee on Review of Hospital Authority” (SC) was set up by
the Government in August 2013 to conduct an overall review of the Hospital
Authority (HA) to examine its operation in response to the changes in society
such as an expected ageing population. Resource management is one of the
areas being reviewed.
While the Government and HA had agreed on a population-based approach in
year 2000 for territory-wide projection of public healthcare utilisation (the “Basic
Model”), serving as an indicator for the change in HA’s recurrent funding
requirement in response to the evolving healthcare needs arising from changes
in population size and demographics, the SC noted that there were concerns
about a resource allocation model solely based on population size.
Specifically, there were worries that a pure population-based model would not
be able to take into account the territory-wide Tertiary and Quaternary (T&Q)
services provided by certain hospitals in selected Clusters, the demand arising
from cross-cluster movement of patients experienced by certain Clusters and
the special role of certain hospitals. For example, Queen Mary Hospital (QMH)
is the sole hospital in HA providing Liver Transplantation services for patients
throughout the territory.
As such, it was particularly remarked in Recommendation 3 of the report of the
SC1 published in July 2015 which addressed “enhancing equity in resource
management” as below.
HA should adopt a refined population-based resource allocation
model by reviewing the present approach and taking into
consideration the demographics of the local and territory-wide
population. The refined population-based model should take into
1 The report of the SC can be found on the website of the Food and Health Bureau at
http://www.fhb.gov.hk/cn/committees/harsc/report.html.
Report on Costing of Designated Services
Preface Page 4
account the organisation of the provision and development of
tertiary and quaternary services, and hence the additional resources
required by selected hospitals or Clusters, as well as the demand
generated from cross-cluster movement of patients; and
HA should develop the refined population-based resource allocation
model and implement through its service planning and budget
allocation process within a reasonable timeframe. To avoid
unintentional and undesirable impact on the existing baseline
services of individual Clusters, HA should consider appropriate
ways to address the funding need of Clusters identified with
additional resources requirement under the new model, while
maintaining the baseline funding to other Clusters.
For the development of the Refined Population-based Model (Refined Model) in
response to Recommendation 3 where knowledge and expertise are required
for building an objective, robust and validated scientific model, HA had
commissioned the Jockey Club School of Public Health and Primary Care of the
Chinese University of Hong Kong (CUHK) in April 2016 as the external
consultant for developing the Refined Model to facilitate resource analysis.
Through the development of the Refined Model, HA aims to develop an
analytical tool to inform resource allocation among Clusters. In this regard, a
costing exercise for “Designated Services (DS)”2 (such as T&Q services that
operates in designated locations) is carried out to enable data cleansing
(through delineating the corresponding resources and activities of DS from
Clusters’ core services) so as to generate a suitable dataset for building the
Refined Model to facilitate a like-with-like analysis of Cluster resource needs for
Clusters’ core services.
2 Please refer to Section IV for definition of Designated Services (DS).
Report on Costing of Designated Services
Preface Page 5
This report documents the objective and governance structure of the costing
exercise for DS; definition of DS; the guiding principles, vetting and prioritisation
mechanism; the methodology, approaches and results of the costing of DS; as
well as the limitations encountered.
More details of the Refined Model can be found in the Final Report of
“Development of Refined Population-based Model to Inform Resource
Allocation”. The report is available on the Hospital Authority website at
Internet: http://www.ha.org.hk/visitor/ha_visitor_index.asp?Content_ID=229145
Intranet: http://ha.home/fd/w_strategy_planning%20-%20HFP.htm
Report on Costing of Designated Services
Table of Content Page 6
Table of Content
Preface .................................................................................................................... 3
Table of Content ........................................................................................................ 6
I. Expenditure Covered by the Refined Model .............................................. 7
II. Objective ..................................................................................................... 14
III. Governance Structure ................................................................................ 15
IV. Definition of Designated Services (DS) .................................................... 17
V. The Guiding Principles and Vetting and Prioritisation Mechanism ....... 18
1. Acquired Immune Deficiency Syndrome (AIDS) Service ....................................... 18 2. Blood Transfusion Service ....................................................................................... 19 3. Bone Marrow Transplantation (BMT) (Allogeneic) ................................................. 19 4,5,6. Cardiothoracic Surgery (CTS), Heart Transplantation and Lung
Transplantation ......................................................................................................... 19 7. Developmental Disabilities Unit (DDU) ................................................................... 20 8. Forensic Psychiatry .................................................................................................. 20 9. Infectious Disease Centre (IDC) .............................................................................. 20 10. Liver Transplantation ................................................................................................ 20 11. Severe Mentally Handicapped Services ................................................................. 21 12. Toxicology ................................................................................................................. 21 13. Teaching and Research Component in Teaching Hospitals ................................. 21
VI. Costing Methodology ................................................................................. 23
VII. Costing Approaches .................................................................................. 27
VIII. Costing Results .......................................................................................... 33
IX. Communication .......................................................................................... 35
X. Limitations .................................................................................................. 36
Report on Costing of Designated Services
I. Expenditure Covered by the Refined Model Page 7
I. Expenditure Covered by the Refined Model
HA expenditure comprises operating expenditure and capital expenditure.
