AMA submission on Pricing Framework for Public Hospital Services

10 Oct 2012

Dear Dr Sherbon

AMA submission to IHPA on the Pricing Framework for Australian Public Hospital Services 2013-14

Thank you for the opportunity to make a submission on the Pricing Framework for Australian Public Hospital Services 2013-14.

The AMA’s comments on the Pricing Framework are attached.

If you have any questions in the first instance please contact Martin Mullane on (02) 6270 5487 or

We look forward to further opportunities to inform work on hospital pricing arrangements.

Yours sincerely

Dr Steve Hambleton
10 October 2012

AMA Submission on the Pricing Framework for Australian Public Hospital Services 2013-14

Pricing Framework for Australian Public Hospital Services 2013-14

General Comments

The AMA has a significant interest in the Pricing Framework for public hospital services as a critical element in the overall functioning of our hospital system.

The Pricing Framework is not an end in itself and its utility and value should ultimately be judged on how well it contributes to effective, efficient and sustainable hospital care that meets the community’s needs.

The AMA welcomes this opportunity to provide comments on the Pricing Framework for Australian Public Hospital Services 2013-14.

This opportunity comes at a time when there is very limited experience (ie 3 months) of ‘virtual’ funding of public hospital services under activity based funding and the National Efficient Price for hospital services.

The AMA notes that it is not possible to draw on this experience to inform evidence-based recommendations for adjustments to the Pricing Framework for 2013-14. There is no better information available now to inform specific judgements on the operation of the new framework than was available before it was introduced. As the consultation paper itself states,

At this time, it has not been possible for IHPA to discern any impacts from the introduction of a national approach to ABF on 1 July 2012.

While this situation is itself of concern, it is also the case that the issues which the AMA has consistently raised in relation to the new hospital pricing arrangements remain issues of concern which are directly relevant to the 2013-14 framework.

These issues have been identified through the AMA’s submissions on the 2012-13 Pricing Framework, the IHPA Work Program for 2012-13, and related correspondence with the Minister for Health.

The AMA reiterates and emphasises these concerns.

The Pricing Framework and its implementation by IHPA must address the need for adequate and timely provision for quality of care, and for teaching, training and research.

There must be robust and pro-active approaches to identify, monitor and address unintended consequences and adverse impacts arising from the new framework.

More broadly, there is a need to address hospital capacity issues and to take a broader and more integrated perspective across the system rather than simply and separately modeling cost impacts (IHPA) or reporting narrowly defined and selected performance indicators (National Health Performance Authority - NHPA).

Pricing Guidelines - Identifying and addressing impacts of ABF and the NEP

In relation to the potential for changing service numbers and profiles, it is critical that these and other potential adverse impacts are identified, monitored and action taken to correct them contemporaneously.

Precisely because this work has not been done/able to be done to date, it is even more important that there are clear and specific mechanisms in place to identify and monitor the incidence and effects of these and other changes, including unpredictable impacts.

The current context lends urgency and greater importance to this work. A number of states have announced significant reductions to health expenditure. There is a significant risk that any impacts arising from the introduction of ABF will be confounded and/or compounded by the effects of contemporaneous budget cuts in different jurisdictions.

The Consultation Paper reiterates that IHPA “will actively monitor the impact of the implementation of Activity Based Funding”, including “monitoring changes in the mix,
distribution and location of public hospital services”.

Such statements of intent are welcome but not sufficient. Transparency is required as to exactly how IHPA is or will be discharging this important responsibility:

  • what specific mechanisms are actually being used to identify “changes in the mix, distribution and location of public hospital services”
  • what types of actions are being taken on the basis of information about such changes, and
  • how will this information be shared with stakeholders to enable external scrutiny and shared problem solving?

This is a critical issue that goes to the heart of successful implementation and stakeholder ‘buy-in’ to the new arrangements.

The best-placed professionals to understand, analyse and identify the significance of such information are those who are directly engaged in hospital care, particularly clinicians who are involved intimately in hospital arrangements but who are not implicated in hospital financial management and the need to respond creatively to new requirements.

