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Beware of bad policy suggestions in health reform report

What will happen to the quality of care that patients receive if governments become fixated on “efficient costs” for hospital care? And what does “efficient cost” – a term that crops up repeatedly in the National Health and Hospitals Reform Commission report – actually mean?

Gavin Mooney, Honorary Professor, University of Sydney, has been investigating these questions, amongst others, and has some major concerns. He writes:

“One of the mysteries of the NHHRC report is what the authors mean by the so-called ‘efficient cost‘ of hospital care.

Solving this mystery matters because the report goes on to suggest that the Commonwealth ‘pay 100 per cent of the efficient cost of public hospital outpatient services’ and ’40 per cent of the efficient cost of every public patient admission ‘. The states are then left to pick up any costs arising from inefficiencies.

This, as the report indicates, opens the door to move at some point to the Commonwealth funding 100 per cent of ‘the efficient cost’ of inpatient as well as outpatient care. The report further assumes, by implication at least, that it will not be possible to run hospitals below the efficient cost.

Now this is all based on case-mix-DRG-activity thinking.  An ‘efficient cost’ will be set for say a heart transplant and hospitals will be paid that amount for every heart transplant they undertake. The Commonwealth part of inpatient hospital funding – initially at least – will be 40 per cent of this ‘efficient’ DRG cost.  The states will fund the other 60% of the efficient costs and the costs of inefficient care. Pushing the hospitals and the states to be more efficient is clearly appealing and that is what seems to drive this.

The problems in all of this only begin to emerge in appendix H which gives costings of the various recommendations. There it is stated that the savings for inpatients will be between $400 million and $900 million. “The $400m saving estimate for acute inpatient services assumes that the higher average cost per episode in some states are brought down to the average cost. $900 million saving assumes all states can match the level of efficiency currently achieved by the most efficient state.”

So the idea is to drive down costs – not a bad idea but not a good idea if it is divorced from quality.

We cannot consider efficiency without both costs and benefits (or quality). And where is quality in all of this? Where is health in all of this?! If one state currently has a lower cost because of lower quality, does the NHHRC really want to use this as a basis for driving down quality in the other states?

This issue really matters. The report says that “debates about the ‘efficient cost of care’ are inevitable “. Too true!

Many health policy analysts (including myself) would argue that having the Commonwealth take over the whole caboodle is the way to go. However attempting to go down that road through this ill-considered DRG case mix funding minefield, trying to press the states into greater efficiency (read in reality lower costs) is a recipe for a bun fight between the states and the Commonwealth, a bun fight that could easily be avoided and a bun fight that could derail a possible Commonwealth takeover.

Having a single funder for health care will improve efficiency. But to make the question of who funds dependent on hospital efficiency (read hospital costs) as the report suggests is a bad policy strategy, a very bad policy strategy.

DRG or case mix funding is based on average costs and makes little if any allowance for whether a hospital is running close to full capacity (in which case extra cases may be very expensive) or not (in which case extra cases may be quite cheap). Sorting out ‘efficient costs’ between different types and sizes and locations of hospitals is a nightmare and one that is better avoided and can be avoided.

Any reform of hospital funding must start from a basis of asking what hospitals are about. While the answer to that is best obtained from the citizens of Australia, we can be certain that they will not answer ‘efficient cost weighted DRGs’. More likely they will want something like ‘better health’ as the goal.

If the Commonwealth is going to take over the hospitals, just get on with it.

This fiddling around with this idea of ‘efficient costs’ is a sure fire way to create merry hell both in our hospitals and in our health policy as it gives the states the ammunition to obfuscate and block reform. The blocking is already happening. Our health minister here in the west seems to place more importance on state power than people’s health. The notion of ‘efficient cost’ might also give him a ‘better health’ argument for blocking a Commonwealth takeover.”

Comments 3

  1. Stephen Duckett says:

    Efficient costs should surely be set on a ceteris paribus assumption about quality i.e. the definition of the service/output should incorporate an assumption of standard quality. To use an analogy, when I go to the shop to purchase tomatoes, I expect to pay something different for a healthy ripe tomato vs one which has a narrower range of uses and hence might be seen as of ‘lower quality’. The task then is how to define quality in this context. Improving overall efficiency in the health sector (by placing incentives on providers) frees resources for investment in other strategies, many outlined in the Reform Commission Report, which might also improve average health (and hence represents a better allocation of resources overall)

    Stephen Duckett

  2. Mobius Ecko says:

    Whenever a Federal takeover of State’s responsibilities is canvassed I always come back with one thing (well two) Defence (and AFP).