Operating expenditure refers to the expenditure to run HA’s day-to-day hospital
services. It covers manpower, drug, consumables and daily maintenance of
equipment and facilities, etc. but is separated from capital expenditure (e.g. for
capital works projects, major equipment acquisition, corporate-wide Information
Technology development).
A Refined Population-based Model (Refined Model)3 was developed in response
to the recommendation of HA Review4 to inform resource allocation. Since the
subject of interest is equity of healthcare expenditure by population
consideration, it is important to perform the following steps on HA expenditure
which can enable data cleansing so as to generate a suitable dataset for
building the Refined Model.
Step 1: Exclude capital expenditure
HA’s capital expenditure is incurred for designated uses and are centrally
planned under a separate mechanism for corporate-wide standards. Capital
3 The Final Report of “Development of Refined Population-based Model to Inform Resource
Allocation” is available on the Hospital Authority’s Internet and intranet (as stated in the Preface).
4 Refers to Recommendation 3 of the HA Review Report which is available on the website at:
http://www.fhb.gov.hk/en/committees/harsc/report.html
Report on Costing of Designated Services
I. Expenditure Covered by the Refined Model Page 8
expenditure does not directly relate to day-to-day running of core hospital
services and it varies years from years due to the following reasons:
(a) Facilities maintenance and improvement works projects
Capital expenditure on facilities maintenance and improvement work
projects varies between Clusters due to long planning cycles and
different phases for improving the infrastructure to meet service needs.
(b) Medical equipment
The difference in the phasing of replacement cycle for medical equipment
results in variation of capital expenditure incurred among Clusters.
(c) Information Technology (IT) system development
The IT system development in HA are mainly centrally administered. The
corresponding expenditure is separately funded and is not directly
relevant to Clusters’ day-to-day operation.
Hence, capital expenditures should be excluded from analysis to facilitate like-
with-like comparison of resource used for core hospital services between
Clusters as shown below.
Report on Costing of Designated Services
I. Expenditure Covered by the Refined Model Page 9
Step 2: Carve out of Designated Services
It is common for public healthcare systems to organise highly specialised
services (labelled as DS) and operations in designated locations so as to benefit
from concentration of expertise (not only of healthcare professionals but also
technology setup and facility design, etc.) and economies of scale. This is
particularly relevant in Hong Kong in view of the size of its population and
territory.
As DS are provided in designated institutions for the entire population of Hong
Kong, they serve populations beyond their Cluster boundary and thus are
outside of the scope of the Clustering concept and in turn the Refined Model to
facilitate resource allocation. After deliberation at the Internal Resource
Allocation Model Development Steering Committee (IRAMD SC) (a designated
governance structure set up to oversee the model development and detailed in
Section III) and with the external consultant, it was decided that DS should be
carved out from the Refined Model (as seen in the diagram below) such that the
remaining core hospital and clinic services are more comparable in terms of
scope, nature, and the target population (i.e. within the Cluster’s catchment
locations) intended to serve, which in turn would minimise any potential bias that
may result from the varying provision of DS in different Clusters.
Report on Costing of Designated Services
I. Expenditure Covered by the Refined Model Page 10
Step 3: Perform other adjustments to facilitate like-with-like comparison
(a) Expenditure not related to day-to-day public services
Resources unrelated to day-today public services are not attributable to
the provision of core hospital services, in which should be excluded from
Clusters’ recurrent resource as shown in the diagram below and
elaborated in following paragraphs:
(i) Private services
Private services are not public services and are not common
across Clusters. Thus, the corresponding costs and activities
should be carved out from the analysis. Costs of private services
are not readily available. For 2012/13, private service income
(extracted from general ledger) was used as a proxy to reflect the
costs of private services. For other relevant years (i.e. 2013/14 –
2015/16), to avoid the distortion arising from 2013 fee revision, the
unit cost of services was based on 2012/13 information and
applied to the private patient activities to come up with the
estimation of cost of private services in each year.
Report on Costing of Designated Services
I. Expenditure Covered by the Refined Model Page 11
(ii) Alternative Source of Income (ASOI) related expenditure
Since 1991, HA has been initiating different kinds of new activities
which have generated additional income. In 1999, it was agreed
with Government that such income could be classified as ASOI. As
ASOI is not related to core hospital services, those related
expenditures (extracted from general ledger) should be excluded
from the analysis.
(iii) Services to outsiders
Resources and activities for services provided to outsiders (i.e.
Department of Health (DH), Universities, Labour Department,
Correctional Services Department (CSD) and private hospitals) are
not related to core hospital services. To compile Annual Costing
information, hospitals have been reporting these information to
Hospital Authority Head Office (HAHO). These information would
be excluded from Clusters’ resources for like-with-like comparison.
(iv) Hospital commissioning
Expenditures related to hospital redevelopment, expansion and
development are project-based spending and not related to core
hospital services. Such costs should not be counted for as
Clusters’ resources. Such information are also reported by
hospitals during Annual Costing exercise.
(b) Expenditure borne by patients
Self-Financing Drug Items (SFI Drugs) and expenditures related to non-
standard Positron Emission Tomography (PET) services provided by the
Queen Elizabeth Hospital (QEH) and the Pamela Youde Nethersole
Eastern Hospital (PYNEH) are borne by patients. The cost information
can be extracted from general ledger and would be excluded from
Clusters’ resources. Privately Purchased Medical Items (PPMI) are
purchased by hospitals on behalf of patients and do not treated as
hospital expenditure.
