4 Direct costs - method and results
This section describes the method used to estimate one component of the direct cost of ill health; that for publicly funded hospital inpatient appointments. Following the description of the method, basic descriptive information is presented along with the cost estimates based on the method outlined.
As discussed above, the main focus of this research is on estimating indirect costs. The only component of direct costs estimated is hospital inpatient costs. Actual hospital inpatient costs are available from MoH. However, SoFIE is used as it enables hospital inpatient appointments to be attributed to people and thus compared with labour market information. This ensures that the cost of appointments and those of lost hours are from the same source. This information feeds into the later estimates of the indirect costs. Further, the use of SoFIE allows more flexibility in estimating the cost of appointments for specific groups and types of treatments than is available using the published MoH information; by qualification level of individuals is one example.
Hospital inpatient costs represent a small component of known overall health care costs. More information about estimates of hospital inpatient costs from SoFIE compared with those based on published MoH results and details of where these costs sit within Vote Health can be found in Appendix C. As well as publicly funded health care costs there are privately funded health care costs. These privately funded costs are not discussed here.
4.1 Hospital inpatient costs
4.1.1 Method
For people who consent, it is possible to link hospital inpatient appointments to SoFIE responses. Each hospital inpatient case has a Diagnosis-related Group (DRG) code. The DRG codes provide a system whereby hospital treatments are categorised by both a clinical homogeneity and use of a similar hospital resource. As such they form the basis of the calculation used to assign a cost weight, and therefore a cost, to each inpatient hospital admission. Cost weights are used to measure the volume of hospital cases and are the current payment mechanism for inpatient and day cases between District Health Boards (DHBs) and hospitals. Cost weights are computed on a DRG basis using a combination of length of stay, total hours on mechanical ventilation and around 20 procedure and diagnosis codes. Payments between DHBs and hospitals are then calculated based on cost weights multiplied by the national price (a fixed cost multiplier) applicable for that financial year.[15]
The cost weights and DRG codes allow estimation of the cost of each hospital case for SoFIE respondents. Based on the DRG version in place at the time of the appointment a cost weight was linked to each hospital inpatient case. This cost weight was multiplied by the national price applicable at the start date of the treatment.[16] This results in an estimated cost for each hospital appointment. The individual cost for appointments in a specific period can then be weighted to reflect the New Zealand population using the adjusted longitudinal weights from SoFIE and summed to estimate the total costs of inpatient appointments in that period.[17] The formula used can be found in Appendix D.
While this method provides the best estimate of the cost of each appointment it should be remembered that these costs reflect a mix of events only. Applying them to specific events in this way will not reflect the true cost of treatment for many cases. For example, some treatments may be much more complex than average and others will be much less complex, even within the same DRG code.
Hospital inpatient appointments as a result of ill health will be defined as those that are not injury-related or pregnancy-related; that is, ICD codes A00-N99, R00-R94 and Z00-Z99. In order for hospital inpatient appointments to be compared with labour market activity in the later stages of this work, appointments that start in the annual reference period are considered. Owing to the continuous interview period used in SoFIE this means that, while the estimate of costs will be an annual estimate, the annual period will not be the same for each person. There will in fact be 12 annual periods running from October 2003 to September 2005 (see Appendix A for further information). At an aggregate level there is little difference in total hospital cost estimates when the annual reference period is used as opposed to the annual interview period. As such the overall hospital costs will be referred to as costs in Wave 3 (October 2004 to September 2005).
