Cost Recovery Implementation Statement Template

Australian Government Department of Health Medical Benefits Division

COST RECOVERY IMPLEMENTATION STATEMENT

NATIONAL JOINT REPLACEMENT REGISTRY

31 October 2015

Cost recovery involves government entities charging individuals or non-government organisations some or all of the efficient costs of a specific government activity. This may include goods, services or regulation, or a combination of them. The Australian Government Cost Recovery Guidelines (the CRGs)1 set out the overarching framework under which government entities design, implement and review cost recovered activities.

1 The CRGs are available on the Department of Finance website (www.finance.gov.au).

of 12 1. INTRODUCTION

1.1 Purpose of the CRIS This CRIS provides information on how Department of Health (the Department) implements cost recovery for the National Joint Replacement Registry (NJRR). It also reports financial and non-financial performance information and contains financial forecasts for 2015/2016 and three forward years. The Department will maintain the CRIS until the activity or cost recovery for the activity has been discontinued.

1.2 Description of the activity The NJRR facilitates the collection of data that provides a prospective case series on all joint replacement surgery undertaken in Australia. All orthopaedic surgeons voluntarily submit data to the NJRR. The NJRR was established by the Australia Orthopaedic Association (AOA) in 1998 to collect information about hip and knee replacement surgeries. The purpose of the NJRR is to improve and maintain the quality of care for individuals receiving joint replacement surgery. It achieves this by collecting a defined minimum data set from all hospitals (public and private) undertaking joint replacement surgery. This enables outcomes to be determined on the basis of patient characteristics, prosthesis type and features, method of prosthesis fixation and surgical technique used. The principal measure of outcome is revision surgery, which is recognised as an unambiguous measure of the need for further intervention. The NJRR data informs device manufacturers, surgeons, other health care professionals, governments, and the community of the quality and performance of joint replacement procedures in Australia, a relatively common form of surgery that is increasing substantially each year. The registry influences joint replacement in a beneficial manner. The number of revision surgeries has declined significantly as a result of increased use of the type and class of prostheses shown to have better outcomes and a decline in use when less satisfactory outcomes are identified. The percentage of revision hip replacement decreased from 12.6% in 2011 to 10.6% in 2013. The percentage of revision knee procedures has declined from a peak of 8.8% in 2004 to 8% in 2013, equating to 392 fewer knee revisions in 2013. The Australian Government has funded the NJRR’s activities in collecting information about joint replacement surgeries since 1998 through successive funding agreements with the AOA. Initially, the NJRR collected information about hip and knee replacement surgeries. From 2007-08, it expanded its data collection to other types of joint replacement surgeries including those for replacement ankles, wrists, elbows, shoulders and spinal discs. The costs of the NJRR are recovered from suppliers of orthopaedic devices which currently have joint replacement prostheses listed on the Private Health Insurance (Prostheses) Rules (the Prostheses List). 2. POLICY AND STATUTORY AUTHORITY TO COST RECOVER

of 12 2.1 Government policy approval to cost recover the activity In the 2009-10 Budget, the Australian Government announced that expenses associated with maintaining the NJRR would be recovered from the manufacturers and importers of joint replacement prostheses.2 The Australian Government took the decision that a cost recovery model for funding the NJRR was appropriate because of the value of the Registry to sponsors of joint replacement prosthetic devices in ensuring the safety and quality of their devices. Consistent with the Australian Government Cost Recovery Guidelines, the levy will ensure that the costs of maintaining the NJRR will be met by sponsors, as sponsors are the stakeholders who derive the greatest financial benefit from the arrangements. The NJRR provides valuable post-market surveillance of joint replacement prostheses, and this monitoring of the safety and quality of devices provides considerable benefit to the industry by improving consumer confidence in the safety and efficacy of joint replacement devices. The NJRR identifies substandard devices as it shows which procedures are revision surgeries, which are far more costly than other types of prosthetic surgeries and are a key indicator of prosthetic device failure. Devices which show high failure rates may be quickly identified and removed from the market. The NJRR also monitors mortality rates. The data produced by the NJRR also assists the industry by informing the development of new prostheses, allowing manufacturers to draw on reliable performance information for existing devices and designs. Revenue for NJRR arrangements collected through the levy will match the activity-based costs of the NJRR as they are incurred each year. Changes to costs for NJRR arrangements will be reflected in the levy arrangements set out in the legislation, including the NJRR Levy Act and the NJRR Levy Rules. Levies charged will continue to reflect the efficient costs necessary to cover NJRR operating costs.

