[Opinion] Does Turnbull’s hospital funding strategy makes sense?

What is being proposed this week on future hospital funding by the Federal government is very important, especially if you think that you or your family may become increasingly bigger users of the hospital system in the next 10 to 15 years.

All the State premiers are jumping up and down, claiming that the cost of hospitals is rising by around 6.5 per cent a year while the Abbott government’s cost-cutting regime limited its hospital funding growth to approximately 4 per cent. Over the next four years, the states will be $8 billion short, so hospital services will have to be cut, they say.

Against this background, the Turnbull government has been ‘refreshing’ in its thinking and actions. Unfortunately this has been missed by the media and therefore most probably by most of the voting public.

A new idea

Malcolm Turnbull has turned his back on the Abbott government’s funding restrictions and accepted the Gillard government funding model for the next four years to 2020. This has removed the blunt club that Tony Abbott was applying at short notice to hospitals, which are ‘businesses’ that don’t have high flexibility to change operations and cost structures quickly.

Turnbull has demonstrated ‘he gets it’ and is not rigid to ideology.

Equally he is not just falling back on the status quo to make life easy. He has presented a new idea, with the state income tax, to be rolled out from 2021. Five years away.

Gillard’s approach was to provide funding on the basis of the procedures that were carried out in each hospital – meaning that there was a dollar value placed on each activity. So the funding was on a ‘needs’ basis. If the ‘needs’ grew the funding grew, at about 6.5 per cent a year.

Abbott killed that. Instead, funding would be increased based on a formula of population growth and inflation. This is calculated at 4 per cent. The philosophy was hospital systems will either have to get more efficient or service less ‘needs’.

One size doesn’t fit all

Obviously hospital funding cannot be an open cheque book.

Turnbull says the states run their hospitals and so the state should be responsible for them. They are best placed to control budget growth. And he is right. The figures demonstrate that a single policy for all states is not appropriate.

Consider this. NSW’s hospital costs grew by 1.5 per cent between 2013 and 2014 while Victoria grew by 3.1 per cent and Queensland by 8.3 per cent.  So NSW must be the most efficient? Well, maybe not.

The average cost of a hip replacement in Victoria cost $17,460 but in New South Wales it is 21 per cent more expensive at $21,200. Removing the gallbladder in Victoria cost $5,432 compared to $7900 in NSW – 45 per cent more. Each of these ‘needs’ is partly funded by the Federal government.

Why the differences in costs? It must come back to administration – the costs of actually running the hospitals that employ the medical staff to provide the services and meet the ‘needs’. And it is the State governments who are responsible for administering the hospitals.

What Turnbull and the Treasurer, Scott Morrison are saying with their state income tax proposal is that simply expecting a growing Federal government cheque each year will not encourage ‘innovation’ in hospital cost administration. Giving the States responsibility for raising the cash will focus them on the cost administration task. It’s like a family budget.

It makes sense to me and, as a taxpayer who wants a first-class world standard hospital system for all the residents of my state, I know we will pay for it one way or the other. I would also prefer the direct accountability of the politicians. The Turnbull proposal would provide 100 per cent transparency on our state representatives’ performance in delivering the best hospital system – no excuses about Canberra’s funding.

It does seem to make sense to me. What do you think?