Report on Costing of Designated Services
I. Expenditure Covered by the Refined Model Page 12
(c) Expenditure related to policy directed initiatives
In order to assure like-with-like comparison of expenditure attributable to
the provision of core hospital services, resources relating to policy
directed initiatives should be excluded from Clusters’ resources.
Expenditures (extracted from general ledger) relating to clinical Public-
Private Partnership (PPP) Programme, designated/enhanced services to
Civil Service Eligible Persons, community health call centre (located at
Ruttonjee Hospital and Kwai Chung Hospital) are adjusted. For clinical
PPP programme, as the services rolled out to some districts only,
resources and activities of clinical PPP should be carved out of Clusters’
resources at this stage. This adjustment could be further reviewed with
future development.
Resources relating to support for public crisis (i.e. lead in drinking water
incident), nursing schools and special accommodation ward (located at
Pamela Youde Nethersole Eastern Hospital (PYNEH) and Ruttonjee
Hospital) are also excluded from the analysis. These costing information
are reported by hospitals during the Annual Costing exercise.
(d) Technical adjustments
(i) Electricity
Electricity is charged at different rates by two local electricity
providers covering the Hong Kong Island, Kowloon and the New
Territories. In order to minimise the distortion arising from different
electricity tariff, the lowest unit cost of electricity among Clusters
(estimated by Clusters’ total electricity cost divided by total
consumption unit) is chosen as the base unit cost to adjust the
electricity tariff. In particular, the adjusted electricity tariff of each
Cluster is computed by multiplying the base unit cost with the
respective number of electricity unit consumed and the difference
will be excluded from Clusters’ operating expenditure to facilitate
like-with-like comparison.
Report on Costing of Designated Services
I. Expenditure Covered by the Refined Model Page 13
(ii) Inter-cluster services
Clusters would provide/receive services to/from other Clusters.
Inter-cluster services include staff services, centralised laundry
services 5 , food provision, radiology examination and laboratory
tests. To match cost with activity, inter-cluster services are
reported and mutually agreed by involving hospitals during the
Annual Costing exercise. For the purpose of analysis, these
information agreed by respective hospitals have been adopted in
this costing exercise.
(iii) Resources centrally administrated by HAHO
Expenditure centrally administrated by HAHO that are necessary
for the provision of core hospital services should be allocated to
Clusters to reflect the resources required. Adjustment for Public-
Private Partnership Project of Food Services (PPP food) has been
made in respective years.
After performing the above steps for data cleansing, the resources to be
analysed under the Refined Model are illustrated below (highlighted in red box):
5 In the 7
th IRAMD SC meeting held in February 2016, members opined that centralised
laundry, should be handled as a model adjustment, namely in the form of inter-cluster services, rather than treating it as a DS.
Report on Costing of Designated Services
II. Objective Page 14
II. Objective
The objective of this costing exercise for DS is to enable data cleansing so as to
generate a suitable dataset for building the Refined Model. To achieve this, the
resource implications of DS (for the years from 2012/13 to 2015/16) need to be
quantified such that the corresponding resources and activities can be
delineated from the resource analysis facilitating like-with-like comparison of
services that are common across Clusters (i.e. recurrent operating expenditure
against core hospital services).
Report on Costing of Designated Services
III. Governance Structure Page 15
III. Governance Structure
According to the HA Review Action Plan 6 , HA had set up a designated
governance structure to oversee the development of the Refined Model with a
view to building consensus, identifying DS and conducting technical review on
their costing methodologies under the lead of the IRAMD SC, supported by the
Internal Resource Allocation Model Development Working Group (IRAMD WG).
For each DS, a collaboration group namely Costing Subgroup for Designated
Services (CSG DS) represented by Cluster counterparts (such as clinical
frontline, Finance teammates) supported by the Project Team, is responsible to
set out the care model blue print for identifying respective cost components and
propose the methodology/approach to quantify the overall resources (within
HA’s costing framework and available data) used in delivering the DS. The
methodology adopted and costing results would then be reported to the IRAMD
WG and in turn the IRAMD SC for deliberation and endorsement. The overall
governance is summarised in the diagram below.
6 The HA Action Plan on Implementation of the Recommendations of the SC can be found on
the website of the HA at http://www.ha.org.hk/visitor/ha_visitor_index.asp?Content_ID=229145.
Report on Costing of Designated Services
III. Governance Structure Page 16
Report on Costing of Designated Services
IV. Definition of Designated Services (DS) Page 17
IV. Definition of Designated Services (DS)
As remarked in the Report of the SC, T&Q services may serve as a convenient
starting point for defining DS. After reality checking, the IRAMD SC noted that
some T&Q services are available in most Clusters (e.g. autologous bone
marrow transplantation), and hence, does not require delineation from other
core services in the analysis. Whereas, some non-T&Q services (not limited to
clinical services) are limited to specific location(s) (e.g. Blood Transfusion
Services) and should be properly addressed. Through discussing with
stakeholders and deliberating with frontline, the IRAMD SC had endorsed the
following definition for DS.
