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14 May 2018


Since my last piece, significant momentum has gathered for quality and safety based funding. The Federal Government is in the process of implementing a series of measures which will financially penalise hospitals for failing certain quality and safety standards. While consultation on pricing and funding options for avoidable readmissions is underway, pricing for sentinel events and hospital acquired complications (HACs) will both be in effect by July 2018. These measures have been developed under the guidance of the Independent Pricing Authority (IHPA) and the Commission on Safety and Quality in Health Care. The Health Financing and Economics Committee, along with the Council of Private Specialist Practice recently had both organisations present at our April face to face meeting.

There is no doubt that the AMA supports efforts to reduce potentially avoidable adverse events in hospitals and improve patient care. However, the notion that simply deducting funding from an increasingly under-resourced public health system will improve safety and quality in hospitals is fundamentally flawed. Though the Commission states on its website that the evidence is “equivocal,” a deep dive into the literature reveals another story.

Several schemes have been implemented globally, trying to achieve similar ends. A recurring theme in these studies – with the bulk of research in this area stemming from the UK and Us – is that negative incentive structures alone do not lead to long term improvements in quality and safety outcomes. Of those that did demonstrate modest improvements, most were not maintained in the long term, with a paper published in the NEJM by Kristensen et al. in 2014 suggesting a ‘spill over effect’, resulting in worsening outcomes in unmeasured areas outside of the studies. Causality is also hard to prove with improvements also attributable to data collection mechanisms and regular feedback.

One successful program in the US involved the implementation of cost neutral measures which saw rewards for best performers in parallel with penalties for poor performers. Here, funds were redistributed – not withdrawn – leading to a 15 per cent reduction in hospital acquired conditions. Another successfully implemented UK incentive scheme involves the use of ‘best practice tariffs’, where payments to hospitals for care are based on ‘best practice’, instead of average costs as is the case in Australia.

What this suggests is that, at the very least, any savings created by a penalty scheme need to be reinvested in hospitals to encourage idea sharing and the development of targeted quality and safety strategies.

More broadly, it’s important to recognise that pay for performance incentive schemes are designed to drive behaviours where actions and rewards are easily linked and are founded on the behavioural tendencies of individuals. Applying such strategies to hospital networks as a whole assumes health service providers change behaviours in response to financial levers applied to the wider health network.

Top down, non-targeted pay for performance schemes, such as those being implemented here, have in my opinion, little chance of driving quality and safety improvements. The delivery of acute hospital services is complex, involving the collaboration of multiple stakeholders, not least among them administrators, nurses and doctors.  Expecting these parties to drive improvements in care, while simultaneously reducing the funding which allows them to operate, is unsustainable.

If both Federal and State Governments wish to see improvements in safety and quality, they must resource their hospitals to do so. This could be achieved by empowering providers with funding to achieve long term improvements, engaging with health care providers to form targeted solutions for particular goals, and embracing technology to allow for timely and relevant data to be used by providers to improve practice. 

The reality is that errors are rare. And where errors do occur in hospitals, it is often because hospitals lack resources, not because health care providers aren’t motivated to improve their practice. More is needed to drive health care improvements and this starts with safety and quality specific funding, and implementation that is co-designed with clinicians. Otherwise, any new measures will be seen for what they really are; cost savings and nothing more.

Published: 14 May 2018