In the absence of systematic, quantifiable evidence, the AMA has sought feedback from its members of any changes or impacts that have occurred with the introduction of the new
pricing arrangements. Feedback has included:

  • Impacts are hard to discern within capped funding (to the health service/to the hospital)
  • A sense that hospital administrators may not be 'ready' for ABF, and not yet able to separate costs in order to budget in an ABF environment
  • Difficulties in identifying specific ABF impacts on clinical services in a context of budget cuts in general, impacting on eg cuts to interpreter services
  • Withdrawal of specific services eg cancellation of podiatry clinics /services, and concern regarding the future of other specific services such as VMO outpatients clinics
  • Concern at the different actions that different hospitals may take in response to such impacts, with potentially significant consequences for patients and clinicians need to monitor the increased risks involved in the move from ABF using historical budget funding to full ABF funding from 2014-15, including for services delivered with transition funding through individual LHNs/hospitals.

This sort of on-the-ground feedback is invaluable. The AMA acknowledges that IHPA has established consultation processes to obtain more structured and formal feedback from
organisations. While important in their own right, these processes should be complemented by capturing direct, on the ground experiences and feedback from clinicians. Engagement with clinicians for this purpose will have a significant ancillary benefit of developing their understanding and buy-in to the new arrangements.

The new hospital pricing arrangements will not work if key stakeholders such as hospital clinicians are not 'on-side' or at least involved in monitoring the impact. Successful
implementation and ongoing operation of ABF and the NEP will depend on effective engagement with clinicians.

Teaching Training and Research

The AMA notes that IHPA proposes to undertake early developmental work on a funding model for teaching, training and research in public hospitals, to inform IHPA’s advice to the Council of Australian Governments, due in 2017-18.

While there is legitimate preparatory work required in this area, the AMA has consistently argued that the overall timeframe is too long because of the urgent need to secure additional training places for today’s medical students. Clearly a much shorter timeframe is required to enable an informed decision on the best funding arrangement to support a desirable level of TTR activity.

The AMA also considers that there will be little point completing a study on TTR and ABF unless there is a clear and comprehensive baseline study showing how and how much funding for TTR is provided under current arrangements.

This baseline study should be completed in conjunction with the development of the 2013-14 Pricing Framework.

Costing inputs

The AMA has previously flagged its concern that the low price for services under the 2012-13 Pricing Framework is based on cost data from the under-performing hospital system of 2009-10.

The Consultation Paper indicates IHPA’s position is that the 2013-14 National Efficient Price will be set using 2010-11 hospital cost data.

This means that the NEP for 2013-14 will continue to be based on 3 year-old cost data.

While this may enable more ‘technical confidence’ in the cost data, the AMA considers this is likely to be more than fully offset by the fact that the cost data is substantially out of date by the time it is applied to hospital pricing. The effects of this syndrome are exacerbated when the ‘confident’ data is actually taken from a period in which the hospital system was under-performing and by extension, likely to be under-funded.

The AMA considers that the most recent cost data (ie 2011-12) be used to develop the 2013-14 National Efficient Price.


The AMA considers that rather than needing to escalate 2010-11 costs to 2013-14 prices IHPA should use the most recent cost data (2011-12). It is also noted that the CPI for 2011-12 was much lower than the Labour Price Index. Given the relatively higher labour component in hospital costs, this should be taken into account in setting prices for 2013-14.

New technology

It is not possible to broadly identify specific technology-based changes that would need to be taken into account in the 2013-14 Pricing Framework. Capital expenditure was a small (5%) element of 2010-11 health expenditure. Technological advances introduced at the local level are too small to factor in to the NEP.

More generally, the AMA notes the importance of the Pricing Framework providing flexibility for hospitals to acquire and operate new technology (often but not always involving
capital funding).

Ancillary costs of new technology can also be significant, including training and other support costs, and there may be issues in the timing of expenditure and recognition in pricing arrangements.

A technology advisory group could assist IHPA in establishing robust conventions and guidelines in this area.