Designated Services mainly follow corporate direction when setting out
corresponding service delivery models, and are:
(a) highly complex in nature with respect to skill, technology
and/or expertise that are only adequately available in specific
Cluster(s) to serve populations beyond its Cluster boundary,
or
(b) being centralised at specific Cluster(s) to serve populations
beyond its Cluster boundary on operational reasons or
economy of scale.
Report on Costing of Designated Services
V. The Guiding Principles and Vetting and Prioritisation Mechanism Page 18
V. The Guiding Principles and Vetting and
Prioritisation Mechanism
Guiding Principles
To facilitate the costing work, the IRAMD SC has laid down two guiding
principles as below:
(a) Costing scope should reflect those resources attributable to the provision
of DS (that otherwise would not have incurred to the serving Cluster).
That is, what has “actually incurred” and not what “should be”.
(b) A vetting and prioritisation mechanism for DS should be set up with due
consideration on materiality and data availability.
Vetting and Prioritisation Mechanism
Following the guiding principles, the IRAMD SC had endorsed a vetting and
prioritisation mechanism to identify and shortlist DS for costing based on
materiality and data availability. Clusters had agreed on the mechanism and
submitted their proposals on DS. By April 2016, the IRAMD SC had shortlisted a
total of 13 DS for costing. Below paragraphs briefly describe the background
information of each DS and a summary table of the 13 DS is also appended.
1. Acquired Immune Deficiency Syndrome (AIDS) Service
AIDS service is being managed by service networking between HA and
Integrated Treatment Centre (ITC) of Centre of Health Protection (CHP).
In HA, comprehensive AIDS service provided by Princess Margaret
Hospital (PMH) and Queen Elizabeth Hospital (QEH) included inpatient
and outpatient services, partners screening, nurse counselling,
compliance assessment, Post-exposure Prophylaxis (PEP) and
counselling for needle stick injury, etc.
Report on Costing of Designated Services
V. The Guiding Principles and Vetting and Prioritisation Mechanism Page 19
2. Blood Transfusion Service
Blood Transfusion Service is responsible for ensuring that sufficient
supplies of safe and high-quality blood and blood components are
available for local transfusion therapy patients. One of the service’s most-
important tasks is to motivate the community to make regular blood
donations. The blood donations are then tested for blood groups and
mandatory infection markers before they are processed into various blood
products. Finally, these blood and blood products are distributed to public
and private hospitals for clinical transfusion, which make them available
to patients.
3. Bone Marrow Transplantation (BMT) (Allogeneic)
Bone Marrow Transplantation (Allogeneic) services were provided by
Queen Mary Hospital (QMH) and Prince of Wales Hospital (PWH). The
diseased bone marrow would be removed and replaced by a healthy one.
The scope of services included entire transplantation activities of all
clinical care paths involved (such as transplant coordinator office, workup
for potential recipients/donors, follow-up in subsequent years, etc.) and
other supporting services/overheads (e.g. pathology and radiology
services, etc.) incurred.
4,5,6. Cardiothoracic Surgery (CTS), Heart Transplantation and Lung
Transplantation
In HA, a comprehensive range of CTS services were supported by three
centres namely QMH, PWH (with a Thoracic Surgery satellite site in New
Territories West Cluster (NTWC)) and QEH including adult cardiac
surgery, paediatric cardiac surgery, thoracic surgery, intrathoracic (i.e.
heart and lung) organ transplantation with advanced mechanical
circulatory support.
Report on Costing of Designated Services
V. The Guiding Principles and Vetting and Prioritisation Mechanism Page 20
7. Developmental Disabilities Unit (DDU)
DDU at Caritas Medical Centre (CMC) is the sole centre that provides
medical, educational and rehabilitation services to children with severe
developmental disabilities and complex medical needs in Hong Kong in a
home-like environment.
8. Forensic Psychiatry
Department of Forensic Psychiatry of Castle Peak Hospital (CPH) of
NTWC provides territory-wide mental health services to people who have
both a mental disorder and a history of criminal offence (or who present a
serious risk of such behaviour). The department works closely with the
CSD and other law-enforcing agencies to provide clinical assessment and
treatment to individuals with serious mental illness presenting in the
criminal justice system in Hong Kong.
9. Infectious Disease Centre (IDC)
The IDC at PMH was founded as an aftermath of the outbreak of Severe
Acute Respiratory Syndrome (SARS) in 2003. It is the tertiary referral
centre for mapping infectious diseases in Hong Kong.
10. Liver Transplantation
Liver Transplantation services were only provided by QMH. The diseased
liver would be removed and replaced by a healthy one. The scope of
services included entire transplantation activities of all clinical care paths
involved (such as transplant coordinator office, workup for potential
recipients/donors, follow-up in subsequent years, etc.) and other
supporting services/overheads (e.g. pathology and radiology services,
etc.) incurred.
Report on Costing of Designated Services
V. The Guiding Principles and Vetting and Prioritisation Mechanism Page 21
11. Severe Mentally Handicapped Services
Siu Lam Hospital (SLH) is the only hospital in Hong Kong serving patients
with severe intellectual disability aged 16 or above. It provides
comprehensive rehabilitative and infirmary services exclusively to adult
patients with severe intellectual disability in Hong Kong.
