HAS952 Health Promotion Theories | Public Hospital Funding Models

Introduction

Among the four models of public hospital funding models this paper takes a look at Activity Based Funding (ABF) with a view to explaining why it is the model of choice for funding of public hospitals in Australia. A short description of how ABF works is provided. The paper finally gives a response to the role of the National Efficient Price in providing incentives for improvement of health care provision in Australia.

Activity Based Funding

ABF is the most common model for funding used in public hospitals in Australia and globally. It’s a model where the health service provider is compensated according to the volume and complexity of the services that they offer (Boltong et al. 2013). In the ABF funding model, the state governments retain the role of system managers entrusted with the mandate to determine the type, volume and required range of health services to be offered by the public hospitals in their jurisdictions.

According to Lindsey (2016), the ABF model utilizes a weighting system that specifies the relative weight of treating every condition and is then used to determine the cost of hospital services. The total funding to the hospital is determined by summing the total of the weighted units of services offered within the year and then multiplied by the National Efficient Price (NEP). In the ABF model, hospital funding is determined by two parameters; the number of the patients that they treat and the mix of patients that they see Atkinson (2010). Health services that present more complexity in treatment are allocated more money than those that are less complex. It follows then that if a hospital handles more patients then according to ABF it will receive more funding.

As posited by Bankowitz & Kroch (2012) ABF makes patients become a source of revenue for the hospitals and less of a cost as is the case with conventional historical budgets. The ABF system assumes that all hospitals provide equivalent services. For instance, the cost to the society of hip replacement for a patient should be the same whether offered in an academic hospital or a suburban setting. In line with this principle of the ABF, both hospitals should be funded equally for the same services. In the ABF model, different unique variations between patients such as Aboriginal and Torres Strait Islanders are taken care of by a classification system given the additional cost associated with treating these groups of people Blustein & Borden (2010). . Hospitals that offer services to these groups of people in remote areas are paid a facility based premium.

The National Efficient Price

The National Efficient Price is a figure developed by the Independent Hospital Pricing Authority of Australia. It is an amount that represents the unit cost of delivering a specified health service Lindsey (2016) submits that NEP is a core ingredient in the ABF model. In setting the NEP, the IHPA uses a complex formula that culminates in the development of a weighting system (National Weighted Activity Unit). The IHPA then allocates a weight to each of the public health service and the weight is reflective of the cost providing the specified service at that facility. In order to obtain the efficient price for the hospital, NEP is multiplied by the complexity weight (NWAU) as set by the IHPA. As an example, tonsillectomy is allocated an NWAU of 0.7058. When multiplied by the National efficient price the efficient price for every admission is $3,354.

Commonwealth funding and the National Efficient Price

Since its inception in 2012, NEP has been the determinant of the amount of money hospitals receive from the commonwealth government. What makes this the right solution for Australia’s health problems is the fact that the formula does not fix the commonwealth funding to hospitals at 40% as had been misconceived (Fuller & McCullough 2011). It takes into account three factors which will help in bringing equity to the provision of health services. Fundamentally, the consideration of historical variations in hospital utilization enables states to fund certain services to a higher tune than others depending on the needs of the state. For instance a state that is in need of rehabilitation services more than orthopedic services for instance can prioritize what they need. This incentivizes hospitals to respond to the needs of the populations they serve because they can get the funding they need from the commonwealth government. As Atkinson (2010) submits, the fact that the level of commonwealth funding to the states is going to be subject to the historical per capita funding needs is a boost to hospitals as it will ensure equity and equality in the provision of health services in the long run.  

NEP and the States

NEP as it is implemented within the framework of the ABF gives states considerable autonomy in deciding how much funding hospitals within their jurisdictions get as a share of the NEP as well as the type and level of services they will provide. States have the decision-making power as to the extent to which Local Hospital Networks operating in their territories can be funded; the state can vary the share of the NEP payable to the LHNs within its territory (Fuller & McCullough 2011). This is a beneficial thing because the state government as an authority knows the health needs of each segment of the population. States have the ability as the system managers of the ABF to fund the LHNs such that they receive more than 100% of the NEP. In the exercise of their autonomy, the state governments may in recognition of higher cost structures for certain LHNs increase their share of the NEP. This would facilitate hospitals operating in remote and suburban areas to better attend to the needs of their populations.

Away from the benefits of NEP, skeptics have put forward a number of arguments to dispute it. As posited by Atkinson (2010) the weighting system used by the IHPA to determine the NWAU values for each health service are contestable. The mere fact that the process leading to the chosen criteria is complex does not guarantee its accuracy. Critics have argued that the weighting system does not take into account all the variations and uniqueness’s of health facilities in terms of wages and other inputs. The argument developed thereof is that NEP cannot be entirely relied on in determining the amount to be paid for the services offered by public hospitals. Additionally, there is concern as to why the state government funding of the public hospitals are not tied to the national efficient price (Blustein & Borden 2010). If the national efficient price was the remedy to achieving better health standards in the country then why is it not the guide to funding for both the commonwealth and territory governments?

Conclusion

The Activity Based Funding as covered in the paper is a model that works well because it prioritizes public hospital funding with regard to the type and complexity of the services they offer.  The National Efficient Price as finds meaning within the model of ABF provides the rationale for how funds are allocated to the hospitals. Although the formula for weighting should be enhanced, the NEP as it is gives room for state and commonwealth governments to correct the imbalances of the health system in terms of funding and respond to the population’s health needs.

References

Atkinson, K. (2010). Provider-initiated pay-for-performance in a clinically integrated hospital network.  Journal for Healthcare Quality34 (1), 57–66. https://doi.org/10.1038/ijo.2009.211

Bankowitz R & Kroch E (2012). "Premier pay for performance and patient outcomes." The New England Journal of Medicine 17, 1–4. https://doi.org/10.1186/s12889-017-4434-1.

Blustein. B & Borden, H, (2010). "Hospital performance, the local economy, and the local workforce”. Journal for Healthcare Quality 54(4), 209–228. https://doi.org/10.1111/1467-8454.12055

Boltong, Anna G., Jenelle M. Loeliger & Belinda L. Steer. 2013. “Using a Public Hospital Funding Model to Strengthen a Case for Improved Nutritional Care in a Cancer Setting.” Australian Health Review 37 (3): 286–90. doi:10.1071/AH13010.

Fuller D & McCullough N. (2011). "A new approach to reducing payments made to hospitals with high complication rates." Australian Health Review 29, 13–16. https://search.ebscohost.com/login.aspx?direct=true&db=s3h&AN=130899087&site=ehost-live

Lindsey, C. (2016). The Merits of the National Efficient Price in Australian Public Health-Is it what Australia needs? Australian Health Review 21(4), 369–372. https://doi.org/10.1071/PY15052