A Review of the Australian Healthcare Funding System and Challenges

This report provides an analysis of the Australian healthcare funding system, highlighting its structure, challenges, and potential areas for improvement. It examines the federated nature of the system, the role of government at different levels, and the implementation of models such as activity-based funding and payment for performance. The report explores the National Efficient Price (NEP) and its impact on hospital funding, as well as the implications of fixed prices on healthcare quality and resource allocation. It discusses the limitations of the current system in incentivizing improved health outcomes and addresses the issue of patient price sensitivity. The analysis incorporates references to relevant literature and research, offering insights into the complexities of healthcare financing and the need for reforms to enhance the quality and effectiveness of healthcare services. The report also provides some background information about the assignment brief.

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Health care funding system
Introduction
Research is undertaken by Price Water House Coopers Australia has shown that a
majority of the Australians want a responsive healthcare which is more accessible and offers
an affordable and effective quality of care, (PWC, 2017). Further, they need a health care
system which offers care to all members of the community irrespective of their location.
Moreover, health care that offers preventive care but nor merely illness is of high
significance. However numerous challenges are being faced. Most of the Australian
healthcare is largely federated, having different levels of government control. There are
system stewards which have incremental changes on the healthcare models.
Payment for Performance (P4P) or Safety and Quality pricing
Majority of Australians are covered by universal, tax-financed health insurance
schemes. Approximately 80% of the general practice often incurs out of pocket costs due to
the fact that the bill is usually directed to the government. Out of pockets, costs are usually
high, thus defer. All Australian have the eligibility to be treated in public hospitals without
any charges. Major medical centers are all public, with the state government’s act as system
managers.
States payments are done through activity based funding which allows performance
payment through setting the price of hospital care for each individual patient condition,
medication, and diagnosis, (Colais et al., 2013).
Under this model, the Australian government offers state costs to public hospitals under
this system. About 85% of government funding is channeled to States and Territories under
the system. The funding is done on the basis of prices which are reflected in national
Efficient Price (NEP) and Volume of hospital services.
Since the year 2016, Australian governments have ratified Heads agreement which
commits improvement of Australia healthcare outcomes and decrease public health hospital
services, (IHPA, 2018). Thus this allowed for pricing for safety and quality in a four-year
work program since 2016. Thus this model has largely been implemented across the
Australian health care system.
National efficient Price
Independent Hospital Pricing Authority uses NEP with activity-based funding for
funding public health hospitals. NEP utilizes two key purposes which determine the amount
of funding used in public health services and providing price signal benchmark in providing
efficient public hospitals costs.

The activity-based funding model offers payment on a fixed price using the NEP for
each care delivery offered. It is the determination of hospitals that this time will work
however key flaws are making the system ineffective.
This system is not able to provide quality care in that if a health service is given a fixed
prices being paid under the activity-based funding, this can costs less, making hospitals to be
richer and thus offering an incentive to expand. However with this view, if the prices costs
reflect cost allocated rather than the costs effectiveness of the provided services then there is
a likelihood of the misallocation of resources. With this, there is an argument that most
profitable services doesn't have the greatest impact on health gains for the general population,
(Marshall, Charlesworth & Hurst, 2014).
Instances, where hospital losses have occurred, have shown that hospitals can make
losses when the fixed price s allocated for that service cost more, hospitals will react through
reducing waste, reducing unnecessary costs, offering cheaper services which in turn can
reduce the quality of care being provided. This approach and experience lower valued based
healthcare practice in the hospitals, thus limiting its ability to provide quality healthcare as
observed. Further, there is no reward in this system being offered for improvements in health
care outcomes, thus this may hamper the quality of health care services, (Danson, owse,
Metre-ferrandez, 2013).
Studies have shown that often insurance such as this for the government undermines
patient price sensitivity. Setting an incremental costs effectiveness model is effective in
providing for the best care outcomes. The NEP price schedule does not offer this aspect,
(Danson, owse, Metre-Fernandez, 2013). The pricing mix depicted in this case shows that it
suffers risk provider challenges, where there competing pools experiences from the public
hospitals and the government to provide funding with an aim of improving healthcare
outcomes. The performance –pay providers can have a significant impact in this case,
(Stabile & Thomson, 2014).
Hence, with this view, the NEP may not offer that needed impetus to offer incentives
to the health care outcomes. The funding framework offers significant flaws which hampers
overall care quality.

References
Colais, P., Pinnarelli, L., Fusco, D., Davoli, M., Braga, M., & Perucci, C. A. (2013). The
impact of a pay-for-performance system on timing to hip fracture surgery: experience
from the Lazio Region (Italy). BMC health services research, 13(1), 393.
Danzon, P., Towse, A., & Mestre‐Ferrandiz, J. (2015). Value‐based differential pricing:
Efficient prices for drugs in a global context. Health economics, 24(3), 294-301.
IHPA-Independent Hospital Pricing AuthorityPricing and funding for safety and quality Risk
adjustment model for Hospital Acquired ComplicationsVersion 3March 2018. Viewed
on 17/10/2018. Accessed at
https://www.ihpa.gov.au/sites/g/files/net636/f/publications/pricing_and_funding_f_safe
ty_and_quality__risk_adjustment_model_for_hospital_acquired_complications_2018-
19.pdf
Marshall, L., Charlesworth, A., & Hurst, J. (2014). The NHS payment system: evolving
policy and emerging evidence. London: The Nuffield Trust.
Stabile, M., & Thomson, S. (2014). The changing role of government in financing health
care: an international perspective. Journal of Economic Literature, 52(2), 480-518.
PWC, Finding for value, (2017). Accessed on 17/10/2018. Retrieved from http:
https://www.pwc.com.au/publications/pdf/funding-thought-leadership-18apr18.pdf