12. Toxicology
Toxicology service comprises four clinical units: the Hong Kong Poison
Information Centre (HKPIC) at United Christian Hospital (UCH), the
Poison Treatment Centre (PTC) at PWH, the Toxicology Reference
Laboratory (TRL) at PMH and the Chief Pharmacist’s Office at HAHO,
with support provided by the Infection, Emergency & Contingency
Department (HAHO).
13. Teaching and Research Component in Teaching Hospitals
According to Section 24 of the Hospital Authority Ordinance (Chapter
113), “Teaching Hospital means the Prince of Wales Hospital or the
Queen Mary Hospital where such hospital is a public hospital” and; also
the main clinical education and research centres in Hong Kong. It was a
common understanding that Teaching and Research (T&R) Component
in the Teaching Hospital has all along been recognised to incur additional
cost to the Teaching Hospitals. Although it is not strictly within the
definition of DS, it is necessary to understand the impact of T&R and
should be addressed along with DS in the Refined Model as far as
practical.
Report on Costing of Designated Services
V. The Guiding Principles and Vetting and Prioritisation Mechanism Page 22
Designated Services (DS) Cluster(s)
1. AIDS Service Kowloon Central Cluster (KCC) Kowloon West Cluster (KWC)
2. Blood Transfusion Service Kowloon Central Cluster
3. Bone Marrow Transplantation (Allogeneic)7 Hong Kong West Cluster (HKWC)
4. Cardiothoracic Surgery8 Hong Kong West Cluster Kowloon Central Cluster New Territories East Cluster (NTEC)
5. Heart Transplantation Hong Kong West Cluster
6. Lung Transplantation Hong Kong West Cluster
7. Developmental Disabilities Unit Kowloon West Cluster
8. Forensic Psychiatry New Territories West Cluster (NTWC)
9. Infectious Disease Centre Kowloon West Cluster
10. Liver Transplantation Hong Kong West Cluster
11. Severe Mentally Handicapped Services New Territories West Cluster
12. Toxicology Kowloon East Cluster (KEC) Kowloon West Cluster New Territories East Cluster
13. Teaching and Research Component in Teaching Hospitals
Hong Kong West Cluster New Territories East Cluster
7 For Bone Marrow Transplantation: New Territories East Cluster only provides paediatric
services. In view that some of these paediatrics services would be translocated to the Hong Kong Children’s Hospital, it was not included under the Refined Model and resource analysis for the time being.
8 For Cardiothoracic Surgery: New Territories West Cluster is the Thoracic Surgery satellite site
of New Territories East Cluster.
Report on Costing of Designated Services
VI. Costing Methodology Page 23
VI. Costing Methodology
The main objective of this DS costing exercise is to quantify all resources
attributable to the provision of DS that would otherwise not be incurred to the
serving Cluster. Given the diversity of DS, there is no one-fit-for-all methodology
to cost all DS. Instead, each DS would be assessed individually to determine the
appropriate costing approach with due consideration of materiality and data
availability.
Costing Process
To ensure key cost components of the entire care path are being included and
that their resource utilisation would be properly accounted for, the costing
process for DS would generally involve the following steps:
1. Define scope of services
The first step is to seek inputs from clinical professionals for identifying
care pathway and the corresponding patient care services to be included
in the DS costing scope. CSG DS have been set up with members from
frontline, Cluster Finance and HAHO. Each CSG DS has to define and
build consensus on the scope of services for each DS.
Report on Costing of Designated Services
VI. Costing Methodology Page 24
2. Identify activities
The next step is to identify activities associated with the care delivery
process / workflow of DS so as to facilitate estimation of the resources
used for DS. It is obvious that alternative ways of delineating an
organisation’s activities or services for costing will yield different sets of
cost information, which will shed light from different perspectives. As such,
it is important to identify the activities which will impact on the meaning of
the ensuing cost information. Clusters should suggest and provide clinical
throughput reference (e.g. Bed Days Occupied (BDO), number of
surgeries, etc.) with supports from frontline and IT.
3. Identify costing components
The next step is to determine relevant costs incurred by hospitals in
delivering the DS. CSG DS will identify the respective cost components
based on the scope of DS defined and propose the
methodology/approach to quantify the overall resources (within HA’s
costing framework and available data) used in delivering DS. Costs of DS
should include operating expenditure incurred by the hospitals in the
provision of DS and, hence, the following costing components of DS have
been identified:-
(a) Direct cost for clinical specialties (e.g., Personal Emoluments (PE),
other charges)
(b) Clinical patient support services (e.g., anaesthetics and Operating
Theatre (OT), pharmacy, radiology, etc.)
(c) Non-clinical patient support services (e.g., portering & domestic
services, catering, etc.)
(d) Hospital overheads (e.g., utilities, repairs and maintenance, etc.)
Report on Costing of Designated Services
VI. Costing Methodology Page 25
4. Analyse costs
The next step is to analyse nature of service costs, such as in terms of
fixed costs (e.g. designated team) and variable costs (e.g. non-
designated team, radiology, laboratory tests, etc.).
