Less Waste: A More Transparent, Efficient and Accountable Public Hospital System

• Less Waste: A More Transparent, Efficient and Accountable Public Hospital System (PDF 39 KB)

Funding services based on an efficient price
Ensuring rural hospitals receive the funding they need
Local control

The Commonwealth Government is committed to working with state and territory governments to reduce waste and ensure stability in hospital funding into the future.

Under National Health Reform, the Commonwealth Government will increase its contribution to efficient growth funding for hospitals to 45 per cent in 2014-15, increasing to 50 per cent from 2017-18.

This means that from 2017-18 the Commonwealth will fund half of every dollar required to meet increases in the efficient cost of public hospital services, including growth in demand.

A focus on reducing waste is accompanied by the introduction of strong national standards supported by greater local involvement in the management of health services.

Funding services based on an efficient price

From mid-2014, Commonwealth funding for public hospitals will:

• flow to local hospital networks according to the numbers and kinds of service they provide;
• for as many services as are provided;
• based on an independently determined efficient price for each kind of service.

To enable consistent payment to hospitals for the services they provide, an Independent Hospital Pricing Authority (IHPA) is being established to set the efficient price of delivering hospital services.

The IHPA will determine the efficient price for public hospital services through the analysis of data on actual activity and costs in public hospitals. In determining the efficient price, the IHPA will consider the need to: ensure reasonable access to public hospital services; safeguard clinical safety and quality; and ensure the efficiency, effectiveness and financial sustainability of the public hospital system.

The Commonwealth’s payments made to Local Hospital Networks will be based on the independently determined efficient price per service, and the numbers and kinds of services provided. This payment method is referred to as activity based funding.

Activity based funding will provide incentives for hospitals to treat patients more efficiently and will provide incentives for hospitals and governments to ensure patients are treated in the most appropriate setting.

As Local Hospital Networks provide more services, more Commonwealth funding will flow in direct proportion to the increase in services. As the efficient cost of providing services increases, as assessed by the IHPA, more Commonwealth funding will flow in direct proportion to the increase in efficient costs.

Funding all hospitals in the same way, according to the services they provide, will drive improved performance across the health and hospital system.

State and territory funding for hospitals will also be based on levels of services to be provided, set out in agreements between states/territories and their Local Hospital Networks.
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Ensuring rural hospitals receive the funding they need

To ensure rural and regional communities continue to have access to vital public hospital services small rural and regional hospitals will continue to be block funded.

In consultation with states and territories, the Independent Hospital Pricing Authority will develop block funding criteria and identify hospital services and functions that will be eligible for block funding only, or a mixture of activity based funding and block funding. These criteria will be subject to agreement by the Council of Australian Governments.

Teaching and training functions funded by states and territories undertaken in public hospitals (or other organisations) and research funded by states and territories undertaken in public hospitals will also be funded on a block funding basis.

Local control

Local Hospital Networks will be established across Australia and will ensure that the management of public hospitals is accountable and responsive to the needs of the local community. Local Hospital Networks will work with local communities to shape local service delivery to meet local needs.

Local Hospital Networks will make decisions on the day-to-day operations of hospitals within their network and delivering agreed services and meeting performance standards. The establishment of Local Hospital Networks will mean that a local hospital should no longer have to seek the approval of a large bureaucracy for matters that relate to the day-to-day delivery of hospital services.

Local Hospital Networks will also work with the new Medicare Locals (which are responsible for coordinating local primary health care delivery) to identify and address particular local needs and to ensure continuity of care for patients between hospital and primary health care services.

In addition to Local Hospital Networks, Lead Clinicians Groups will be established to increase the engagement of clinicians in the reform of the health system, at both national and local levels. The National Lead Clinicians Group will advise the Minister for Health and Ageing on nationally relevant priorities and strategies to improve patient care across health care sectors, promote evidence based clinical practices and assist with the prioritisation and implementation of clinical standards and guidelines.

At the local level, Lead Clinicians Groups will advocate for, and advise on, local implementation of clinical guidelines and standards. They will consider and provide advice to Local Hospital Networks and Medicare Locals on matters such as integration of patient-centered care pathways across local healthcare sectors to best meet the needs of the local community.
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