2.2 Statutory authority to charge The NJRR Levy Act and the Private Health Insurance (National Joint Replacement Register Levy) Rules (the NJRR Levy Rules) establishes the mechanism to enable the costs of the NJRR to be recovered through a levy imposed on each joint replacement prosthesis sponsor for each relevant item on the Prostheses List according to its revenue as a proportion of all relevant revenue. The legal authority for the imposition of NJRR Levy is the NJRR Levy Act. This Act commenced operation on 1 July 2009.3 The NJRR Levy is a private health insurance levy under the Private Health Insurance Act 2007. Section 8 of the NJRR Levy Act enables the Minister for Health to make rules providing for matters required or permitted to be provided, or matters necessary or convenient to carry out or give effect to the Act. The Private Health Insurance (National Joint Replacement Levy) Rules 2015 specify which days are ‘national joint replacement levy days’ (levy days), which days are levy census days, and details of the levy rates to be applied.

2 http://www.budget.gov.au/2009-10/content/bp2/html/bp2_expense-16.htm

3 https://www.comlaw.gov.au/Details/C2015C0029

of 12 The NJRR Levy Act also provides that the Governor-General may make regulations prescribing matters required or permitted by the Act, or necessary or convenient to carry out or give effect to the Act. No regulations have been made to date. To assist sponsors to meet payment arrangements, the Department will dispatch invoices for joint replacement prostheses listings based on the Prostheses List on the levy day.

3. COST RECOVERY MODEL

3.1 Outputs and business processes of the activity The NJRR Levy ensures that funding is available to undertake the following activities:

a.1. Develop, maintain and administer the NJRR; which includes but is not limited to the following:  create quality demographic information on the practice of hip, knee, ankle, shoulder, wrist, elbow and spinal disc replacement surgery and provide relevant performance reports on these to clinicians and hospitals;  develop and manage effective systems to monitor hip, knee, ankle, shoulder, wrist, elbow and spinal disc replacement prostheses outcomes both generally and in relation to specific surgical techniques;  maintain a system to assess new implantable device technologies used following introduction into Australian clinical practice;  maintain a system for tracking of implanted joint replacement prostheses and a system for regular reporting to the Prostheses List Advisory Committee (PLAC), the Therapeutic Goods Administration (TGA), clinicians, hospitals and medical device companies;  monitor joint replacement prostheses which have been subject to recall;  maintain and consider further development to the established audit systems for hospitals and surgeons;  maintain an algorithm to identify any joint replacement prosthesis not performing to the level of others in its class and provide this advice to suppliers, TGA, PLAC and Clinical Advisory Groups (CAG);  provide data to PLAC to help inform it in the clinical assessment of joint replacement products on, or seeking listing on, the Prostheses List; and  provide utilisation data to the Department from the NJRR based on billing code usage separated by private/public hospitals.  Produce the Annual and Supplementary Reports by the end of September each year, to be publicly available on the NJRR website.  Continue and maintain a formal reporting system between the NJRR and TGA for joint replacement prostheses identified as having possible safety issues.  Continue the collaborative approach with the Neurosurgical Society of Australasia to ensure quality of data and analysis in regards to spinal disc replacement.  Provide reports on request to PLAC regarding joint replacement prostheses data and the performance of listed joint replacement prostheses, including, but not limited to: i. Information on the usage of hip, knee, ankle, shoulder, wrist, elbow and spinal disc replacement prostheses twice during a year; Page 4 of 12 ii. Information on the relative effectiveness of joint replacement prostheses for which data is collected; iii. Advice on clinical issues; iv. Advice on NJRR notifications to the Therapeutic Goods Administration informing it of failed or faulty joint replacement prostheses; and v. Continue to progress the secure database linkage with the Department’s prostheses list database. The information collected and stored in the NJRR is made available to the industry, particularly sponsors, and to the public. Sponsors can access both general and specific information about their products which enables them to assess the effectiveness and usage of their products. While sponsors have access to this information, other stakeholders may continue to access information, subject to privacy constraints.