5. Estimate costs over the activities
The next step is to quantify the cost of resources consumed for the DS. In
this regard, it is important to examine the care delivery process / workflow
to identify the cost drivers contributing to the costing components. A cost
driver is simply a measure to proportionately distribute the cost of
activities to costing component. The choice of cost driver is an important
design issue as it will impact on the meaning of the ensuing cost
information. Considerations for determining cost driver include
meaningfulness, measurability and availability. Once the cost drivers are
identified, one should look to existing systems (not limited to finance
systems) for cost driver measurements. General ledger is a good starting
point especially for direct expenses such as the cost of drugs dispensed,
expensive medical device used, and costs of labour directly linked to the
activity being costed and tracked in systems. On the other hand, support
service expenses (e.g. imaging, pathology services) and overhead
expenses whereby service unit cannot be directly linked to input, one
needs to employ some proxies as a top-down approach (e.g. workload
statistics for radiology) to allocate resources to the respective activities.
With due consideration on the data availability and materiality, resources
of each costing component consumed for the DS can be quantified.
Report on Costing of Designated Services
VI. Costing Methodology Page 26
6. Review costing results by stakeholders
The final step is to seek clinical and relevant stakeholders’ review on the
costing results to ensure the accuracy and reasonableness of the costing
results. The costing results would be reviewed by Cluster Finance and
HAHO costing team and clinical input have been sought on the
reasonableness of the costing results. The results would be further
adjusted after review if necessary.
Report on Costing of Designated Services
VII. Costing Approaches Page 27
VII. Costing Approaches
Costing was performed following the costing process as stated in “Section VI –
Costing Methodology”, where key cost components of the entire care path were
being included and their resource utilisation were properly accounted. From the
initial experience, costing approaches for the 13 DS could be summarised as
below:
1. Distinct and separate expenditure records
For Blood Transfusion Service and Severe Mentally Handicapped
services, distinct and separate expenditure records from 2012/13 to
2014/15 are maintained. Costing is based on general ledger of respective
years.
2. The cost for delineated workforce, facility, equipment and
consumables that could be separately identified and measured
For Developmental Disabilities Unit, Forensic Psychiatry and Infectious
Disease Centre, costing is based on Specialty Costing results of
respective years (from 2012/13 to 2014/15) with appropriate adjustments
of patient support services costs and overheads.
Similarly for Toxicology, the cost represents cost of designated team
and/or laboratory cost at the PWH PTC, TRL at PMH and HKPIC at UCH
plus costs of clinical and non-clinical patient support services, overheads
of inpatient and outpatient services which were calculated based on
Specialty Costing information.
Report on Costing of Designated Services
VII. Costing Approaches Page 28
3. Identify patient activities associated with delivering the patient care
and quantify cost over the activities
For AIDS Service, Bone Marrow Transplantation (Allogeneic),
Cardiothoracic Surgery (including Heart Transplantation and Lung
Transplantation) and Liver Transplantation, clinical activities that cut
across multi-discipline and multi-dimension (from 2012/13 to 2014/15) are
involved.
Cost of DS mainly comprises (i) cost of designated team; and (ii) non-
designated team and other costs. Detailed costing of designated team
has been performed with reference to actual number of full time
equivalent and staff cost by staff type/rank involved. For the cost of non-
designated team and other costs, patient activities associated with patient
care path which cut across multi-discipline would be identified. Supports
have been sought from IT to perform activity data extraction (e.g., number
of patient days, value of drugs dispensed, radiology workload, number of
attendances for specialist outpatient services etc.) based on the
extraction criteria provided by Clusters. The resources consumed for
each activity will be estimated accordingly.
Broad brush approach for 2012/13 and 2013/14 costing
In view of the time constraints, for Bone Marrow Transplantation (Allogeneic),
Liver Transplantation, Cardiothoracic Surgery (including Heart Transplantation
and Lung Transplantation) of Hong Kong West Cluster, the costs of designated
team and non-designated team in 2012/13 and 2013/14 were estimated by
deflating the 2014/15 cost with relevant Annual Pay Adjustment (APA)
composite rates; whereas other costs are estimated by deflating the 2014/15
cost using relevant corporate key assumptions for 2013/14 and 2014/15 budget
plan % change.
Report on Costing of Designated Services
VII. Costing Approaches Page 29
Broad brush approach for 2015/16 costing
In March 2017, the IRAMD SC endorsed to adopt a broad brush approach of the
above (paragraphs 1, 2 and 3 above) for 2015/16 costing and elaborated in the
following paragraphs.
For Blood Transfusion Services, Infectious Disease Centre, Developmental
Disabilities Unit, Forensic Psychiatry and Severe Mentally Handicapped
Services, 2015/16 costing information are readily available. Costing is based on
2015/16 Specialty Costing results or general ledger.
For the remaining seven DS (including AIDS Service, Bone Marrow
Transplantation (Allogeneic), Cardiothoracic Surgery, Heart Transplantation,
Liver Transplantation, Lung Transplantation and Toxicology), cost mainly
comprises (i) cost of designated team; and (ii) non-designated team and other
costs which are quantified based on the following:-
(i) Cost of designated team
The cost of designated team will be uplifted using APA composite rate for
2015/16 unless there are significant changes (e.g., filled vacancy, new
initiatives, etc.). In such case, detailed costing of designated team will be
performed.
