Block Funding Hospitals – Lessons from the Past

1. Block Funding Hospitals – Lessons from the Past

2. 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

3. 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.

4. 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

5. 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

6. 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.

7. 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

8. 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

9. 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

10. 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

11. 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

12. 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 co-production • 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

13. 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)

14. 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

15. 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