3.2 Costs of the activity Basis of charging – Fee or Levy The following table (Table 1) shows a breakdown of the cost components of the NJRR, including forward estimates. The increased expenditure reflects the amounts agreed to by the Australian Government in the 2015-16 Budget measure 2015-16 Budget measure National Joint Replacement Levy - amendments. The NJRR Consultative Committee, which is scheduled to meet quarterly monitors the ongoing performance of the NJRR and the Data Service Provider. Table 1 – Summary of cost components

Cost Component 2015-16 2016-17 2017-18 2018-19 Operational Costs $1,256,614 $1,422,722 $1,549,455 $1,608,868 Staffing $585,538 $545,529 $553,712 $562,016 Printing Annual reports $53,000 $53,796 $54,603 $55,423 Printing data entry forms $8,282 $8,406 $8,532 $8,660 National Death Index Fees* $10,150 $10,302 $10,457 $10,614 Audit/Accounting $11,673 $11,848 $12,026 $12,206 Travel and Accom $50,750 $51,511 $25,375 $25,756 ICT, equipment and software $12,424 $12,610 $12,800 $12,992 Other miscellaneous $254,569 $169,276 $102,040 $79,465 TOTAL COSTS $2,243,000 $2,286,000 $2,329,000 $2,376,000

*Fees charged by the AIHW to enable data linkage between the National Death Index and the NJRR

3.3 Design of cost recovery charges The formula for determining the amount of the levy on each sponsor is set out in the relevant legislation and rules, and is also set out in section 3.4 of this document. A levy is the most appropriate method of charging as it relates directly to the activities being undertaken by the NJRR. The levy is closely linked to costs and focused on recovering costs from sponsors, who are the primary users of the data captured on the NJRR. A levy is appropriate where it is not possible to identify the individual/specific entity that receives the service (and therefore charge a fee), but charging remains appropriate. Therefore it can be appropriate to allocate the expenses across the industry or cohort, through a levy. The purpose of the NJRR levy is to meet the costs of maintaining the NJRR. The costs recovered are therefore commensurate with the operating costs of the Registry. The increase in funding to the NJRR is necessary for the NJRR to maintain its service to all stakeholders.

of 12 The following table describes the estimated funds which will be recovered for forward years. The levy is imposed on each national joint replacement register levy day (levy day), which is specified in the NJRR Levy Rules. A levy may also be imposed on a day determined by the Minister for Health, by legislative instrument, as a supplementary national joint replacement register levy day (supplementary levy day). There can be no more than four levy days in a financial year and the Minister cannot specify more than two supplementary levy days in a financial year. Accordingly, the NJRR Levy restricts the number of times a levy may be imposed to a maximum of six levies in a financial year. Section 8(2) of the NJRR Levy Act provides that different rates may be set for different kinds of joint replacement prostheses. The rate may be set at zero but must not exceed $5,000 for a financial year. The NJRR Levy Rules specify that one levy day will occur each year on 31 October. The NJRR Levy Rules also specify that the census day on which the rate of levy to be imposed is calculated is 30 September. No supplementary levy days have been determined. Invoices are delivered to sponsors following levy days. The volume of data now maintained by the NJRR has increased the value of the data to all stakeholders, including surgeons, sponsors, regulators and the international community. Table 2 – Funds to be Recovered from Industry – NJRR

2015-16 2016-17 2017-18 2018-19 Revenue (Administered) $2.243 million $2.286 million $2.329 million $2.376 million

