In recent years, expenditures on health care in Australia has been rising steadily. There is increasing concerns on part of government about sustaining the level of public spending. Myriad of factors exist that drives up the cost of health and mushrooming expenditure of health is becoming somewhat difficult problem. Some of measures taken for changing consumer behaviour or health professionals do not tackle political dimension of funding. Major structural reforms are brought in the funding and delivery of healthcare that would help in ensuring the future sustainability of Australian health system. The foundation of future health system of Australia is established by shared intentions of Territory government, Common wealth and all state by entering into national Health reform agreement (ww.policyforum.com, 2016). State, territory and Common wealth are responsible for funding the services of public hospitals through block and activity based funding as per the agreement.
The health system of Australia is good and it is a relatively wealthy country. Nation has well developed infrastructure and public health programs. Health system of Australia is contributed by numerous components such as low smoking rates, world class medical researchers, political leadership existence, bipartisanship on big health issues such as AIDS and HIV, increasing populations that are accepting regulations of health promotion such as random breathe testing and seat belts.
Public hospital system of Australia are faced with increasing health challenges. There is ageing of baby boomers as there is an increase in number of people over 85 years old to 1.8 million in year 2050 as against 0.4 million (Laragy et al., 2015). Increase in risk factors for chronic diseases such as diabetes are witnessing increasing tend due to increasing number of people who do not exercise along with overweight and obese people. One of the challenge facing health system is increasing expectations of community of high standards of health. The subsidization of medical research related to interventions and devices for keeping people health and enable them to live longer and providing them with better drugs is also increasingly expensive. In such scenario, the funding of health care for addressing these concerns is of considerable burden for government. It is estimated by Intergenerational report of Treasury that government spending on health as a percentage of Gross domestic product would be double by year 2050. The funding system of current health system is not sustainable as per report generated by Committee for economic development of Australia and this required consideration of new funding model. Concern about funding sustainability of health system as per report published by several bodies. There are limited price signals for moderate demand of subsidized health services as pointed out by free public hospital care and high level of bulk building. Increased use of services is driven by free for service payment to doctors that are encouraged to provide free services (Ahha.asn.au, 2017).
Growth is also witnessed in out of pocket spending in health care and increased spending on health care is noticed in areas of limited subsidies such as those provided to private patients and dental services and for non-subsidized health care like counter medicines. The spending of government is impacted in limited way by this spending. It is predicted that GDP per person of Australian would grow by 1.5% per year and there exist ambiguity whether such increment will be sufficient in expanding health system (Harris et al., 2017). If an increased demand for health services are not met by government finances, this requires dramatic shift in the way health system are funded currently. The earlier reforms of Australian health care system did not ensure their future sustainability. Growing population of Australia is living longer and health services cost is increasing twice at the rate of Gross domestic product. Reforms of Australian health care system is driven by number of factors such as increasing cost of care, increased chronic diseases, changing health expectations of customers. There is increased demand of health system resulting from sedentary lifestyles, ageing population and burden of escalating chronic diseases. Australian tends to receive benefits from personalized medicines medical advances. In current situation, Australian health system cost accounts for 9.8% of GDP (Joyce et al., 2015). It is estimated that over the next forty years, that real federal health expenditure would be more than double. Health service sustainability is threatened resulting from increased pressure on budget driven by all the factors leading to reforms. It is projected that per person real health expenditure would double over the next forty years.
Furthermore, health system of Australia is also impacted from inefficiency of supply side that incorporates such as fragmented journey of patients, fragmented funding such as a care setting mix that are ill matched with to future and current demand, inflexible workforce that is structured bias toward professional interest groups needs rather than needs of patients and higher treatment cost and technologies. For tackling both demand and supply sides inefficiencies and introducing reforms, it is required by organization to have systematic approach. Health budget can be impacted by each individual. Cost, supply and service can be improved by adopting several measures (Dew et al., 2016). Public hospitals and other part interface remained inefficient and continuous defied policy responses and planning depicted by intractable hotspots. Such scenario was noticed despite concerned efforts for improving efficiency and effectiveness at individual level.