(ii) Non-designated team and other costs
The cost of non-designated team and other costs will be quantified based
on the projected 2015/16 unit cost multiplied by the 2015/16 activity of the
services. The projected unit cost will be based on 2014/15 DS unit cost
(i.e. cost per patient day / cost per attendance) uplifting by relevant
service cost growth rates of relevant hospitals. For the activity data, IT
performed activity data extraction (e.g., number of patient days / number
of attendances / number of visits) based on the extraction criteria
provided by Clusters.
Report on Costing of Designated Services
VII. Costing Approaches Page 30
4. Fall back on costing framework & methodological approach as laid
down in the report published jointly by the University Grants
Committee (UGC) and HA in 1998 and make relevant updates with
latest available information with respect to growth in volume and
associated costs
The Consultant and IRAMD SC both noted that the T&R Component has
all along been recognised to incur additional cost to the Teaching
Hospitals. Although T&R is not strictly within the definition of DS, it was
agreed that its impact should be treated similarly with other DS when
building the Refined Model as far as practical.
The Costing Subgroup on T&R Component in Teaching Hospitals
recognised the complexity of the undertaking as no discrete
financial/activity information for T&R is readily available as for other DS.
Therefore, the IRAMD SC had endorsed the Subgroup’s suggestion to
fall back on the strategy on the costing framework and methodological
approach as laid down in the report published jointly by the UGC and HA
in 1998 titled “The Impact of Teaching, Research and Development on
Teaching Hospitals” and make relevant updates with the latest available
information with respect to the growth in volume and associated costs.
Rather than targeting for a precise costing figure for funding purpose, the
exercise aims to analyse the impact and arrive at a reasonable proxy for
the additional cost on T&R incurred by the Teaching Hospitals. A high-
level estimate was made on the extra efforts relating to the following
components:-
(a) Research;
(b) Development of new tests, standards, and references;
(c) Medical records management;
(d) Undergraduate teaching; and
(e) Overhead costs of accommodation occupied by University staff on
hospital premises.
Report on Costing of Designated Services
VII. Costing Approaches Page 31
Updates to the various components would be made with respect to the
growth in volume and associated costs. Such approach was supported by
the IRAMD SC, and the Committee on Teaching Hospitals (THC).
Resource estimations for 2014/15 and 2015/16 were derived using the
aforementioned methodology. To arrive at the resource estimations for
2012/13 and 2013/14 (to facilitate time trend analysis on Cluster
resources), the HA service cost growth rates were applied to the 2014/15
results.
Report on Costing of Designated Services
VII. Costing Approaches Page 32
The above costing approaches were summarised in the table below.
Report on Costing of Designated Services
VIII. Costing Results Page 33
VIII. Costing Results
By July 2017, the costing results of 13 DS (from 2012/13 to 2015/16) were
completed by the Costing Subgroups with total cost in 2015/16 amounting to
around HK$ 3.4 billion as summarised in the table below (i.e. around 70% of the
total cost of all submitted DS proposals and around 6% of HA’s total operating
expenditure – shown in the diagram below).
Designated Services Cluster 2012/13 ($million)
2013/14 ($million)
2014/15 ($million)
2015/16 ($million)
1. AIDS Service
KCC KWC
112 28
121 37
137 50
152 67
2. Blood Transfusion Service KCC 252 278 299 323
3. Bone Marrow Transplantation (Allogeneic)
HKWC 133 142 145 174
4,5,6. Cardiothoracic Surgery, Heart Transplantation and Lung Transplantation
HKWC KCC
NTEC NTWC
285 157 118 28
301 164 120 31
319 178 139 30
349 192 156 32
7. Developmental Disabilities Unit KWC 61 61 61 60
8. Forensic Psychiatry NTWC 127 131 140 143
9. Infectious Disease Centre KWC 135 152 142 153
10. Liver Transplantation HKWC 209 220 226 236
11. Severe Mentally Handicapped Services
NTWC 185 198 214 222
12. Toxicology KEC KWC NTEC
20 23 25
23 24 16
26 26 21
29 35 22
13. Teaching and Research Component in Teaching Hospitals
HKWC NTEC
509 463
529 481
563 512
565 502
Total cost 2,870 3,029 3,228 3,412
Report on Costing of Designated Services
VIII. Costing Results Page 34
The relative magnitude of the resources in 2015/16 for DS, other adjustments,
and core hospital services for the seven Clusters as well as the HA are
summarised in the figure below.
Note
HKEC Hong Kong East Cluster
HKWC Hong Kong West Cluster
KCC Kowloon Central Cluster
KEC Kowloon East Cluster
KWC Kowloon West Cluster NTEC North Territories East Cluster NTWC North Territories West Cluster
Report on Costing of Designated Services
IX. Communication Page 35
IX. Communication
Throughout the development of the Refined Model (including the costing of DS)
stakeholders were engaged including HAHO (such as Information Technology
and Health Informatics (IT&HI) Division and Strategy & Planning (S&P) Division)
& Clusters’ counterparts with a view to aligning the understandings on data
requirements (e.g. extraction criteria for patient lists, data specification, etc.),
defining roles and responsibilities and working out the master schedule for the
purpose of estimating the activities and associated resources of each DS.
