What will happen to the quality of care that patients receive if governments become fixated on “efficient costs” for hospital care? And what does “efficient cost” – a term that crops up repeatedly in the National Health and Hospitals Reform Commission report – actually mean?

Gavin Mooney, Honorary Professor, University of Sydney, has been investigating these questions, amongst others, and has some major concerns. He writes:

“One of the mysteries of the NHHRC report is what the authors mean by the so-called ‘efficient cost‘ of hospital care.

Solving this mystery matters because the report goes on to suggest that the Commonwealth ‘pay 100 per cent of the efficient cost of public hospital outpatient services’ and ’40 per cent of the efficient cost of every public patient admission ‘. The states are then left to pick up any costs arising from inefficiencies.

This, as the report indicates, opens the door to move at some point to the Commonwealth funding 100 per cent of ‘the efficient cost’ of inpatient as well as outpatient care. The report further assumes, by implication at least, that it will not be possible to run hospitals below the efficient cost.

Now this is all based on case-mix-DRG-activity thinking.  An ‘efficient cost’ will be set for say a heart transplant and hospitals will be paid that amount for every heart transplant they undertake. The Commonwealth part of inpatient hospital funding – initially at least – will be 40 per cent of this ‘efficient’ DRG cost.  The states will fund the other 60% of the efficient costs and the costs of inefficient care. Pushing the hospitals and the states to be more efficient is clearly appealing and that is what seems to drive this.

The problems in all of this only begin to emerge in appendix H which gives costings of the various recommendations. There it is stated that the savings for inpatients will be between $400 million and $900 million. “The $400m saving estimate for acute inpatient services assumes that the higher average cost per episode in some states are brought down to the average cost. $900 million saving assumes all states can match the level of efficiency currently achieved by the most efficient state.”

So the idea is to drive down costs – not a bad idea but not a good idea if it is divorced from quality.

We cannot consider efficiency without both costs and benefits (or quality). And where is quality in all of this? Where is health in all of this?! If one state currently has a lower cost because of lower quality, does the NHHRC really want to use this as a basis for driving down quality in the other states?

This issue really matters. The report says that “debates about the ‘efficient cost of care’ are inevitable “. Too true!

Many health policy analysts (including myself) would argue that having the Commonwealth take over the whole caboodle is the way to go. However attempting to go down that road through this ill-considered DRG case mix funding minefield, trying to press the states into greater efficiency (read in reality lower costs) is a recipe for a bun fight between the states and the Commonwealth, a bun fight that could easily be avoided and a bun fight that could derail a possible Commonwealth takeover.

Having a single funder for health care will improve efficiency. But to make the question of who funds dependent on hospital efficiency (read hospital costs) as the report suggests is a bad policy strategy, a very bad policy strategy.

DRG or case mix funding is based on average costs and makes little if any allowance for whether a hospital is running close to full capacity (in which case extra cases may be very expensive) or not (in which case extra cases may be quite cheap). Sorting out ‘efficient costs’ between different types and sizes and locations of hospitals is a nightmare and one that is better avoided and can be avoided.

Any reform of hospital funding must start from a basis of asking what hospitals are about. While the answer to that is best obtained from the citizens of Australia, we can be certain that they will not answer ‘efficient cost weighted DRGs’. More likely they will want something like ‘better health’ as the goal.

If the Commonwealth is going to take over the hospitals, just get on with it.

This fiddling around with this idea of ‘efficient costs’ is a sure fire way to create merry hell both in our hospitals and in our health policy as it gives the states the ammunition to obfuscate and block reform. The blocking is already happening. Our health minister here in the west seems to place more importance on state power than people’s health. The notion of ‘efficient cost’ might also give him a ‘better health’ argument for blocking a Commonwealth takeover.”