Tasmania’s public hospitals cost the people of this state at least 20% more than is justified by the work they do. The most comprehensive data on the relative performance of the various state public hospital systems comes from the Australian Institute of Health and Welfare’s annual Australian Hospital Statistics report.

The table below shows the cost of the average inpatient separation (service) in Tasmania in 2011-12 was 15.9% higher than the national average and 28.5% higher than in Victoria, the most efficient state.


The cost to Tasmanians comes both in budgetary terms but in the failure of an inefficient and badly managed system to provide the amount of care it could and should. With the right policies in place, the state’s hospitals could treat at least 20% more patients for the same cost. Thousands of people each year are unnecessarily missing out on treatment because our hospitals are so badly run. It’s fairly easy to work out how many. In the twelve months to June last year, there were about 107,000 patient services in our four main hospitals. So an improvement of 20% in average costs would give us the money to deliver more than 20,000 extra survives. As one patient admission usually involves only one service (called a separation) that’s a staggering number of people who are missing out unnecessarily on needed treatment.

At the same time, the basis of Commonwealth hospital funding has changed radically as the central part of the federal government’s national health reform package. The Commonwealth has set a national efficient price, currently at about $4500 for the average inpatient service, weighted for complexity. Though the AIHW and the Commonwealth’s Independent Hospital Pricing Authority calculate costs using somewhat different methods, it is clear that if Tasmanian costs continue at around $6000, there will be a huge hit to the state budget. A leaked IHPA document, obtained last year, calculated the annual loss to Tasmania in hospital funding at over $80 million, a figure which could be expected to increase with rising demand, new technology and price inflation.

Under the funding agreement between the Commonwealth and the states, ‘loser’ states will haveaccess to compensatory top-up funding until the end of the 2019-20 fiscal year. But this is an illusion. Any top-up cash drawn by Tasmania will be lost in a commensurate readjustment to the state’s GST entitlement by the Commonwealth Grants Commission. Unless performance improves dramatically, by 2020 the cost to the state is likely to amount to over $500 million over a four-year budget estimates period.

The question, then, is what can be done? The state government has been well aware of this situation for some years but has been unable or unwilling to confront it effectively. Costs have continued to rise well beyond what can be justified by the state’s situation. The time has come for a radical rethink of the way our hospitals do business.

Four fundamental reforms are needed:

• The state government should introduced activity-based (or casemix) funding for all hospital services. This is a system of allocating a price for each hospital service, based on what it ought to cost. The government’s approach to this so far has been grossly inadequate: although the Minister has claimed to have introduced this funding method, she has not in fact done so. Per-separation costs do not appear to be calculated according to nationally accepted formulae and ‒ more significantly ‒ adhering to the system has been madevoluntary for the state’s hospitals. Once a proper and rigorous system of casemix funding has been introduced, the price paid to hospitals for each service should be reduced from their present level to the national efficient price in predictable six-monthly stages over two to three years. As broader reform bears fruit, further reductions should be possible.

• A new approach, known as ‘lean thinking’ or ‘lean management’ to be introduced in all major public hospitals. This involves constant review of patient-flow and other processes with the principal aim of eliminating everything that is not of value to the patient. Hospital staff, who know their jobs better than anyone, are centrally involved in all planning at every stage. Elsewhere, including in Australia, this approach has delivered large improvements in efficiency, safety, and staff and patient satisfaction.

• A joint, coordinated purchasing program for drugs, medical and surgical supplies to be established with Victoria and New South Wales. By combining the three states’ buying power, this would revolutionise the market in hospital supplies to the public’s benefit.

• Capital spending decisions must be removed from the political pork barrel. An expert committee should review all capital spending proposals over $1 million. The minister should be prevented by law from approving a proposal that had not gained a positive recommendation from the committee. This will protect the minister from political pressure and remove the threat of corruption from these critical decisions. For far too long, health policy from all three political parties has consisted of uncoordinated thought bubbles ‒ proposals that seemed like a good idea at the time but which fell far short of the fundamental and systemic reform the state’s hospitals and their patients desperately need. These thought bubbles often take the form of election commitments that are quickly and conveniently forgotten when the election is over. Usually this is the best outcome. When these isolated thought bubbles are enacted, they can cause serious imbalances, inequities and inefficiencies in the system. For instance, there is no overall benefit to the community if political and public pressure produces special initiatives for lower-urgency elective surgery patients if that comes at the cost of not being able to treat more seriously ill people. One recent ill-designed federal initiative elective surgery led to the state performing a huge number of cheap cataract operations but not the more expensive knee and hip replacements ‒ simply to meet numeric targets imposed from Canberra.

To be effective, reform must be comprehensive and must deal with the basic problems facing our system: its failure to use its the resources available to it in a way which provides the best value for the consumer. This paper suggests such a program. It addresses all the major resource inputs ‒ basic funding methods, the efficient use of labour, better purchasing and evidence-based capital spending decisions.

A state election is due early next year. In repeated polls, voters nominate health and hospitals as their top priority. Any party wishing to be taken seriously on its health policies must produce a comprehensive and integrated program of reform. Without such reform, any new minister will soon find him or herself in the same parlous political position as the present minister. This is such a program: it is unlikely to be the only one possible but, so far, it is the only one on the table.

Download to read Martyn Goddard’s report on reforming public hospitals:


Pic:* of Premier Lara Giddings and Health Minister Michelle O’Byrne (left) by Rob Walls, http://robertwalls.wordpress.com/


The Telegraph, UK: Finally, a minister who lives like the rest of us