Block Funding Hospitals –
Lessons from the Past
Small Rural Hospitals – Block Funding
• Pending COAG’s endorsement, from 1 July 2013 small rural,
regional and remote hospitals in Australia will be block funded
• The IHPA determination affects more than 420 small rural hospitals
• An outcome of a COAG agreement that makes them different from
urban based hospitals and large regional hospitals in the sense that
the ABF framework of the ‘national efficient price’ will not apply
• Funding will be based on the determination of the ‘national efficient
cost’ of the hospitals which is
• A mean cost based around hospital size using the most recent
NHPED data
• Hospitals will be grouped according to size (total NWAU) and
location (ASGC Remoteness Area) for funding
What is the same as ABF?
• Pricing for small rural hospitals from 2013/2014 onwards is based on
costs as is the ABF framework
• Policy objectives of the reform of funding remain the same (Timely–
quality care, Efficiency; Fairness; Transparency; Administrative
ease; Stability; Fostering clinical innovation to improve patient
outcomes; Price harmonisation for example)
• Costs identified in the same way as ABF hospitals
• The States and Territories remain the hospital system managers
and IHPA will consult on significant changes in service agreements
where they are foreshadowed by states or territories to ensure that
hospitals affected are not disadvantaged.
What is different from ABF?
• Block funding price matrix across 7 hospital groups and ASGC
groups (inner regional, outer regional, remote and very remote) that
results in a framework of 28 prices for service availability
• Block funding price of $4.738million adjusted according to service
activity and location
• An additional service capability payment of $498/NWAU for
hospitals in the largest two service activity groups
Why is it different?
• COAG recognized early that ABF would not be practicable for all
public hospitals, especially those hospitals which see a low volume
of patients but must remain open to provide essential services
• The technical requirements for applying ABF are not able to be
satisfied by many small rural hospitals (primarily because of
difficulties in product specification and differentiation and the
associated identification of costs by product)
• There is often an absence of economies of scale in small rural
hospitals that mean some services would not be financially viable
under ABF
• Instability or unpredictability in service volumes, accompanied by an
inability to manage input costs in accordance with changing service
patterns and/or skewed service profiles
Small Rural Hospitals - Diversity
• Small rural hospitals are highly diverse because of history,
environment including location, social, cultural, economic and
industrial characteristics and
• Networking and governance arrangements (including standalone
hospitals, facilities that form part of a multi-campus hospital,
hospitals that are referral hospitals for other small rural hospitals
etc.) and formal relationships with governments
• Service profiles, size and service activity, staffing models (access to
Visiting Medical Officer (VMOs), GP models, locum services)
• Commitments to co-located residential aged care services (including
in multipurpose services or as separate acute and aged care
services); and
• Expenditure.
Multi-Purpose Services
• A joint Commonwealth and state/territory government initiative
• Developed in the early 1990s to make health and aged care
services sustainable in regional communities where
• Hospitals were closing, health and aged care services were limited,
often dispersed and disconnected, funding structures were rigid,
there were shortages in the health workforce and populations were
small (around 1,000-4,000) and ageing; and
• Existing service utilization was characterized by high fluctuations
and inconsistencies over time
• Designed to offer a lifeline to regional communities to work in new
ways – principally to expand community based services
Multi-Purpose Service Program
• The Multi-purpose Service program is designed to deliver:
• improved quality of care by virtue of its patient focus and integrated
care;
• better access to health care by enabling it to be localised even if it is
not in the same setting; and
• cost-effective services with potential savings from lower overhead
costs of community based care
• Funds are pooled from the Commonwealth’s aged care and Home
and Community Care (HACC) programs and state contributions
including hospital, community health and their own HACC funds
• Local government funds/resources are negotiated locally and vary
significantly
Multi-Purpose Service Program
• The Multi-purpose Service Program operating framework is defined
by the following core elements:
• 1. Health service needs – determined by the local community and
contained in an integrated health services plan, taking into account
regional demography, epidemiology, socio economic status, culture,
environment, health service infrastructure and availability of service
providers
• 2. Governance – a single management structure to oversee the
Multi-purpose Service program with members drawn from its
geographic catchment area - replacing multiple Boards of
Management
• 3. Funds – Hospital, aged care, community health and community
services are block funded and pooled for health and aged care
services according to the agreed health services plan
Multi-Purpose Service Program
• 4. Flexible use of funds – health and aged care service types and
levels adjusted or redirected according to changing needs rather
than specific program funding targets with flexible and responsive
working arrangements for staff
• 5. Reporting arrangements – streamlined reporting against services
plan replacing reporting against multiple programs
• 6. Accreditation – a single accreditation process replacing multiple
processes
• 7. Evaluation – a single evaluation framework.
