Opinion & Commentary
Federal Government gets casemix wrong
Some commentators are dismayed by the failure of the final report of the National Health and Hospitals Reform Commission to recommend an immediate federal takeover of all public hospitals.
This has inevitably spilled over into renewed frustration with the Rudd government and its perceived lack of commitment to large-scale health reform.
Kevin Rudd’s failure to act on his pre-2007 election promise to take over public hospitals if the state governments failed to commit to improved hospital performance by mid-2009 has also become something of a political millstone.
For its part, the government says it has extended the deadline and the issue will be examined once its response to the NHHRC recommendations is considered by the Council of Australian Governments early next year.
I agree with those who say it’s time to stop judging the Rudd government by its devotion to process and professed good intentions to improve service delivery in the states. But a full federal hospital takeover is a political long shot regardless of whether this requires a constitutional referendum. It’s time to move the debate on and assess the government’s reform bona fides based on its record and what it’s failed to achieve.
By this standard, the government has squandered a good chance to use the financial muscle of the Commonwealth to extract real improvements in public hospital efficiency.
In theory, the principle that the Commonwealth should pay the states based on results achieved is at centre of the Rudd government’s commitment to reforming federal-state financial relations.
Rudd-style co-operative federalism involves a Blairite addiction to a range of national performance targets in areas such as health, education and housing. The aim of these highly bureaucratic national partnerships – to be monitored by the COAG Reform Council – is to make the states more accountable for the funding they receive.
The reality is at last November’s COAG meeting the premiers largely called the government’s bluff about improving hospital performance. Under the new five-year Australian Health Care Agreement, the states got the goldmine and the Commonwealth – and taxpayers – got shafted. The states received a huge boost in federal hospital funding in return for signing up to a new national hospital performance reporting system.
As was observed at the time, most of the new performance benchmarks, such as waiting times and rates of service, are already reported and published. What was most significant, though, was the gaping hole in the Rudd government’s attempt to ensure greater financial accountability for hospital funding.
In return for a funding increase of $22 billion over the next five years, the states agreed in principle to move towards a nationally consistent approach to casemix, or activity-based, funding of public hospitals by 2013–14.
In essence, casemix funding is a pay-for-performance arrangement that encourages hospitals to use resources optimally. The advantage is that a hospital’s budget is set by the number and type of patients treated. Hospitals are paid only for the work they do, based on the cost of the care averaged across the system.
Casemix funding, therefore, promotes both technical and allocative efficiency as it requires hospitals to understand the services patients demand and find the most cost-effective way of delivering them.
All public hospitals in Victoria have been funded on a casemix basis since the mid-1990s. This is credited with making the Victorian hospital system the best performing in the nation. The lowest cost and most efficient hospitals in the nation are located in Victoria and South Australia, the two states in which the casemix system has been established the longest.
Ensuring that casemix becomes the principle mode of hospital funding would be a landmark health reform. That’s why the Rudd government’s failure to insist that states implement it hasn’t impressed the NHHRC. It recognises that the timely introduction of a national casemix system is essential to close the 20 to 25% productivity gap a 2006 Productivity Commission study identified between the cost of hospital services in the least and most efficient states.
The NHHRC’s report does not buy the Commonwealth’s excuses for delaying casemix funding and continuing to fund hospitals via block grants to the states. As the report notes, the Kennett government introduced casemix funding in Victoria in five months. If the Commonwealth and the states were committed to improving hospital performance, a national casemix system would be up and running well before 2014.
The Rudd government’s first go at reforming federal-state relations in health amounted to throwing more money at the states to continue running public hospitals inefficiently.
When the COAG meets to consider the government’s response to the NHHRC report, the Prime Minister should insist the premiers agree to a realistic timetable for the introduction of casemix funding. If this is rejected, the Commonwealth should refuse to index the funding promised under the AHCA and make the states pay a financial price for their intransigence.
Dr Jeremy Sammut is a Research Fellow at The Centre for Independent Studies.
