Fixing the hospital postcode lottery is a matter of life and death

Where you enter one of these may determine the length of your life. AAP

At the heart of the Gillard Government’s health reform are an Independent Hospital Pricing Authority and a National Health Performance Authority. New details of how these bodies may work have been leaked to The Australian, which refers to how the health minister could shame under-preforming hospitals under the National Health Reform Performance and Accountability Framework.

Some hospitals provide better care and achieve better outcomes than other hospitals and it is right that the government should act to identify and improve poorly performing hospitals.

A recent Australian study found that for every 100 patients treated for a heart attack, an additional 27 patients were either dead or re-admitted to hospital within six months at the worst-performing hospitals.

This result was observed after controlling for differences in patient characteristics at the hospitals.

So, your chance of surviving a heart attack varies according to the hospital at which you present with symptoms.

The postcode in which you reside thus determines how long you may live.

Variations in the effectiveness of hospital treatment of this kind have been noted for a range of other conditions, including strokes and hip fractures.

As economists, we believe contributing factors to such variations include a lack of information and a lack of appropriate incentives.

The headline of story in The Australian is “Hospitals to face shame register”, with the news that the health “minister can provide ‘public warnings’ where a hospital is found to persistently underperform.”

The keywords in here are “persistently underperform”. Hospitals should be supported in their efforts to improve services through the provision of information on how services are provided at the best performing hospitals.

If the poor performance persists, then further incentives (such as “shame register”) may be required.

The roles of the two bodies

The Independent Hospital Pricing Authority has been tasked with defining an efficient price for every hospital procedure. Prime Minister Gillard has defined the efficient price as a “fair price, to look at what it really costs to do a hip operation or a knee replacement.

The efficient price should represent an appropriate balance between costs and outcomes. In some cases it may be decided the additional costs required to achieve the best possible outcome could be better spent in other areas of the hospital.

If hospitals provide treatment at more than the efficient price, they have an incentive to find ways to reduce costs.

The danger is that reducing cost could also reduce quality of care, and result in poorer outcomes - and increased downstream costs to fix those outcomes.

To counter this danger, the National Health Performance Authority will report on hospital performance, which is intended as an incentive to hospitals to provide an acceptable level of performance.

The exact approach to setting the efficient price and reporting performance are yet to be confirmed, but the leaked Framework document indicates that hospital-wide measures of performance will be used, such as death rates and unplanned re-admission rates.

Monitoring performance with respect to specific conditions is of greater value than some aggregate measure of hospital performance, as it provides information about where to target efforts for improvement.

Clinical practice at identified efficient hospitals can also be observed, described, and disseminated to under-performing hospitals to inform practice improvement.

The two Authorities should not operate independently of each other.

Routinely collected hospital data could be used to identify hospitals that are achieving the best balance between costs and outcomes in different clinical areas.

The costs incurred at these hospitals can then form the basis of the efficient price for treating particular conditions.

Measures of hospital performance should report whether hospitals are achieving expected levels with respect to costs and outcomes for specific conditions.

Ongoing surveillance of hospital performance based on measures of costs and outcomes for specific conditions also provides the basis for updating the efficient price as new, more efficient practices are adopted.

More generally, we have to recognize that the health care budget will never be large enough to fund all beneficial health care.

By estimating the additional costs required to achieve better outcomes in different clinical areas, the efficient price could inform a more transparent and consistent approach to the allocation of the health care budget.

It could also highlight the additional gains to be achieved from expanding the health care budget.

The efficient price could be an integral part of the wider public debate required to inform decisions around the size of the health care budget, and the allocation of that budget to different groups of patients.

Methods to implement the described approach to pricing and performance monitoring have been developed, and the necessary data are currently being collected and reported routinely by public hospitals.

Australia is leading the world with respect to the linkage of routinely collected data, but further work is necessary to overcome the remaining political and legal barriers to aggregating data from hospitals across Australia.

The potential benefits of the efficient price and appropriate measurement of hospital performance should act as a spur to action.

If implemented thoughtfully and thoroughly, the proposed health reforms could improve our use of a limited health care budget, as well as reducing variation in costs and outcomes across hospitals.

Let’s hope it will also help to remove the hospital postcode lottery.