A National Health and Hospitals Network for Australia's Future
5.6 Paying Local Hospital Networks directly for the services they provide
The Commonwealth Government will pay Local Hospital Networks directly on the basis of an efficient price per hospital service, determined by a new independent national umpire. This should reduce waste and increase the number of services provided for each dollar invested.
The Commonwealth will directly fund Local Hospital Networks for 60 per cent of the efficient price of each service a Network provides to a patient, using a system of activity based funding. This arrangement will ensure each Local Hospital Network is funded for the services it provides. It will provide hospitals with a strong financial incentive to provide more services, subject to meeting safety and quality standards. Local Hospital Networks will work with states to determine the range and number of services each Network will provide.
Currently, the Commonwealth Government provides block hospital funding to states, who then determine how and where this money is spent. With these reforms, the Commonwealth will fund a share of every service that Local Hospital Networks provide.
These reforms will provide the Commonwealth, and the taxpayer, with the confidence that scarce health dollars are being used as efficiently and effectively as possible. It will drive hospitals to eliminate waste and ensure that each additional dollar funds more hospital services, rather than overheads. It will mean an increase in the effective number of hospital beds in the system, and is an essential part of tackling elective surgery waiting lists.
The introduction of activity based funding for hospital services was recommended by the NHHRC as one of the most important drivers of efficiency within the health system.
To minimise disruption in hospital services and ensure that no state is worse off, the Commonwealth Government will transition to activity based funding over time. From 2011–12,
the Commonwealth will pay states 60 per cent of recurrent public hospital expenditure. In 2012–13, the Government will then move to directly paying Local Hospital Networks 60 per cent of a state‑specific price for each service they provide.
Over time, the Government will shift from a state‑specific price and phase in payment of 60 per cent of a nationally efficient price for each service a Local Hospital Network provides. In taking this path, the Government will accelerate and extend the activity based costing approach agreed with states at COAG in November 2008, and apply that model to funding on a national basis.
An independent umpire at arm’s length from Commonwealth and state governments will set the nationally efficient price. The independent umpire will be charged with striking an appropriate balance between the sustainability of the hospital system, reasonable levels of access, clinical safety, efficiency, and the significant fiscal impact that hospital funding will have for both the Commonwealth and the states. The price will be adjusted to recognise particular circumstances and health care needs, for example people living in rural Australia and Indigenous Australians.
Local Hospital Networks that deliver high quality services more efficiently will be able to reinvest in further innovation or services.
This transparent and nationally consistent approach to hospital funding will give Local Hospital Networks flexibility to shape local service delivery according to local needs. Through greater transparency and the direct funding of services actually provided, local communities will have more information than ever before on what services a hospital provides, how they are performing, and how they are spending their budgets. This increased information will allow ready identification of high‑performing hospitals, which would then be able to share their effective and innovative practices with other hospitals, helping to create a self‑improving hospital system.back to top