    As inefficient and faulty as State run institutions are, the alternative no matter how you look at it is worse. Canberra is OK at macro management and wide sweeping usually hit and miss targeted policy and spending whilst the States do better at the micro level of management but are lousy at the large scale financial side of things.

    Also if one State attempts a reform or restructure and it fails (as Kennett did with Victoria health) the other States “usually” learn from that and go down a different path, and the cost is normally in the tens of millions, sometimes in the hundreds of millions and rarely in the billions. If a wholly Federally controlled and run entity gets it wrong then we get screwed for many billions every single time and the failure, which could be catastrophic, is nation wide. Defence is a good example of this.

    So if you want a very wasteful top heavy remote ADF style bureaucracy foisted upon health, education, transport, roads etc. then keep insisting on the Federal government taking over the States or getting rid of the States.

    For mine as inefficient as the State system is and as much as it can do with a major shake up, taking over its responsibilities or getting rid of it all together is not the answer. A better national, State and local balance, a greater accountability and better Federal oversight is the answer.

  3. Luke S says:

    Yes, in a world with perfect information and data, and without market failure it would be quite easy to ceteris ‘paribise’ all factors and calculate quality. In practice that that would be nigh on impossible in the complex and convoluted domain of health care. Not only does one have to contend with massive information asymmetries, there’s myriad uncontrollable factors. inter alia: massive power differentials within the sector, strong vested interests by lobby groups, protectionism and, big pharma and of course the tricky apects of measurement in health with all the various determinants etc…

    The tomato analogy – in reality all tomatoes would look the same but taste vastly different; one in 20 tomatoes are ‘bad’ and could incapacitate or kill. powerful lobby groups promote ones over others plus your ‘enjoyment’ of them depends on a range of contextual factors. diminishing marginal returns…..etc. … simple in textbooks but not in practice

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Summer reading 2020-2021
Tasmanian election 2021
Testing Croakey News category 1
The Croakey Archives
#cripcroakey
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#HealthMatters
#IHMayDay (all years)
#IHMayDay 2014
#IHMayDay15
#IHMayday16
#IHMayDay17
#IHMayDay18
#LoveRural 2014
Croakey Conference News Service 2013 – 2019
2013 conferences
Australian Centre for Health Services Innovation Forum 2013
Australian Health Promotion Association Conference 2013
Closing the Credibility Gap 2013
CRANAplus Conference 2013
FASD Conference 2013
Health Workforce Australia 2013
International Health Literacy Network Conference 2013
NACCHO Summit 2013
National Rural Health Conference 2013
Oceania EcoHealth Symposium 2013
PHAA conference 2013
2014 conferences
#IPCHIV14
AIDA Conference 2014
Congress Lowitja 2014
CRANAplus conference 2014
Cultural Solutions - Healing Foundation forum 2014
Lowitja Institute Continuous Quality Improvement conference 2014
National Suicide Prevention Conference 2014
Racism and children/youth health symposium 2014
Rural & Remote Health Scientific Symposium 2014
2015 conferences
#CPHCEforum
#CRANAplus15
#HSR15
#NRHC15
#OTCC15
Population Health Congress 2015
2016 conferences
#AHHAsim16
#AHMRC16
#ANROWS2016
#ATSISPEP
#AusCanIndigenousWellness
#cphce2016
#CPHCEforum16
#CRANAplus2016
#IAMRA2016
#LowitjaConf2016
#PreventObesity16
#TowardsRecovery
#VMIAC16
#WearablesCEH
#WICC2016
2017 conferences
#17APCC
#ACEM17
#AIDAconf2017
#BTH20
#CATSINaM17
#ClimateHealthStrategy
#IAHAConf17
#IDS17
#LBQWHC17
#LivingOurWay
#OKtoAskAu
#OTCC2017
#ResearchTranslation17
#TheMHS2017
#VMIACConf17
#WCPH2017
Australian Palliative Care Conference
2018 conferences