In the rush to work out how we are going to pay for health services that meet the growing needs of Australia’s population, the risk is that a focus on the quality of these services is lost.  Activity based funding is now in place across Australia, can it be used to improve quality and safety? Many thanks to Anne-marie BoxallDeeble Institute for Health Policy Research and Janet Sansoni and Kathy Eagar Australian Health Services Research Institute University of Wollongong for their insights:

Australia has recently implemented an activity-based funding system for public hospitals. While it has been broadly supported by the health sector, some are anxious to ensure that the price paid for health care services stimulates improvements in quality and safety rather than undermining it. This recent publication synthesises the evidence on pricing models and how they can be used to improve safety and quality in hospitals.  It shows that although there is a rich literature arguing that health care pricing models should reward quality and safety, the evidence base is relatively weak in this field.

There are four main ways of incorporating quality into an activity based funding model for hospitals. Under best-practice pricing models, hospitals are paid a set fee for providing ‘best-practice’ or evidence-base care for specified conditions. In normative pricing models, pricing is used to achieve certain outcomes in the delivery of care (for example, to encourage providers to deliver more hospital-in-the-home services).

Structural models of pricing quality make some funding contingent on providers meeting accreditation standards, participating in benchmarking activities or clinical quality registries. And, Payment for Performance (P4P) models use financial incentives and/or disincentives to encourage providers to behave in certain ways that will improve quality and safety.

Very little high-quality research has been done that evaluates the effectiveness of the first two models – best-practice and normative pricing. Having said that, there are a few studies that show clinicians’ do change their behaviour when these pricing models are implemented. When a best-practice pricing model was implemented in hospitals in Michigan in the United States, for example, researchers found that substantially more cardiac patients were given aspirin, ACE inhibitors or beta-blockers.

Another study has shown that radiology reporting times improved substantially when a normative pricing model was implemented in Massachusetts General Hospital. The problem with these studies, and many of the others in the field, is that they are poorly designed. A common flaw is that they do not include baseline data, they do not have adequate control groups or use relevant comparative data. As a result, the available evidence on best-practice and normative pricing models is not considered strong, making it difficult for policymakers to justify the expense of implementing a new model.

The main structural model to pricing quality is to link funding to participation in accreditation programs or benchmarking activities. Once again, there is not much around in terms of strong evidence to support this model. There is, however, strong evidence to show that hospitals that participate in clinical benchmarking see improvements in quality and safety (see for example, here and here). It is likely that pricing models that combine participation in accreditation programs or benchmarking activities and incentive funding will be beneficial, but it is difficult to know for sure without quality evidence.

P4P is the model with the most substantial evidence base underpinning it. There are some studies that find P4P schemes have led to improvements in the safety and quality of health care. For example, a study looking at the impact of the Advancing Quality program in North West England found that after a P4P scheme was introduced, fewer patients died in hospital from pneumonia, heart failure and heart attacks. Importantly, though, other studies have found that P4P schemes have had no impact.

A recent study evaluating the Premier Hospital Quality Incentive Demonstration in the US concluded that P4P did not deliver any substantial benefits in safety and quality for participating hospitals when compared to non-participating hospitals. These conflicting findings have caused some researchers to conclude that there is no convincing evidence that P4P programs lead to better outcomes in terms of quality and safety. But once again, this is partly because the evidence base is weak.

For Australian policymakers trying to decide how to tackle the issue of pricing for quality, the existing evidence does not provide a strong enough basis for adopting any particular ‘off the shelf’ model. However when evidence from the grey literature, such as programs evaluations, is also considered, some key lessons start to emerge. They include:

  • Providers need to see the financial incentives as substantial if they are going to be effective in changing behaviour
  • To be effective, financial rewards need to be delivered down to the level of the clinical department or unit involved in changing behaviour
  • Financial incentives need to be designed in such a way that they foster improvement across all hospitals rather than just rewarding those that are already performing well
  • It is vital that policymakers identify possible perverse incentives and put measures in place to minimise or prevent them
  • Pricing models should include some way of making adjustments based on the risk profile of the organisation involved so that those with sicker or poorer patients are not unduly penalised
  • Policymakers should expect that some regional variation in performance is unavoidable and make allowances for this.

Activity-based funding is now operating across Australia. Under this new system, the Independent Hospital Pricing Authority (IHPA) determines the price that the Australian Government pays as its contribution to public hospital funding. The Australian Government contribution is approximately 40 per cent of public hospital funding, so any incentives for quality and safety that the IHPA might build into the model would impact only on the Commonwealth contribution.

In addition to this, the Australian Government funding for public hospitals is not directed to specific hospitals or to clinical departments within hospitals. As a result, it is unlikely that the Australian Government, if acting alone, would be able to use pricing to stimulate major changes in the safety and quality of health care services delivered in Australian public hospitals.