In any event, the AMA considers that any small gains in technology are offset in the overall context of the NEP.

Paediatric Care

The AMA considers that the current loading for paediatric care provided in specialist children’s hospitals should be extended to all paediatric patients in public hospitals, with the
aim that over time appropriate paediatric care is increasingly provided in appropriate hospitals, rather than centralising all paediatric care to specialist facilities only.

Safety and Quality

The AMA reiterates its concern that the appropriate recognition of safety and quality of care in the Pricing Framework is a matter of urgency. Public hospitals need sufficient funding if they are to deliver safe care at a high quality standard.

Because the current NEP has been constructed on the basis of the historic costs (2009-10) of an under-funded and under-performing public hospital system, hospitals are not likely to be sufficiently funded for safety and quality. Yet the implicit assumption of the Pricing Framework is that through the NEP hospitals are funded to provide appropriate safety and quality of care.

The AMA suggests that a clear baseline statement of current hospital resourcing and performance in relation to safety and quality should be prepared as part of the joint work with
the Australian Commission on Safety and Quality in Health Care. Without such a baseline it will be impossible to assess any proposal to incorporate safety and quality into the Pricing Framework.

Any approach to funding safety and quality should carefully avoid the temptation to address incidents of poor quality care through punitive pricing arrangements. Poor quality of care is never rectified by reducing funding.

Setting the level of NEP for public patients

The AMA notes that IHPA is not proposing to vary its approach to setting the price for the second year of a national ABF system, but will undertake detailed analysis of hospital costing data.

Public hospital clinicians provide a uniquely positioned and informed perspective to assist in the real world assessment of such data. In particular, clinicians can be invaluable in testing the relationship between data and the reality of patient care – does the data actually reflect what happens ‘at the bedside’?

The AMA is happy to facilitate the involvement of its members working in the public hospital system to assist with this task.

Other Comments


The description of the national implementation of ABF under Context could be made clearer and more accessible for a wider range of readers by including a table or other graphic
summary of the major funding steps, together with examples or ‘what if’ type information. This would improve the final Pricing framework document. 

Given the NEP does not require States and Territories to fund at the NEP, but enables them to choose a higher or lower share, what information will be publicly available and consolidated on national basis showing States and Territories actual share of hospital funding over and above the Commonwealth’s contribution?

The Pricing Framework should directly address this point with a clear statement of what arrangements are expected to apply regarding availability, scope and timing of this


The capacity of our hospitals is critical to overall performance but appears to be substantially neglected in the range of health reform activity. The Pricing Framework could usefully
include reference to the link between hospital pricing based on ABF and the capacity of the hospital system, changes in access and implications for sustainability, and the impact of ABF on capacity.

Information load and red tape

The operation of the Pricing Framework should be informed by an overarching principle to reduce the complexity, volume and red tape associated with data collection.

The AMA notes that as part of the move to National Activity Based Funding hospitals will be required to provide significantly more information on hospital activity, and at a significantly greater level of detail, than is currently the case.

This additional administrative burden should not divert or distract health care providers from the treatment of patients. Implementation of the Pricing Framework should include a specific commitment to ensure that the benefits of collecting and reporting any additional information in fact assists in developing a more accurate pricing model.

The significant direct and opportunity cost of collecting, storing and maintaining this data must be clearly justified. AMA representatives from one jurisdiction with substantial
experience in ABF/casemix funding have expressed serious concern at the volume and complexity of data required with no corresponding benefit for the jurisdiction concerned.
Such requirements are counter-productive to ongoing collaboration. 


The AMA recognises that the new hospital funding arrangements involve significant and complex change.

We are embarking on the second year of such change with no real lessons to draw on from experience to date.

In this context, the issues already identified by the AMA remain matters of concern.

The AMA believes that these and other important issues can be most productively advanced with the grass roots involvement of clinicians.

10 October 2012

Martin Mullane
Senior Policy Adviser
Ph: (02) 6270 5487
AMA submission to IHPA on Hospital Pricing Framework for 2013-14