The basis for charging sponsors for the costs of maintaining the NJRR is a levy imposed under the NJRR Levy Act on all sponsors of joint replacement prostheses included on the Prostheses List on the most recent census day before the levy day. Under changes announced in the 2015-16 Budget, sponsors are levied according to the proportional utilisation and revenue for each joint replacement prostheses tracked by the NJRR in the previous financial year. The NJRR Rules establish one levy day per year unless a supplementary levy day is imposed. The rate of levy imposed on a sponsor is specified in rules 6 and 7 of the NJRR Levy Rules. The rate of levy on hand or foot articulation prostheses is zero. These are not tracked by the NJRR, given their low levels of utilisation compared with other joint replacement prostheses, and therefore are not able to be levied. For all other types of joint replacement prostheses, from the 31 October 2015 levy day, the levy rate will be calculated by dividing the funding amount for the levy period according to the proportion of revenue attracted by each relevant prosthesis. The sum of all levies collected from all prostheses sponsors will be commensurate with the costs of maintaining the NJRR, which amounts to $2.243 million in the first year of the new funding agreement with the AOA, rising to $2.376 million in the last year of the new funding agreement. This includes expenditure on AOA personnel, activities undertaken by subcontracted providers, information technology and equipment support, the costs associated with the activities of the NJRR in collecting data on joint replacement prostheses in accordance with the funding agreement, and administrative costs. The NJRR operates on a not-for-profit basis. The total levy amount to be collected will be calculated to match the total amount necessary for maintaining the NJRR. For example, $2.243 million will be collected for the 2015-16

of 12 period. The amount that each sponsor will be levied for each relevant item listed will be determined in accordance with the following formula:

Step 1—rate of levy if base amount equals or exceeds $5 000 The rate of levy for the prosthesis for the levy day is $5 000 if the amount (the base amount) worked out for the prosthesis for the levy day using the following formula equals or exceeds $5 000:

Step 2—rate of levy if base amount is less than $5 000 If the base amount under Step 1 for the prosthesis for the levy day is less than $5 000, the rate of levy for the prosthesis (the relevant prosthesis) for the levy day is the lesser of $5 000 and the amount worked out for the relevant prosthesis for the levy day using the following formula:

where: adjusted total benefit amount means: (a) the total benefit amount for the levy day; less (b) the sum of each prosthesis benefit amount for the levy day for a prosthesis for which: (i) the base amount for the levy day exceeds the base amount for the relevant prosthesis for the levy day; and (ii) the rate of levy worked out under Step 1 or this subsection for the levy day equals or exceeds $5 000. n means the number of prostheses for the levy day for which: (a) the base amount for the levy day exceeds the base amount for the relevant prosthesis for the levy day; and (b) the rate of levy worked out under Step 1or this subsection for the levy day equals or exceeds $5 000. prosthesis benefit amount for a prosthesis for a levy day means the amount worked out by multiplying: (a) the number of recordings on the register of the provision of the prosthesis during the financial year ending before the levy day (being recordings made on or before the 30 September before the levy day); by (b) the minimum benefit for the prosthesis set out, or worked out using the method set out, in the Private Health Insurance (Prostheses) Rules, as in force immediately before the levy day, for the purposes of item 4 of the table in subsection 721(2) of the Private Health Insurance Act 2007. total benefit amount for a levy day means the sum of each prosthesis benefit amount for a joint replacement prosthesis (other than a hand articulation prosthesis or a foot articulation prosthesis) for which a recording was made on the register of the provision of the prosthesis during the financial year ending before the levy day (being a recording made on or before the 30 September before the levy day). According to this formula, each sponsor will be levied once a year. As noted above in section 3.1, this levy will not apply to all joint replacement prostheses, as hand and foot articulation

of 12 prostheses are excluded on the basis that the NJRR does not track these items given their low levels of utilisation compared with other joint replacement prostheses. Review of the cost recovery arrangements will depend on the outcome of regular ongoing monitoring of costs. The schedule of charges was published as the Private Health Insurance (NJRR Levy) Rule 2015.

