Less than she would have hoped … Tasmanian Health Minister Michelle O’Byrne

Tasmania’s public hospitals stand to lose up to $80.7 million a year from their budgets when new federal funding measures are phased in over the next two years, according to official figures.

Confidential figures from the federal government’s Independent Hospital Funding Authority, obtained by the Tasmanian Times, show the new system will involve a major redistribution of cash from some states to others, and from the ‘loser’ states like Tasmania and Western Australia to the Commonwealth.

Under the new pricing system hospitals in Tasmania would lose $80.7 million or 16.2% of their budgets, Queensland $653.9 million (9.1%), South Australia $29.9 million (2.4%), Western Australia $123.9 million (7.8%), the Northern Territory $36.1 million (11.1%) and the Australian Capital Territory $84 million (20.1%).

According to the official figures, Victoria and New South Wales would be the winners. Victorian hospitals would get an extra $653.9 million (17.2%) and NSW an extra $377.8 million (6.7%).

The new system of activity-based funding is based on setting prices for each hospital service and then applying those prices uniformly across the nation, with some weightings to take into account geographic remoteness and the numbers of indigenous citizens. These prices are calculated by the Pricing Authority as sufficient for the more efficient hospitals to function adequately and will be paid from a pool containing both Commonwealth and state contributions. Hospitals which do the job more cheaply can keep the extra cash; those in which costs are higher must go to their state governments for more money, adjust or make do.

The ‘efficient’ price does not include funding for capital expenditure – buildings, equipment and supplies – which will continue to be funded separately. Some very small hospitals will continue to be funded under the old block-funding system.

The new ‘efficient’ price was introduced on I July but for the next two years the actual funding received by hospitals will continue to be based on existing levels, as required by a 2008 agreement between the Commonwealth and the states. It will come fully into effect on 1 July 2014. Some people in health policy are hoping it will apply only to the growth factor – the extra 2% or 3% of patients seeking treatment each year, rather than to total funding – but the figures in the leaked document do not take such a possibility into account. And it would negate almost the entire point of the efficiency-pricing program, which is to improve performance by all public hospitals in all services.

But the accuracy of the new figures has been challenged by one of Australia’s most eminent health economists, Professor John Deeble, co-inventor of Medicare. Professor Deeble, who has analysed the data in detail, believes the Pricing Authority has miscalculated hospital costs by as much as $1.6 billion. His work has been commissioned by the Australian Healthcare and Hospitals Association, the public hospitals’ lobby organisation in Canberra.

His calculations are based on figures from the Australian Institute of Health and Welfare, generally regarded as the most authoritative and accurate data available, and they show a very different list of winners and losers. Professor Deeble believes the big winners under the new system will be NSW and South Australia. His results are:

NSW        Vic           Qld      WA        SA        Tas       ACT       NT       Aust
+17.50%  +0.50%  +2.7%  -6.3%  +16.4%  -13.1%  +8.9%  +11%  +6.3%

If the Deeble figures are correct, the Commonwealth and the states would be committed to an unforeseen and unintended injection of funds into the hospital system, though Western Australia would still lose and Tasmania would lose heavily. In the meantime, no public hospital in the nation can be sure of where it stands or how to plan for the future.

John Deeble is critical of the new system and the way it has been designed. It would be hard to find a system, he said, which was more likely to foster the shifting of blame between federal and state governments and hospital administrations. And he believes the federal government will be able to play the blame game to its own advantage, representing shortcomings in hospital services as the result of inefficiency and incompetence by state governments and by hospital doctors, nurses and administrators.

Many health economists and policy experts – including those who support the principle of activity-based (or Casemix) funding – point to its shortcomings. It can be an effective guide to how expensively each hospital is delivering a service, measures against a benchmark. But it is a weak method of determining how well that service is delivered. Such a system may attempt to track indicators of quality, such as the rates of infections, complications, readmissions and deaths. But any action taken to adjust price as a result usually ends up with less money being paid – though these quality shortcomings tend to be the result of a history of grossly insufficient funding.

Examples of this can be found in Tasmania’s two major hospitals, the Royal Hobart and the Launceston General. Bed occupancy rates at both are usually near or above 100%, though rates above about 85% are usually regarded as unsafe. High occupancy rates produce much higher levels of hospital-acquired infections. Not infrequently, these are multi-drug resistant and difficult to treat. There are higher rates of complications and death. Doctors and nurses are overworked and sometimes cannot provide the level of attention that each patient needs. Mistakes can be made.

When all beds are full there is no room to admit new patients coming into the emergency departments. So seriously ill patients must stay in emergency on trolley-beds for extended periods, rather than being treated on specialist wards by doctors and nurses expert in their particular conditions. This is known as bed block and is common to almost every major public hospital around the nation. It is also associated with an increased death rate, among patients affected by bed block, of around 30%.

These problems are, by any reasonable definition, examples of inefficiency. But they are caused not by doctors and nurses working insufficiently hard or by incompetent hospital administrators. They are caused by decades of under-funding. Further cuts – and the uncertainty surrounding the new system – will not produce more efficient hospitals.

In a submission last year the public hospitals wrote: “The AHHA supports ABF (activity based funding) as providing indicators of where and how performance could be improved and the issues involved should certainly be pursued. But it does not support such arbitrary measures as, say, penalising hospitals in the upper quartile of cost without a transparent process and full knowledge of why that deviation may exist.”

But transparency and full knowledge are not what the hospitals – or the nation – are getting.

Martyn Goddard is a health policy analyst based in Hobart.

First published: 2012-07-05 04:48 AM