The leaks have started, the little details of the federal government’s plans to rescue the health system are starting to filter out, with stories in newspapers hailing Health’s Shot in the Arm and Rudd to Cut Away Dead Tissue.
But beneath the gushing promises of more beds and more money there are signs that the government is considering changing the way it funds hospitals.
NSW doctors support any measures that untangle the way health is currently delivered. There are too many layers of management, too much complexity in the funding, and not enough focus on patients. So we agree there are problems. But our starting point is that any solutions should be focussed on untangling the current mess.
The issue that has been floated where the devil will be in the detail is the proposal to change the way hospitals are funded from “block” funding to “activity-based” funding.
Currently, NSW hospitals are “block funded”, that is they get an annual budget and told to deliver a certain set of services. In other words, they are paid up front to meet a defined service. The problem in the current system arises if the “block” is not big enough or if the hospital is inefficient then the hospital can’t meet the demand for service.
When this happens we get bed closures, staff freezes and suspension of elective surgery for holiday periods, for example Easter becomes five weeks instead of five days.
Activity-based funding is designed to address this problem by funding hospitals only for the activities that they perform. Instead of getting a block grant they get an amount per activity, for example $1000 per hip replacement.
There are definitely some very good aspects to this funding model, the most important one being that if it is implemented well hospitals will get funded for the work they need to do, In other words, rather than running out of money before the end of the year as they do under the block funding model they will get funded for each patient who comes in the door.
Another potentially good point is that it will encourage inefficient hospitals to be more efficient. So if they get paid $1000 per hip replacement but it costs them $1200 then they will work hard to get their costs down. In the same way, efficient hospitals will be rewarded - if it costs them $900 to perform the operation they will get to keep the $100 difference.
That’s the theory, the bad news is that the practice might not match the worthy objectives.
There are two big time-bombs. The first is that bureaucrats hate the concept of uncapped funding models. The big theoretical advantage of activity-based funding is that it funds hospitals to do the work that needs to be done, if there are 1500 patients who need hip replacements then 1500 hip replacements will be funded; if there are 2000 babies born then 2000 deliveries will be funded.
The risk is that the bureaucrats will persuade the politicians that there is money to be saved by capping the number of activities that are funded, so rather than getting funded for each hip replacement, the hospital will get funding for a specified number each year
If these sounds like a minor detail, consider this: - how would you feel if the Government announced that there will be a cap on the number of consultations that your family doctor can bill Medicare for each year?
The second big risk is that the cost of each hospital activity will be determined by bureaucrats without regard to the actual cost of the activity - they might artificially determine that a hip replacement “should” only cost $800 when in fact it costs $1000 even in a highly efficient hospital.
A sub-set of this risk is that the teaching and research components of our public hospital work will not get taken into account in determining the cost of the activity.
It’s obvious that an operation in a NSW public hospital that puts time and resources into world-class research activities and employs a large number of doctors and nurses who are given time to learn from their seniors, or teach their juniors, will cost substantially more than an operation in a private hospital that has no research projects and trains no staff.
There is a huge risk that a funding model that does not account for these costs will overnight change our major teaching hospitals from world-class centres of excellence to sausage factories.
Activity-based funding is worthy of a public debate – but not if it involves a cap on the number of activities and not if it doesn’t take account of teaching and research.
Dr Brian Morton is President of AMA (NSW)
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