'Money follows the patient" was one of the buzz terms of the last general election campaign as the then Fine Gael opposition announced again and again that the concept would play a central role as part of its overall healthcare reform plans.

However, just like Fine Gael’s other key proposal – “universal health insurance” – there was a lot of uncertainty about how this would actually work in practice in the health service.

As seems obvious, the “money-follows-the-patient” model would involve hospitals receiving payment for specific treatments provided rather than being financed by an overall State allocation. However, in introducing such a system the key issues are which hospital services would be funded on a money-follows-the-patient basis and how would the price for these services be determined.

A draft Department of Health consultation paper seeks to answer these questions. However, it also makes clear that the money-follows-the-patient system will have to operate within a clear and coherent regulatory framework that would need further reforms to governance arrangements in the health service.

Central to these proposed new interim structures (which would be in place in advance of the introduction of an overall universal health insurance system) is the establishment of a new national information and pricing office and a separate healthcare commissioning agency.

At present public hospitals are funded primarily by means of a central block grant provided by the Exchequer through the HSE.

Block grant arrangement
The departmental paper states there are a number of alternative options available to fulfil the Government's commitment to replace the block grant arrangement with the money-follows-the-patient system. However, it recommends adopting a prospective diagnostic-related group case-based payment system.

In essence, hospitals would be paid for each episode of care provided to a patient in locations such as an inpatient or day ward, a medical assessment unit, an acute medical assessment unit, an acute medical unit or a clinical decision unit. Payments would also apply to care delivered in a side-room or on an outpatient basis.

However, the draft consultative paper argues that the cost of care provided in emergency departments and minor injury units, as well as outreach services and teaching and research costs, should fall outside of the proposed system.

It says in line with Government policy, mental healthcare should also be funded on a money-follows-the-patient basis.

The departmental paper proposes that the new system should start off with prices being set by reference to average costs. It suggests it should later move towards “best practice” pricing although it acknowledges that it can take time to achieve consensus on what constitutes best practice and to develop robust guidelines.

The paper recommends that the price set for specific episodes of care under the new funding model should encompass pay costs for staff including doctors, nurses, paramedics, support and administration personnel as well as caterers, porters and maintenance staff.

It states that the price should also take account of non-pay costs such as medicines, blood products, medical and surgical supplies, radiology laboratory equipment, heat, light, wards and the cost of the clinical indemnity scheme.

It says that “in the interests of fairness and sustainability, it is recommended that the new system should encompass an outlier payment mechanism to take account of exceptional high-cost cases”.

The paper proposes that national diagnostic-related group prices on a national basis should be set by a new national information and pricing office which would have “multi-stakeholder oversight and strong clinical representation”. It says prices should be set for the year ahead using activity and cost data.

Separately, it recommends that a purchasing body, the healthcare commissioning agency, “should be grown from the HSE”. It proposes that the agency would use the national diagnostic-related group price list, in addition to the global hospital budget and service targets set down by the Minister for Health, to conclude annual performance contracts with each of the new hospital groups.

Agency role
"These annual performance contracts would set out activity targets by quarter to be funded at national diagnostic-related group prices. They would also include quality targets underpinned by financial sanctions. The Healthcare Commissioning Agency would then pay the hospital groups the national diagnostic-related group price on receipt of confirmation that the pre-arranged activity had been delivered."

The paper proposes that where the Minister provides funding as part of the global hospital budget for additional targeted activity, this should have to be pre-approved by the Healthcare Commissioning Agency and could be paid for at rates outside of the national price structure.

However, it says that only hospitals that met their activity in the previous quarter would be eligible to bid for the additional funding.

“In other words, if a hospital has a waiting list, then people could be taken off it and treated elsewhere but the funding would have to follow the patient.”

The consultative paper says that the introduction of the money-follows-the-patient system would represent “a complete transformation of the current performance management process” in the health structure.

“Under this transformation, the national service plans (of the HSE) and policy priorities set by the Minister would be explicitly executed via detailed performance contracts with each hospital group. Purchasing would be established on a bedrock of quality and, as such, a co-ordinated and streamlined approach to the monitoring and management of all targets – quality, activity and cost – via the performance contracts would be central to success.”

The department said that on foot of submissions received as a consequence of its draft paper on money-follows-the-patient, a revised document would be issued later.