Summary of charging arrangements In accordance with the Guidelines, levies have been set to recover all relevant costs identified with the operations of the NJRR arrangements. The Guidelines provide for revenue from levies to be transparently identified. Revenue from NJRR cost recovery arrangements will cover the costs and expenses to maintain the registry. In 2015-16, it has been determined that these costs amount to $2.243 million through negotiations with the AOA, rising to $2.376 million in 2018-19. Continued funding will ensure that stakeholders continue to have access to the information contained in the NJRR, and will remove the need to rely on taxpayer funding to support its continued operation. The total amount of the levy is determined according to the amount of funding required to maintain the NJRR, which will be reflected in annual funding agreements with the AOA. The amount of levy that will be imposed on individual sponsors will be calculated according to the formula set out in the NJRR Levy Rules. This amount will vary from census date to census date, depending on the revenue for relevant joint replacement prostheses each sponsor has attracted as a proportion of all revenue. However, the amount imposed under the NJRR Levy Rules states that the amount of the levy imposed on a sponsor for the same prosthesis for a financial year will not exceed $5,000. Summary of Fees and Charges 2015-16 ($'000) 2016-17 ($'000) 2017-18 ($'000) 2018-19 ($'000) Data services $1,519 $1,547 $1,577 $1,608 Other personnel $506 $516 $526 $536 Other costs and equipment $218 $222 $227 $231 Total $2,243 $2,286 $2,329 $2,376

4. RISK ASSESSMENT Funding agreement between the Commonwealth and the AOA A Charging Risk Assessment was undertaken to identify the risks and identified the overall CRA rating as low. Internal continuous monitoring of the risks will be undertaken to ensure they are managed and minimised.

5. STAKEHOLDER ENGAGEMENT

The key stakeholders relevant to the imposition of the NJRR levy are the sponsors of prosthetic devices listed on the Prostheses List which will be subject to the levy. At the February 2015 levy, there were 43 such sponsors.

of 12 The levy arrangements result in additional costs to sponsors of joint replacement prostheses. These costs may be passed on to purchasers of devices including public hospitals and consumers receiving private services. Although the levy results in extra costs for sponsors, they obtain substantial benefits from the continued operation of the NJRR, including commercial benefits. Other stakeholders who derive benefits from the NJRR include surgeons who perform joint replacement surgery, public and private hospitals, the TGA, private health insurers and the PLAC. During previous rounds of consultations, sponsors expressed a preference that a utilisation based levy be adopted, which is viewed as the most equitable way to levy sponsors. Adoption of the utilisation based levy was not initially possible due to the fact that the unique billing codes issued by the Department for each prosthesis listed on the Prostheses List do not match current utilisation data stored on the NJRR, which is based on suppliers’ catalogue numbers rather than billing codes. The issues with the levy calculation have been resolved and the new levy calculation model commenced in October 2015. Stakeholders were provided with a draft of this CRIS outlining a change to that form of levy charging arrangements in August 2015. Individual letters were also provided which contained an estimate of how the changes would affect them. No major objections to the new levy calculation structure were raised.

The Department regularly meets with stakeholders and will continue to do so to ensure that this programme and the Prostheses List continues to serve the needs of all its stakeholders. NJRR Consultative Committee In 2010, the Department established the NJRR Consultative Committee (the Committee), which is chaired by the Commonwealth. The purpose of the Committee is to provide a forum for industry, government and consumer representatives to provide guidance on the overall strategic direction of the functions and operations of the NJRR. The Committee has a broad range of objectives, including providing guidance on the strategic direction of the NJRR, and issues impacting on the core activities of the NJRR. The Committee gives all stakeholders the opportunity to raise concerns directly with the Commonwealth and NJRR and all issues are actioned promptly where appropriate. Reviews of the NJRR cost recovery arrangements will include regular ongoing monitoring of costs. The levy amount that sponsors will have to meet as part of the NJRR cost recovery arrangements may be varied from year to year in accordance with the costs of operating cost the NJRR and the number of prostheses listed, but will not exceed $5,000 per relevant prosthesis. Accordingly, the levy amounts are adjusted each year. Should there be a material change to the charging structure, a new CRIS will be prepared in line with the Guidelines.

6. FINANCIAL ESTIMATES

Table of forward year estimates 2015-16 2016-17 2017-18 2018-19 Expenses = X $2,243,000 $2,286,000 $2,329,000 $2,376,000 Revenue = Y $2,243,000 $2,286,000 $2,329,000 $2,376,000 Balance = Y – X 0$ 0$ 0$ 0$

of 12 2015-16 2016-17 2017-18 2018-19 Cumulative balance 0$ 0$ 0$ 0$ Explain materiala variance Explain balance management strategy

7A. FINANCIAL PERFORMANCE

2014-15 2013-14 2012-13 2011-12 2010-11 Expenses = X 2.162 2.162 ~1.8 ~1.6 Nil Revenue = Y 2.162 2.162 ~1.8 ~1.6 Balance = Y – X 0 0 0 0 Cumulative balance 0 0 0 0 Explain materiala variance Explain impact on balance management strategy a As defined by AASB1031 and Division 12 – Materiality and Disclosure of the Finance Minister’s Orders.