• 8. Funds are used flexibly to deliver an expanded range of patient
centred services in areas such as, but not limited to, health
education and promotion, community care, community health, basic
acute care, residential care, mental health, high dependency
community care and child health
Experiences of MPS’s
•
•
•
•
•
•
•
There are more than 130 MPS’s in Australia (more than 150 when MPC’s
are added) that have been block funded more than 17 years and each one
is different than the other (diversity being the only thing they have in
common)
Successfully survived all of the economic, social, technological, and
demographic challenges of the period
Proven to be a sustainable strategy for integrated health service delivery
based on basic population health planning and primary health care service
delivery models
Enabled smaller rural and remote communities to retain basic services and
expand those that are relevant to local communities
Stimulated innovation in local service design and delivery that is attributable
to the ability to pool funds; use them flexibly to support services, and forge
strong local relationships
Opened up new sources of revenue to support service development and
delivery
Created challenges for measurement and accountability for all levels of
government
Alpine Health as an Example
• 17 years as an MPS with experience with block funding (and a small
mix of ABF)
• Moved from operating deficit to financial stability since 2002
• Service delivery re-oriented from institutional service drivers to
population health
• Expanded service delivery to encompass community and community
health services through local relationship management and coproduction
• Hospital admission rates, residential aged care placement rates and
application rates are at their lowest levels despite an ageing
population (urgent care presentations remain stable)
• Workforce now includes community and we now have more than
250 people voluntarily leading, developing and providing services to
others (the paid workforce is now 350)
• Have an established RTO now providing training services locally for
local and regional health services
Challenges
• Block funding will bring greater transparency and clarity for hospitals
and their relationships with governments
• The question for the States and the Territories will be how they
manage this locally (will small rural hospitals currently ABF move to
block funded relationships)
• If they do, can flexible funding models along the lines of those
currently experienced by MPS’s be possible
• The diversity of small rural hospitals has meant that defining and
measuring hospital expenditure on a product basis is very difficult
• For example, the distinction between acute care and aged care in
small rural hospitals is a wide grey zone, especially for MPS’s
• Better identification of in-scope expenditure at a facility level is
necessary and will come at cost (one that may not be currently
borne)
Challenges
• Similarly the definition, measurement and reporting of service
activity of small rural hospitals is difficult and improving this will
require addressing the data burden on these small hospitals
• If full advantage is taken of block funding small rural hospitals, then
the harder task of developing and implementing an accountability
framework based on population health improvement will be a real
challenge
• This is a challenge that all MPS’s face in Australia today – most
accountability is input and process driven; the specification of
outputs has proven elusive because of the complex and interrelated
models of care that come with primary care; and little or no work has
been done on outcome measurement and accountability
Conclusion
• Block funding will bring transparency and clarity to complex
organizational and inter-government relationships
• There is evidence that block funding works for small rural hospitals
• MPS’s provide the sources for much of this evidence
• Real reform can come with extending the flexible funding principle
form MPS’s to all small rural hospitals
• Because we know that funding models influence behaviour and
flexible, block funding can lead to new and innovative service
delivery models focussed on health improvement
• This is a challenge for States and Territories
• But the accountability issues need to be addressed and this is a
challenge for all of us