Review of NSW Peer Hospital Groups

NSW Ministry of Health, 2009, 2011 and 2013

In May 2009, the NSW Department of Health engaged Health Policy Analysis to review their peer grouping methodology with a view to improving it, particularly in relation to episode funding, but also for other major applications of the groupings, such as health services planning and clinical benchmarking. A final report was produced detailing the proposed peer grouping approach, the resulting peer groups and assignment of individual hospitals to the groups. The review undertaken was extensive, involving:

Out of this process, principles and options for peer grouping were developed and an approach proposed. Data were then analysed to determine the logic to be used, resulting in recommendations about the overall logic as well as assignment of individual hospitals to peer groups.

The classification was subsequently implemented by NSW, and is used for a variety of purposes, including funding hospitals and planning health services.

In 2011 the Department re-engaged Health Policy Analysis to review the Principal referral and major metropolitan and non-metropolitan groups given updated activity and cost information. The methodology adopted was based on identifying characteristics of the services delivered by hospitals, independent of costs. Peer grouping of hospitals is a form of ‘risk adjustment’ in that it attempts to take account of differences between hospitals that are not accounted for through other means, namely, casemix classification and/or cost weights.

A specific concern that has been raised in relation to the 2009 review is the split of the B group (major hospitals) into BM – Major metropolitan, and BNM – Major non-metropolitan, sub-groups. Health Policy Analysis was engaged to review the issues associated with the BM and BNM peer groups for Episode Funding purposes, identify options, and potentially recommend a revised grouping of these hospitals as a basis for determining prices for Episode Funding. For the project HPA reviewed the issues relevant to the BNM peer group, collated and analysed relevant activity and cost data and examine data relating to the principal referral hospitals (A group) for completeness and comparison of acuity and cost measures in particular, provided initial advice to the Department on findings and discussion and then conducted further analysis to finalise our advice. The main deliverable was a final report that presented findings and advice to the Department on the BM and BNM peer hospital groups for Episode Funding purposes.

In 2013, Health Policy Analysis was engaged a third time to conduct another review. The latest review focused on the creation of groups for comparative reporting. Previously the peer groups had been used as a basis for pricing for activity based funding (known as Episode Funding in NSW) by the Department.

Health Policy Analysis analysed data from various sources for hospitals, and made recommendations for changes based on these data. As previously, the review was guided by a set of principles.

The recommendations were reviewed widely internally within the Ministry and by Local Health Districts (LHDs).