Organizational Governance and Performance Management

This paper provides a thorough review of the quality and safety practices in the health care system for funding and pricing arrangements in Australia undertaken by the commission and IHPA. It discusses the funding models used by Australian public hospitals, including best practice pricing, quality structure pricing, normative pricing, and payment for performance. The paper also examines the National Efficient Price system and its limitations in providing incentives to improve the health status of the Australian population.

Running head: ORGANIZATIONAL GOVERNANCE AND PERFORMANCE
MANAGEMENT 1
Organizational Governance and Performance Management
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ORGANIZATIONAL GOVERNANCE AND PERFORMANCE MANAGEMENT 2
Introduction
This paper provides a thorough review of the quality and safety practices in the health
care system for funding and pricing arrangements in Australia undertaken by the commission
and IHPA. In this analysis, we shall look at the pricing framework which will inform the national
efficient determination used in activity-based funding implementation in Australian public
hospitals. Further, we shall see how the National Efficient Price system might provide the
Australian population with incentives to improve their health status.
Funding models
There are four funding methods that Australian public hospitals use and are identified in
the IHPA and commission literature review. They are; best practice pricing, quality structure
pricing methods, normative pricing and payment for safety or performance and quality pricing.
First, best practice pricing model can be defined as a funding model that uses care pathways
based on widely accepted evidence where the best solution would be for the hospital to treat a
particular health condition before the set fee is paid (Tompkins, Altman, & Eilat, 2016).
Implementation price for this funding model, based on the clinical evidence available, is
determined and then the additional incentive is paid to the hospital. Best pricing program started
in four areas; cataract pathway, acute stroke care, cholecystectomy, and fragility hip fracture
care. As this scheme represents money value, evaluating the literature on the efficacy of this
funding model is still limited. The British health care system had “Best Practice Tariffs” scheme
implemented, though the conclusive evidence was limited except for the UK’s National Hip
Fracture Database findings (Eagar, 2014). As per the Independent Hospital Pricing Authority

ORGANIZATIONAL GOVERNANCE AND PERFORMANCE MANAGEMENT 3
review, the best practice pricing funding model gains more with methodological inadequacies
due to the implementation of care pathways based on the best evidence in limited conditions.
The other funding model is quality structure pricing which is linked to the participation in
the activities of safety improvement, clinical benchmarking, and meeting of standards of
accreditation and quality registries by the health care providers. And though the initial cost might
be high, the aim of this model is to increase savings (Levaggi, 2015). This model might be high
for the hospitals that are accredited than in the ones that are non-accredited, but according to the
available evidence, this funding model leads to safety and quality improvement. The third
funding model is normative pricing where delivery outcomes of care are influenced by prices.
An example where outcomes are influenced by the prices are; patients seeking residential care,
incentivizing day surgeries, and the need for more nurses at home in the cases of certain
disabilities or illness (Black et.al, 2011).
However, there was an improvement that was noted by implementing the funding model
in the radiology area. Also, due to the uncertainties of determining the implementation cost of
this model, there is no conclusive evidence on its use. The last funding model is the payment for
performance which involves pushing the care providers to behave in a certain manner thereby
improving safety and quality. This model uses disincentives for poor services or financial
incentives for positive outcomes. It also encourages the givers to improve quality by rewarding
them or penalizing them if they fail (Martin & Guvatt, 2013). And even though there is no
evidence of any beneficial outcomes of this model, Britain undertook an advancing quality
initiative that showed improvements results through quality scores and the short-term in-hospital
immortality reduction.

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National Efficient price
National Efficient price (NEP) identifies commonwealth contribution to the funding of
public hospitals in Australia. This system provides that each hospital be paid, for each episode of
care, a fixed fee. IHPA determines the contribution to be paid by the Australian government,
which should be around 40% of the hospital funding. If IHPA creates any incentives into quality
and safety model, it influences the contribution made by the Commonwealth. There is no
evidence on the funding models mentioned above regarding their efficacy to improve safety and
quality of care services (Nieva & Sorra, 2013). Therefore, considering this literature, I agree that
the National Efficient price might be unable to provide the required incentives that are aimed at
improving the health status among the Australian population to a greater extent. This is due to
the difficulties of determining how this system actually works as identifying the onset of certain
health condition is challenging.
Misallocation of resources in the cases where the cost-effectiveness of services does not
reflect the set price is a major limitation of the National Efficient price. Also, there is doubt as to
whether the major changes can be stimulated in Australian public hospitals regarding safety and
quality as the public hospital funds are not directed to specific hospital departments (Palmer et.al,
2014). Therefore, delivering the incentives to the clinical department level is a necessity if any
effect is to be felt even though quality does not have any rewards as some rural hospitals are
disadvantaged. Also, it is necessary to consider any potential that regional disparities have in
improving healthcare quality to a greater extent. There are weaknesses in the manner the activity
based funding scheme is designed even though it has the capability of making hospital
functioning more efficient (Solomon,2014). Given these flaws, negative influence on the
potential cost savings is a possibility, resulting in a poor change in health care quality and

ORGANIZATIONAL GOVERNANCE AND PERFORMANCE MANAGEMENT 5
ineffective funding system. Providers change their behavior or care pathways if they realize that
incentives are substantial. Otherwise, chances of clinicians responding to incentives are much
less as pricing only affects some aspects of care. Therefore, stimulating behavior change of the
health providers is the only way National Efficient price will ensure efficiency gains.

ORGANIZATIONAL GOVERNANCE AND PERFORMANCE MANAGEMENT 6
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