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Implications of Cost Per Weighted Case Analysis in Small Hospitals

August 21, 2017 | Blog post by Brent Maranzan

Cost Per Weighted Case (“CPWC”) is often used in health care as a standard measure to compare the relative efficiency of different hospitals.  The term “weighed cases” refers to the use of a standardized case weighting system, where each patient encounter is assigned a relative weighting (1 being a “normal” case).  Weightings are based on many different factors which are designed to account for the relative resources used when care is provided to a patient.  In Ontario, references to acute inpatient weighted cases usually refer to “Hospital Inpatient Grouper” (“HIG”) weighted cases.  The HIG methodology is Ontario-specific and based on the Case Mix Grouping (“CMG+”) methodology developed and maintained by the Canadian Institute for Health Information (“CIHI”); the weights are calculated using only Ontario case-costing data.

With clinical activity measuring using a relative weighting system, the idea is that the total net expenditures of an organization can be divided by the total “weighted cases” and compared to other facilities and/or to previous years to provide a measure of relative efficiency.  If CPWC is higher at one facility than another, or higher than the previous year, the assumption would be that the Hospital has efficiency gains left on the table.

CIHI recently published a paper entitled, “Understanding Variability in the Cost of a Standard Hospital Stay”, which highlights some important considerations if you are planning on using CPWC to compare Hospitals/fiscal years in this manner.  Below are some of the key findings of the report from a small Hospital perspective.

“Most of the differences between Hospitals’ (CPWC) estimates can be explained either by exogenous factors or by hospital management decisions”

  • The model developed in the research was able to explain approximately 86% of the variance observed using 13 factors, which proved to be strong predictors of changes to CPWC.
  • These factors should be considered when looking at differences between Hospitals / fiscal years, and include the Hospital’s size, rurality, teaching programs, inflation rate (relative to jurisdictional averages, use of agency nursing, degree of specialization and rehabilitation programs).

“Many of the factors that influence (CPWC) variability among peers are outside of a hospital’s control, including location, teaching status, size and wage difference.”

  • Hospitals may not have as much control over CPWC compared to other facilities as is commonly believed. A Hospital’s relative size was one of the most significant single factors – small hospitals had CPWC that were 10% higher than large hospitals.
  • Presence of a teaching program was the single most significant factor in the model. Teaching Hospitals had an estimated CPWC 18% higher than non-teaching Hospitals.
  • Factors within the control of Hospitals were less dramatic. For example, the presence of agency nursing: a 1% increase in the overall proportion of staff hours led to a 0.7% increase in CPWC.

Coding non-acute activity as acute led to underestimation of CPWC

  • Weighting systems assume that long-stay cases continue to be acute when in fact many of these patient stay in acute beds receiving non-acute care for long periods of time.  This leads to inflated weighted case estimates, reducing the overall CPWC of a community.
  • As a result, Hospitals which have high levels of inpatient days attributable to “Alternate Level of Care” (“ALC”) will have lower CPWC estimates than those who are able to discharge more readily and will appear more “efficient” than they are in reality.

Timing differences with respect to the discharge of long-stay patients will cause fluctuations in CPWC estimates

  • HIG weights (the denominator) are calculated upon discharge while Hospital expenses (numerator) are based on fiscal year.  If an inpatient stay spans multiple years, this causes timing differences which can lead to swings in the CPWC from year to year.
  • This is of particular concern in small Hospitals who have smaller sample sizes in their data.

 

Implications

In the modelling work completed by CIHI, just 13 factors accounted for the vast majority of variance in CPWC between facilities.  The most significant factors affecting CPWC were beyond the control of Hospital Management to address.  For small Hospitals, the most significant contributing factor was size, but also rurality, the scope of services provided (general Hospitals costing more) and the lack of rehabilitation services.   With all of these considerations, the use of CPWC to determine relative efficiency between Hospitals and/or fiscal years may not be the best approach.Implications

Other factors need to be included in the analysis such as the following for example:

  1. Analysis of the numerator and denominator separately (did costs and weighted cases move in the same direction?  Did timing differences between costs and discharges skew the calculations?)
  2. Analysis of long-stay patients coded as acute (did CPWC change simply because the percentage of long-stay patients coded as acute changed?)
  3. Changes to cost allocation (were costs reclassified to other functional centres within the Ontario Healthcare Reporting Standards resulting in changes to the numerator?)

If you’d like more information about CPWC call the Northwest Health Alliance today.  We can help you calculate your CPWC and figure out why it has changed year to year or why it differs from your peers.

Contact us today and see how we can help you access and make sense of your healthcare organization’s data!