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12 Sep 2017


A key focus of the Health Financing and Economics Committee (HFE) is the pricing and funding of public hospitals. 

Public hospitals are a critical part of our health system but remain historically and chronically underfunded. They struggle to manage the demands of aging populations, the burden of chronic disease and new technologies and treatments. 

At the April 2016 COAG meeting, the Commonwealth committed an extra $2.9 billion to hospital funding.  At the same time they secured State and Territories agreement to:

“Incorporate safety and quality into the pricing and funding of public hospitals services with the aim of improving health outcomes, avoid funding unnecessary or unsafe care and decrease avoidable demand for public hospital services.” (IHPA, Consultation Paper on the Pricing Framework for Australian Public Hospital Services 2018-19 p4)

In February 2017, the Commonwealth Minister for Health directed the Independent Hospital Pricing Authority (IHPA) to reduce the level of Commonwealth contribution to activity based hospital pricing for:

        i.            Sentinel events;

      ii.            Hospital acquired complications (HACs); and

    iii.            Avoidable readmissions.

 The events listed in each category are developed by the Australian Commission on Safety and Quality in Healthcare.  See Sentinel Events List of Hospital Acquired Complications (HACs). The list of avoidable readmissions is due for release later in 2017.

 The Independent Hospital Pricing Authority Consultation Paper on the Pricing Framework for Australian Public Hospital Services 2018-19 detailed implementation timeframes and pricing adjustment methodology for the three categories of safety and quality events.  

1 July 2017  Sentinel events will not be funded.

1 July 2018  HACs funding will be reduced by a patient “risk adjusted” factor.

1 July 2018  Avoidable hospital readmissions funding will be reduced.

 The AMA supports sensible and well-considered initiatives to improve safety and quality in our public hospitals.  The AMA wants to see a reduction in HACs and avoidable readmissions but does not endorse the use of Commonwealth financial penalties as an effective way to achieve this.  Adverse outcomes result from a complexity of patient and institution factors.  If hospitals are overstretched and under-resourced, errors are more likely to occur and less likely to be recognised or remediated.

 Safety and quality funding penalties will not assist these hospitals to lift performance.  It will instead entrench a spiralling decline in the hospital’s capacity to undertake the internal changes needed to focus on safety and avoid future penalties. 

The HAC list

The HFE Committee also questioned the validity of some of the HACs that will incur a financial penalty.  Examples include:   

i.           Malnutrition - Patients admitted to hospital with pre-existing skin eruptions that have, with exclusion of other causes, been diagnosed in hospital as nutrition related.  The hospital should not be financially penalised for diagnostic accuracy; 

ii.            Respiratory complications – aspiration pneumonia.  Superficially this seems a reasonable HAC inclusion except it may occur through no negligence, for example as a non-preventable consequence of “grand mal” fit;  

iii.            Gastrointestinal bleeding – A patient with gastric bleeding secondary to biopsy of melanoma metastasis.  While bleeding in this setting is an identifiable risk, it was not avoidable; and   

iv.            Delirium is another poorly defined HAC that should be excluded.

Patients are unique and respond to treatment differently.  Unless a root cause analysis is undertaken it will not be possible to justifiably attribute the event or apportion all of the adverse consequence to “poor or mismanaged public hospital care”.

The timeframe before HAC penalties take effect from 1 July 2018 is too rushed.  A three to four month HAC shadow data collection (July–Sept 2017) will not permit reliable indications of financial impact on jurisdictions or identify unintended negative outcomes for patients as hospitals adapt to the financial penalty risks.

We raised similar concerns about the rush to penalise public hospitals for avoidable readmissions from 1 July 2018.  The AMA wonders how genuine the planned stakeholder consultation will be given the avoidable admissions list will not be known until late 2017 and IHPA must report to COAG before they meet on 30 November 2017. 

The AMA wants to see significantly less HACs and genuinely avoidable readmissions in public hospitals but does not endorse the rushed, bizarre notion that financial penalties will lead to a positive culture of hospital improvement in a severely underfunded and chronically overloaded system.  Safety and quality improvement is more likely in “no blame” hospital reporting cultures such as those adopted in Norway and Denmark and recommended in 2014 by the European Commission.  I have grave concerns that much of the progress public hospitals have made to date in areas of open reporting and transparency will be lost in the move to a defensive, financially penalised performance system.

Published: 12 Sep 2017