7B. NON-FINANCIAL PERFORMANCE

The Australian Orthopaedic Association National Joint Replacement Registry will need to produce the following documents in order to have executed their performance requirements, these document capture the non-financial statistical and qualitative requirements; Performance Reports A comprehensive review of the operation of the core activities of the AOANJRR in the reporting period; Activity Work Plan Detailing the activities planned for the AOANJRR for the coming financial year. Annual Report A report which details the performance of the AOANJRR for the previous financial year. It will include; • Information on the methodology used by the AOANJRR, particularly in relation to its data collection and management protocols; • All notifications made to orthopaedic companies, clinicians and the TGA on products that the AOANJRR has identified as having possible safety issues; • Comprehensive data on joint replacements covered by the AOANJRR, including demographics, usage, revision and mortality rates, using data on joint replacement procedures performed from the commencement of data collection to the end of the previous calendar year. Final Report

of 12 • A comprehensive review of the operation of the core activities of the AOANJRR in the reporting period; • An evaluation of the performance, benefits and outcomes of the entire Activity; • A discussion of any issues, problems or delays; and • The extent to which the Activity achieved the Aim of the Activity and the Program’s Objectives as specified in this Schedule. Other Reports As requested or required.

8. KEY FORWARD DATES AND EVENTS

The current arrangements are intended to cover the four year estimates 2015-2016 to 2018- 2019.

Activity Information to be included and requirements Due Date

Final Report for the period 1 July 2014 to 30 June 2015 30 September 2015

Performanc for the period 1 July 2015 to 31 December 2015 31 January 2016 e Report Other AOANJRR Annual Report 2016 (published) - for the period 1 30 September 2016 Reports January 2015 to 31 December 2015 Final Report for the period 1 July 2015 to 30 June 2016 30 September 2016

Health reporting in the 2017-18 Budget context. 2017-18 scheduled for 2016 Portfolio Charging Review Performanc for the period 1 July 2016 to 31 December 31 January 2017 e Report Other AOANJRR Annual Report 2017 (published) - for the period 1 30 September 2017 Reports January 2016 to 31 December 2016 Final Report for the period 1 July 2016 to 30 June 2017 30 September 2017

Performanc for the period 1 July 2017 to 31 December 2017 and upon the 31 January 2018 e Report departments receipt and acceptance of your Organisation’s tax invoice Other AOANJRR Annual Report 2018 (published) - for the period 1 30 September 2018 Reports January 2017 to 31 December 2017 Final Report for the period 1 July 2017 to 30 June 2018 30 September 2018

Performanc for the period 1 July 2018 to 31 December 2018 and upon the 31 January 2019 e Report departments receipt and acceptance of your Organisation’s tax invoice Other AOANJRR Annual Report 2019 (published) - for the period 1 30 September 2019 Reports January 2018 to 31 December 2018 Final Report for the period 1 July 2018 to 30 June 2019 30 September 2019

AOANJRR Consultative Committee (four per year), Date of meetings to be confirmed each year.

of 12 9. CRIS APPROVAL AND CHANGE REGISTER

To be updated as relevant milestones are achieved

Date of CRIS change CRIS change Approver Basis for change Certification of the Secretary, Department New cost recovered 16/12/2016 CRIS of Health Health activity New cost recovered 18/4/2016 Agreement to the CRIS Minister for Health activity Changes in assumptions Update of financial Title of accountable XX/11/2017 (e.g. at Additional estimates authority Estimates) Update description of Changes in costs of XX/7/2018 Minister for Health costs and charges resources Revalidation of the Amend description of Title of accountable XX/1/2019 costing model business processes authority (operational change) Amend description of Addition of a new group XX/11/2019 the activity and cost Government of fee payers recovery model (policy change)