State and territory governments Angry reaction to Prime Minister Anthony Albanese’s letter In September, we called for curbing hospital spending.
This comes amid negotiations on the next five-year funding agreement to determine the federal government’s contribution to state-run public hospitals.
States are angry because hospitals are under extreme pressure. Demand is increasing, emergency rooms are full, and staff are stressed. As Australians get older and sicker, they will need more money.
But public hospital spending has soared by an average of A$3 billion (4.5%) per year over the past decade. The federal government is understandably concerned about this rapid increase in spending, some of which may not be worth it.
To reduce the burden, federal and state governments should invest in: prevention and primary care Get help from GPs and others to make sure people don’t get sick enough to need to go to hospital.
The government must also pay for rising costs and strike deals to better spend hospital bills. New Grattan Institute report Here’s how.
Not all expenses are necessary
Some hospitals spend much more than others for similar hospitalizations. These disparities cannot be fully explained by differences between patients (e.g. older or sicker) or hospitals (e.g. smaller or more specialized).
Instead, a variety of practices are partly to blame, such as keeping people in hospital longer, having higher rates of infection and falls, using more testing, using less efficient staffing roles, or sourcing costly local supplies and services.
We estimate there are $1.2 billion in avoidable costs to the system each year, enough to fund 160,000 additional hospital visits.
Grattan Institute, CC BY
Get your budget back on track
Too often, state budget appropriations for hospitals are shams that are repeated year after year.
First, the hospital’s spending is too high. Then, because hospitals are too important to fail, the government covers the deficit. Next, to enforce discipline, the government set the next budget unrealistically low. Uncertainty and short-termism are making it difficult for hospitals to plan and invest. Then the cycle repeats.
Even before the COVID-19 pandemic, budgets routinely predicted a decline in hospital funding, which rarely happens. Since 2015-16, actual spending has exceeded state budget funding by an average of 6% per year.
This is a confusing way to run a critical system. Hospitals have no stability or incentive to invest in productivity.
Grattan Institute, CC BY
Breaking the vicious cycle requires predictability and responsibility on both sides. Countries must set realistic system-wide budgets based on expected increases in demand and costs.
A consistently well-run hospital should have a three-year budget to plan and invest. The price would be an end to bailouts, and there could be consequences for the boards and CEOs who oversee persistent deficits.
Federal contributions must also be predictable and fair. Since 2017, the federal government has capped hospital funding growth at 6.5% per year. This means that when inflation or population growth spikes, the federal government’s share of the growth is reduced and the states fund the shortfall.
The cap should be redesigned to allow the federal government to automatically share funds for reasonable increases in demand and costs. But it can also increase productivity. The limit should increase based on state population and care needs, but should be slightly lower than expected cost increases.
Best Practice Pricing
Public hospital prices are based on the average cost of care for a standard visit. But what are the standard lengths? defined It’s been too long.
Australia’s independent pricing body should develop prices that encourage short-term stays when it is safe to do so. If states embrace these changes, they should receive more federal funding.
Other countries have changed pricing to encourage safe same-day care. France, Denmark, Germany and Norway pay the same amount for day and long stays for many surgeries. This creates a strong incentive to send eligible patients home faster.
In contrast, Australia often pays less for a night’s stay.
Same-day joint replacements are common overseas, but not uncommon here. In 2022-23, only 0.3% of hip replacements and 0.2% of knee replacements were performed on the same day, compared to 5, 10 and even 20% in comparable countries. This reduces costs without compromising patient outcomes.
Grattan Institute, CC BY
Funding solutions for isolated patients
Some patients stay in the hospital long after they are medically ready to be discharged because they are waiting for senior living or disability services. Additional sleep days, such as those required for health reasons, should not be funded.
The average National Disability Insurance Scheme (NDIS) participant waits. 16th You will be admitted to the hospital after you are medically ready to be discharged. The state reports: 8~10% Half of the days spent in public hospitals are spent by people waiting to be discharged elsewhere.
No one likes to stay in the hospital longer than necessary, and with each passing day you run the risk of infection or complications. And it’s expensive. The average cost of a hospital visit for a new resident in a residential aged care facility is more than $6,500 more than for the same patient returning home.
Australia, like the UK, Sweden and Norway, should impose financial penalties for keeping people in hospital. The federal government is responsible for aged care and the NDIS. After someone is medically ready to be discharged, they will have to pay for admission to the hospital or alternative temporary accommodation arranged by the hospital.
Read more: Can geriatric hospitals reduce the burden on the healthcare system? That may be the case, but improving elderly care is paramount.
Leverage your purchasing power
Supplies and services account for about a quarter of a hospital’s operating costs. The larger the contract, the better the deal and the less duplication of management there is. However, many states save money by allowing hospitals to purchase separately things that could otherwise be purchased together.
Centralized procurement lowers prices and reduces duplication. New South Wales’ health sharing The model shows what is possible across uniforms, meals, linens, payroll and patient transportation. Smaller jurisdictions should piggyback on purchases from their larger neighbors, and for some specialized technologies a national approach makes sense.
Spending on temporary doctors and nurses has surged since COVID-19. Hospitals often compete with each other to raise wages. States should set maximum daily rates, like Queensland, or consider in-house bodies like Western Australia.
There is also a clinical dimension that needs to be scaled up. It is often safer and less expensive to centralize some procedures in a large surgical center. Countries must continue to consolidate evidence support and ensure that patients who need assistance getting to hospital can get it.
Time for a Productivity Agreement
The government is currently discussing the next national health agreement. Most of the recent deals have been to reduce the size of the financing, not to advance it further. Now is your chance to change that.
With productive pricing and fair federal caps, states can provide more certainty and better incentives to their health care systems.
Adding cost savings through tighter, more realistic hospital budgets and volumes can help hospitals get more care for their money.