In light of all the above challenges faced by healthcare system of Australia, there is an urgent requirement of new approach for avoiding increasing taxes and rationing services. The complexities of existing health care system tackled by rejuvenated agenda of health reforms. It calls for disintegration of funding between different layers of government (Hall, 2015). Moreover, there is requirement of additional funds by attracting new funding from other sources and efficient allocation of existing funding.
The health reform agreement has the aim of delivering a locally and nationally unified health control system through ways such as:
Using national efficient price, hospitals will be able to provide:
The head of agreement between State, territories and common wealth has set out a high level goals series to the government of Australia that would help in achieving a sustainable and high performing sustainable system. Territory and state government will have the continuous effort to work towards the sustainable and transparent health system through ongoing function and role of NHFB (National health funding body) and Administrator (Naccarella et al., 2017).
The shared intention of all the three parties that is common wealth, State and territories for working in partnership to ensure Australia health system sustainability and improve the health outcomes of all Australians. Funding as per national health reforms occur when payments are received by receipts from State managed funds of state pool account. Three parties are the providers of funds. Local hospital networks, state and territory health departments, third parties on behalf of local hospital networks are payment recipients. National health reform has introduced two types of payment and funding that comprise of activity based funding and blocked funding (publichospitalfunding.gov.au, 2017).
The funding model agreed as per national health reform agreement would be used for funding of public hospitals from July 2014 to July 2017. Under this model, the efficient price of services of hospitals is determined by approach of activity based funding. Initially, the pledge of price efficiency is done by commonwealth for meeting 45% of growth. During year 2017, growth rose to 50% and it is projected that balance would be meet by territories and state (Tortora & Steensen, 2014). However, this funding model will no longer be used by contribution of Common wealth from July, 2017. Contribution of Commonwealth would be linked by funding model that is replaced by reform agreement that is linking the movement to growth of population and consumer price index. Under this formula of funding, a shortfall in funding would be experienced by state and territories if movement in consumer price index is tracked below medical services cost. Under NHRA, the funding guarantees is ceased by commonwealth from year 2014-2015. It is agreed by common wealth under funding guarantee that transition to arrangement of activity based funding applicable from 2014-2015 would not financially worse off any state. Under the superseded funding model, it is promised by Common wealth that its contribution would be more than Territories and state by at least $ 16.4 billion (Dranitsaris & Papadopoulos, 2015). It is indicated by government that such reforms and transition and adoption of superseded model are platform depicting arrangement of longer-term health funding. New agreements with jurisdictions are required for such development and the implementation of these two measures would generates estimated combined savings of $ 1.8 billion for period of over four years (Moran et al., 2014). National health reform agreement also called for termination of national partnership agreement for improving services of public hospital. Components of funding were always due to expire.
Activity based funding-It is a funding system that is introduced by public hospital services funding based price that is paid by patient in return for services delivered and on total number of services that are provide to patients. The amount of funding under the activity based funding for each service or activity is determined by cost weights, national classifications and prices of state, territory and common wealth. National efficient price forms the basis of contribution to local networks of hospital by Common wealth activity based funding (Osborn et al., 2013). National efficient price is a price weighted per service that is determined by number of weighted public hospital services and Independent hospital pricing authority. For the year 2015-2016, the activity based funding had funded the categories of services that comprised of admitted mental health services, acute admitted services, non-admitted services, emergency department services, non-acute and sub-acute services (Briggs et al., 2014). All the previous arrangement whereby block grants are received by territories and state are replaced by funding of such arrangement.
Blocked funding-This type of funding is provided when activity based funding requirements are not being satisfied and block funding is provided to territories and state. For fiscal year 2015-2016, several categories of services were funded by block funding such as teaching, research and training, small rural hospitals, non-admitted mental services and non-admitted mental health services (McInnes et al., 2017).
