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14 Nov 2017

BY ASSOCIATE PROFESSOR SUSAN NEUHAUS, CHAIR, HEALTH FINANCING AND ECONOMICS COMMITTEE

The Health Financing and Economics Committee (HFE) has a very keen interest in the likely direction and detail of the next public hospital funding agreement that will take effect from 2020. 

Negotiations between the commonwealth and State Health Ministers will begin in earnest in 2018 but early signs of the likely reform agenda are emerging, with some consistent themes coming to the fore.  Unsurprisingly, most of these themes are a continuation of the changes to public hospital financing agreed by all Australian Governments in June 2017 as documented in the National Health Reform Addendum.[1]  Whether States and Territories agree is hard to predict and will likely depend on how much new funding, and over what period, the Commonwealth Government is prepared to offer it.

The themes in the Addendum we would expect to see considered as part of a 2020 agreement are:

        i.            improve patient outcomes;

      ii.            decrease avoidable demand for public hospital services;

    iii.            improve the coordination of care for patients with chronic and complex conditions to reduce avoidable demand for hospital admissions for this group;

   iv.            incentives to reduce preventable, poor quality patient care; and

     v.            incorporate quality and safety into hospital pricing and funding to reduce poor quality patient care: sentinel events, hospital acquired complications and avoidable readmissions.

Recent media speculation[2] [3] suggests Minister Hunt will seek COAG agreement to reward jurisdictions that can demonstrate improved patient outcomes, with the goal of readmissions over the short term being avoided. 

Such a move may also represent the first step towards ‘outcome based’ hospital funding.  Media speculation[4] also suggests the government will frame the push as a reduction in ‘low value care’.  It is likely not coincidental that the Productivity Commission released a report on 24 October 2017 that recommends low value care in public hospitals should not be funded[5].  Of course, what is finally argued by the Commonwealth in the lead-up to the negotiations with State Ministers is yet to be seen – but it is clear they are laying the groundwork.  

On the topic of coordinated care, it is worth noting that jurisdictions already have the ability to enter bilateral agreements to trial coordinated care initiatives, for the 2017-2020 period.  These are intended to inform the development of an evidence-based national approach in the 2020 funding agreement – but clearly we are also in early days of this work.

The National Health Reform Addendum reforms might be worthy in the abstract – it is hard to argue against improved patient outcomes, a reduction in preventable poor quality patient care, better care coordination across the boundary of admitted/non-admitted care – especially for patients with one or more chronic conditions. 

But whether they are they worthy in practice depends entirely on how they are implemented.  For example, shifting public hospital funding away from payments based on cost and quantity to a formula based on patient outcomes represents a massive organisational change for the public hospitals delivering the care.  They will require substantial additional funding to build the necessary organisational capacity.  And this will take time. 

Outcome-based funding will also require substantial new government investment in data infrastructure to collect and measure robust clinical patient outcome data – not just patient reported outcomes, which may or may not be clinically relevant.  It must include patient outcomes in the non-admitted setting.  This capacity does not yet exist.  We first need robust, consistent primary healthcare data definitions used and recorded by all primary healthcare providers.  The primary and tertiary outcomes data must be linked.  And if the Government is serious about linking outcomes to funding and ‘quality’ then it would need to develop an entire framework of quality-adjusted life year (QaLYs) per episode of care. Overcoming the constraints and barriers inherent in a health system that is structured within a federated system of government is no small feat, nor will it be cheap.

So far, the AMA has been bitterly disappointed in the Government’s opportunistic use of the ‘improved safety and quality’ agenda to do little more than reduce the Commonwealth’s share of public hospital funding.  My Australian Medicine article published on the September 18, 2017 summarises this.  The AMA will be carefully examining the detail of the 2020 health care agreement to ensure it is a genuine effort to empower public hospitals, including in providing them with the resources they will need to successfully transition to outcomes based funding with improved care-coordination. These are massive reforms that will require time, a clearly articulated evidence-based pathway and substantial new Commonwealth investment, not less.



[1] Schedule I – Addendum to the National health Reform Agreement:  Revised Public Hospital Arrangements, p1, 2017.

[2] Parnell S GP Patient Incentives – Rewards to reduce crush in hospitals Weekend Australian 29/7/2017 p10-11

[3] Avoiding hospital admissions a priority, The Pharmacy Guild of Australia, 27 September 2017

[4] Martin P Education, health face shake-up, The Age, 23 October 2017 p 4

[5] Shifting the Dial:5 Year Productivity Review, Productivity Commission, 2017  


Published: 14 Nov 2017