Analysis of Funding Models: Payment for Performance in Australia

This report examines funding models within the Australian healthcare system, with a primary focus on the Payment for Performance (P4P) model. It explores how P4P, also known as safety and quality pricing, operates through incentives and disincentives based on healthcare service outcomes. The paper details the application of P4P in Australian public hospitals, highlighting the link between quality, safety, and funding, as well as specific initiatives like Queensland Health's strategies to incentivize day case surgery and the Clinical Practice Improvement Payment System (CPIP). Furthermore, it discusses the National Efficient Price (NEP) and its role in activity-based funding. The conclusion emphasizes P4P's objective to integrate safety and quality in determining hospital incentives, while also acknowledging its limitations regarding growth and potential demotivation due to penalties. References to relevant research papers are also included.

Running Head: FUNDING MODELS 1
Funding Models
Author’s Name
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Funding Models
As Eagar et al. (2013) put, there are four funding models that are important in funding the
healthcare system. The models include payment for performance (P4P) best practice pricing,
normative pricing, and quality structure pricing models. However, this paper would focus on
payment for performance, and it is applied in Australia. P4P or sometimes it is identified as
safety and quality pricing operates on incentives and disincentives that a hospital gets depending
on the outcomes of their services (Eagar et al, 2013). This model pays the institutions based on
their practices or services and the areas of concern in this model are safety and quality. Hospitals
whose services are easily accessible and their quality is commendable, get incentives, while
those who do not, do get any incentives.
The Australian public hospitals use the payment for performance model, to support their
operational needs. To add further to the description of this model, its principal objective is to
establish an express link between quality and safety and funding. If the patient outcomes are
found to be good, definitely a hospital facility would be rewarded for the wonderful job done.
Unfortunately, those hospitals that would have bad patient outcomes are likely to be penalized.
In a nutshell, the model seeks to reward good quality and penalize poor quality (Lagarde, et al,
2013).
In the Australian experience, there is a direct link between safety and quality and pricing
and funding. Today, the Queensland Health, Australia is seeking to employ the normative
strategies to introduce incentives ("Australian commission on safety and quality in healthcare",
2013). At the facility, the strategy is to incentivize case surgery conducted during the day, to
reduce time spent at hospitals. Ideally, providing incentives for the day case surgery is to reduce

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stay at the hospital aims at improving performance. Thus, when incentives are offered due to
excellent performance, definitely the funding model becomes P4P.
Also, Queensland introduced a practice called CPIP (Clinical Practice Improvement
Payment System) which seeks to provide incentives for better performance. Furthermore, it is
reported that in 2007, Australia adopted a case-mix payment whose main objective was to
achieve excellent performance. This is a confirmation that Australia is applying the P4P in its
public hospitals to enhance their performance. In essence, to know that a country is applying the
P4P model, the main focus should be to establish if there are incentives offered to achieve some
desired performance. In Australia, there are efforts that are seeking to improve performance, by
directing giving incentives to hospitals to achieve to improve their performance.
Furthermore, in Western Australia, there are reports that between 2010 and 2011, WAHD
(Western Australian Health Department), is implementing funding that is centered on activity
carried out. For instance, is reported that health facilities handling in-patients cases that are acute
received more funding, to boost their FOC (full operational capability). Ideally, there has been
some significant increase in initiatives seeking to enhance safety and quality at Australian
hospitals to bolster their performance for the benefit of patients (Norman, et al, 2014). Thus, due
to the increased efforts in Australia to enhance the performance of their hospitals, it is imperative
to state that they are employing the payment for performance model in her public hospitals.
Manifestation of P4P
Nevertheless, the payment for performance is likely to manifest in four areas that include:
Pay-for- results, pay-for-transparency, gain sharing and pay-for-competence. For pay-for-results,

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this kind of initiative offers the healthcare providers some bonuses if they are able to serve their
patients within a certain a short period of time so that they can go back to work.
But, for pay-for-competence is where health providers, receive some excellent financial
bonuses for having structured that are functioning to capacity, hence guaranteeing good
performance (Mannion, & Davies, 2014). In most cases, health service providers working at
facilities that have achieved pay-for-competence are likely to be entitled to a better pay as
compared to their counterparts in other facilities lacking the kind of structures they have in place.
On the other hand, pay-for-transparency, is where those hospitals with proper documentation and
processes are receiving financial bonuses, while those without are punished (Standard, 2012).
Finally, gain sharing manifesting P4P, where healthcare providers are working in a complex
system, where they are both striving to offer patient care, and in case they do a good job they
share the incentives. On the other hand, if disparate providers fail to meet some desired
performance they share the penalties imposed on them.
National Efficient Price
It is notable that NEP is activity-based. The concept of activity-based aims to determine
how hospitals are funded depending on the activities they are carrying out. Thus, I am in
agreement to the large extent that National efficient price is seeking to improve the health status
in Australia, by having those hospitals that deal with more complicated disorders have a better
funding than other hospitals. The idea perpetuated in this concept of NEP is that for public
hospitals to achieve efficiency or desired performance then it is cogent to fund them depending
on the activities they carry out.

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Furthermore, the NEP seeks to classify hospitals based on the services they offer so as to
determine their funding (Downie, 2017). Hospitals that offer same services receive the same kind
of funding and this to some level seeks to promote social equity (Downie, 2017). It promotes
social equity in the sense that any hospitals across Australia receive same funding based on their
services, so as to seal situations of funding variations that can be construed as discriminatory or
injustice. Nevertheless, NEP in all probability seeks to improve the performance of public
hospitals in Australia based on the services, they offer hence this kind of funding still falls under
P4P.
In conclusion, the main objective of payment for performance is to ensure that safety and
quality are factored in determining the incentives or disincentives the hospitals receive.
However, to some extent, the model does not give a model for growth, since it does not give
room for improvement beyond a certain level (Merilind, 2016). Also, penalizing some hospitals
due to their failure to meet some desired performance to some extent stifles them from
performing well because of the demoralization that comes with disincentives.

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References
Eagar, K., Sansoni, J., Loggie, C., Elsworthy, A., McNamee, J., Cook, R., & Grootemaat, P.
(2013). A literature review on integrating quality and safety into hospital pricing systems.
Australian commission on safety and quality in healthcare. (2013). Retrieved 12 October 2017,
from http://file:///C:/Users/ben/Downloads/Supplementary-Briefing-and-lit.pdf
Standard, Q. I. G. (2012). Australian Commission on Safety and Quality in Health Care.
Mannion, R., & Davies, H. T. (2014). Payment for performance in health care. BMJ: British
Medical Journal, 336(7639), 306.
Norman, A. H., Russell, A. J., & Macnaughton, J. (2014). The payment for performance model
and its influence on British general practitioners' principles and practice. Cadernos de
saude publica, 30(1), 55-67.
Merilind, E. (2016). The impact of payment for performance on number of family doctors visits,
specialist consultations and hospital bed occupancy. A longitudinal study. Quality in
Primary Care.
Lagarde, M., Wright, M., Nossiter, J., & Mays, N. (2013). Challenges of payment-for-
performance in health care and other public services–design, implementation and
evaluation.
Downie, J. (2017). More than just activity: pricing and funding for quality and safety.