From 2015 to 2017, a total of around 30 working level meetings mentioned
above were conducted. Besides, views and feedback were also solicited from
Cluster management and frontline through Cluster senior management
meetings, 9 hospital visits, 28 staff forums and release of an interim report.
The HA Board and relevant functional committees such as the Executive
Committee, Medical Services Development Committee, Finance Committee and
Administrative and Operating Meeting have been kept informed of the key
development milestones. Media workshops and briefings were also made to the
public and Food and Health Bureau whenever necessary.
Report on Costing of Designated Services
X. Limitations Page 36
X. Limitations
Being an initial experience, limitations exist in the aforementioned costing of
various DS. Nevertheless, these ground work could serve as the starting point
for further refinement through subsequent costing and continuous review if
necessary. Below summarises the major limitations encountered during costing
exercise (from 2012/13 to 2015/16).
Bottom-Up Costing
Bottom-up costing approach has been adopted to cost AIDS service, Bone
Marrow Transplantation (Allogeneic), Cardiothoracic Surgery, Heart
Transplantation, Lung Transplantation and Liver Transplantation. Bottom-up
costing approach quantifies resource utilisation at the patient or individual
service level, and aggregate patient/ service level utilisation data to identify the
type of resources used and to calculate the costs of specific services. This
approach breaks down the patient’s care process into discrete activities, which
is necessary to deliver a particular service. Cost measurement is performed
separately for each activity. Inputs from clinical professionals are sought for
identifying care pathway and the corresponding patient care services to be
included in the DS costing scope.
The adoption of bottom-up costing requires each costing component along care
pathway to be costed. Hence, the accuracy of the costing result of DS largely
depends on accuracy of the costing of each and every possible expenditure and
their completeness. Significant time and manpower are required to retrieve /
collect the information regarding the activities of each costing component and to
calculate the cost of each component so as to derive the total cost of a DS.
In contrast to top-down costing where the departmental cost is disaggregated
into units of services, the costing of DS under the bottom-up approach is based
on the activities and their associated costs identified throughout the care
Report on Costing of Designated Services
X. Limitations Page 37
pathway, which leads to the difficulty in reconciling the calculated DS costs with
the departmental cost. In addition, while bottom-up costing is generally regarded
as more comprehensive and accurate, it should be noted that the costs of some
component (those other than designated team) are derived based on unit costs
calculated as an average cost per unit of output, which may over or
underestimate the real cost of resource consumption.
Broad Brush Approach Adopted
In view of the complexity and time constraint of the costing exercise, costing of
certain DS for 2012/13, 2013/14 and 2015/16 were performed under a broad
brush approach (e.g. uplifting 2014/15 costing result by APA composite rate for
designated team and relevant growth rates for other costs to derive 2015/16
estimated cost). This costing approach was deliberated in IRAMD WG and
endorsed in IRAMD SC meetings. For details of broad brush approach adopted,
please refer to “Section VII – Costing Approaches”.
As mentioned above, bottom-up costing approach is time-consuming and
labour-intensive while broad brush approach may be less accurate but it is
easier to perform. Under broad brush approach, the accuracy of costing results
depends on the validity of key assumptions made, such as insignificant change
in DS service scope, mode of service delivery, designated team and cost profile
of services in the years concerned. These assumptions have been reviewed and
the adoption of broad brush approach is considered as acceptable to facilitate
the analysis under Refined Model.
Costing of Pathology Services
Given the nature and operation of pathology services, they involve a varying
degree of automation, clinical judgment and even some pathology tests require
a higher level of professional inputs from pathologists (e.g. chemical
pathologists, haematologists, immunologists and anatomical pathologists, for
Report on Costing of Designated Services
X. Limitations Page 38
data analysis and interpretive reporting). Costing of pathology services is
complex and it has always been a challenge to assign pathology cost to better
reflect the resources deployed. In August 2016, the issue on the lack of
objective basis for apportioning cost among different types of pathology tests
was discussed in the IRAMD WG which advised that the Project Team should
work with representatives from Coordinating Committee (COC) (Pathology) to
identify an appropriate proxy for costing pathology services and need to come
up with an interim approach.
In February 2017, IRAMD SC supported the WG suggestion and endorsed to
adopt using the percentage of pathology cost over total hospital cost for
estimating the pathology cost of DS provided by respective hospitals. Under this
interim approach, for DS involving pathology tests which are complicated and
require more resources, the cost of pathology services of the DS may be
understated. However, for HA overall, pathology cost is insignificant as
compared to total service cost, it is of the view that the costing of pathology
services will not adversely impact the overall DS costing result.
Scope of DS included in this Costing Exercise
The DS proposals were submitted by Clusters and 13 DS were included in this
costing exercise under the Vetting and Prioritisation Mechanism as mentioned in
“Section V – The Guiding Principles and Vetting and Prioritisation Mechanism”.
These 13 DS represent around 70% of all submitted DS proposals (based on
initial cost estimates from Clusters).
Prepared by:
Finance Division
Hospital Authority Head Office
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147B Argyle Street
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