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22 Nov 2016

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

This work includes monitoring public hospital funding through the federal Budget and public hospital expenditure as reported by the Australian Institute of Health and Welfare.

HFE also takes a close interest in hospital pricing through the operation of Activity Based Funding (ABF) and the National Efficient Price (NEP), managed by the Independent Hospital Pricing Authority (IHPA). Each year, IHPA publishes a consultation paper to inform the Pricing Framework of ABF and the NEP to apply for the following financial year.

The AMA has a direct and significant interest in the Pricing Framework for public hospital services as a critical element in the overall functioning of our hospital system.

The major new element in the proposed Pricing Framework for 2017-18 relates to options for incorporating safety and quality into the pricing and funding of public hospital services.

For 2017-18, IHPA has been directed by Federal, State and Territory governments to undertake specific work to integrate quality and safety into hospital pricing and funding. IHPA has been tasked to advise on pricing and funding options for sentinel events, preventable hospital acquired conditions, and avoidable hospital readmissions.

IHPA’s options are set out in its consultation paper on the Pricing Framework 2017-18.

The options involve reducing pricing and funding for services that do not meet safety and quality standards, for example, services that involve a preventable hospital acquired condition. The ‘logic’ appears to be that improved safety and quality will be achieved by imposing financial penalties and reducing hospital funding for poor safety and quality services.

At its October meeting, HFE was briefed by IHPA Chief Executive James Downie on hospital pricing issues and IHPA’s safety and quality options. HFE drew on this discussion to consider and make input to the AMA’s submission on the Pricing Framework.

The AMA has consistently advocated for the appropriate recognition of safety and quality in the ABF and NEP framework.

However, the AMA has significant concerns with how this longstanding gap in the framework is now to be addressed. Any approach that sets out to improve safety and quality by financially penalising hospitals that are already under-resourced to achieve safety and quality standards is misconceived. 

Improving the safety and quality of public hospital services requires a framework of positive incentives for the achievement of relevant targets, supported by the full range of quality and safety mechanisms in place and available to public hospital system operators, doctors, nurses and other hospital staff.

These include improvements in data quality and information available to inform clinician practice, whole‑of‑system efforts to deliver improved patient outcomes, and incentives that work to the level of the clinical department to focus efforts and effect change, with local implementation, monitoring and information sharing needed. 

An essential pre-condition for all such improvements is adequate funding for public hospitals.

Overall funding for public hospitals under the NEP has been, and continues to be, inadequate. This has direct consequences for the performance of public hospitals in key areas against the targets set by governments, as tracked and reported in the AMA Public Hospital Report Card.


Published: 22 Nov 2016