For any services that are outside the agreement scope would receive funding from other sources including State, territories and Commonwealth. Such services comprise of primary care, dental services, pharmaceuticals, residential aged care, public health, community and health care. It is stated by national health reform agreement that wherever practicable, activity based funding should be used. Block funding criteria is required to be developed by the Independent hospital pricing authority when activity funding is not applicable. For determine the hospital services that are better funded through block grants are absence of economies of scale that is indicative of the fact that under activity based funding, some services has the possibility of not being financially viable (Kay & Boxall, 2015). When activity based funding technical requirements are not satisfied. It is suggested by the application of these criteria that funding of public hospital services will be done using block funds when technical requirement are not addressed using activity based funding.
The funding by Common wealth for public hospitals would increase by $ 3.9 in year 2019-2020 and 54% of efficient growth of services of public hospitals would be funded by commonwealth. Activity based funding that are paid at national efficient price are used to boost productivity and achieving value for money. Such agreement will help in reducing the instances of poor quality care of patients and improving the safety of patients. The contribution of commonwealth to hospitals would increase over time at sustainable and affordable rate. Territories and state will be encouraged by a cap overall indexation that would assist them in improving efficiency and reducing costs (nhfb.gov.au 2017). Demand for services of hospitals would be reduced by better coordinated care for complex and chronic diseases. Payment and pricing system as per the agreement would help in ensuring safety and quality of care provided and rewarding the effective management. Benefits of such agreement of funding system would prove beneficial to all Australians and patients. Improved health system would benefit all Australians resulting from greater sustainability of health system. Care will be received by patients when they require it and it would assist it delivering safe, effective and efficient services (strategyand.pwc.com, 2017).
Some of the benefits of direct sharing of public services cost of activity based funding are listed below:
In the present scenario, there is no direct funding of public hospitals by federal government. They make funding engagement indirectly with the territories and state. Hospitals are funded by territories and state using a combination of fixed budget allocation and activity based funding. With the introduction of activity based funding, funding of hospital arrangement are set to change
Therefore, it is expected that the implementation of new funding system would drive improvement in efficiency of public hospital and funding of public hospitals by government will be created by a more sustainable approach.
Overall impact on expenditure growth of public hospital is difficult to predict. On other hand, it has been argued by several experts that overall substantial impact due to expansion of activity based funding is unlikely. It is indicated as per experts of US that such funding system would have little impact on rising cost of health. In order to ensure that growth does not overwhelm federal and state budgets, government are required to take additional measures. While it is claimed by one of Medicare co-architect that activity based funding is an analytical tool and there will not be major system effect of such funding system. It is perceived that that activity based funding will not help in ensuring reforms or quality in public hospitals (Grépin et al., 2017).
At operational level, the incentives for hospitals is fundamentally changed by activity based funding. Under fixed historical budgets, and occurrence of cost, patients are the source of revenue. This enables hospitals to identify innovative model in better way that re cost effective and they are motivated to understand their structure of cost. The national implementation of activity based and block funding can be best described as game changer for funding (Dhakal, 2014).
The agreed objectives of policy and anticipated benefits from the implementation of activity and block funding system should provide the framework of determining efficient national price and foundation of pricing framework development. Pricing framework development should take into consideration complex environment for implementation of funding system. Improving the efficiency of services of public hospitals is one of the main objective of developed funding system. It is required by the government to take into consideration reality aspect that health care is not static and an efficient practice today might not be considered effective tomorrow. Pricing as per activity based funding system should respond in a timely way to innovation. In the system of such funding, the incorporation of innovation comes with inevitable lags.
The joint funding services for joint agreements of Commonwealth and territories cannot be regarded as sustainable as long as benefits derived are accounted in long run. There are many facets explaining the long-term benefits of funding model, but it still remained a matter of debate. The decision to structure of mechanics of financing the health system of Australia regardless of policymakers should seek development of system that will provide benefits to health professionals, policy makers and policy makers itself. Expansion of funding and payment system of public hospitals in the nation should considered the lessons derived from literature and as there are no high quality evidence for guiding policy making for funding, it remains a political issue.
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