Categorising and funding small rural hospitals

Report
CATEGORISING AND FUNDING
SMALL RURAL HOSPITALS – BLOCK
FUNDING IN 2013/14
Dr Sharon Willcox
ACKNOWLEDGEMENTS

Peter Axten and Danny Millman, Aspex Consulting
(who were part of the team developing and
consulting on the policy approach to block
funding)

Jim Pearse, Health Policy Analysis, who led a
related project to analyse costing data to inform
IHPA’s setting of the national efficient cost for
small block funded hospitals
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OBJECTIVE OF THIS WORK

To determine how best to structure block funding
for small rural hospitals, having regard to:
The factors that explain differences in costs across
these hospitals
The nature of the available data on the costs of these
hospitals
The need to balance criteria including:
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Achieving simplicity and transparency of a funding model
Avoiding an undue reporting burden on small rural hospitals
Recognising the fixed costs of these hospitals
Providing some incentive for activity and/or a transition to
ABF for the larger rural hospitals that are block funded
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SCOPE OF BLOCK FUNDED HOSPITALS

Hospitals are potentially eligible for block funding
under the Block Funding criteria if they
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Were metro and provided ≤ 1800 inpatient NWAU/annum
Were rural and provided ≤ 3,500 inpatient NWAU/annum
However, states can decide that some of these
hospitals should instead be funded under ABF
The Block Funding model has been developed for
about 410 small rural hospitals that provide acute or a
mix of acute/sub-acute services
IHPA is working with states to determine block funding
for other small specialised hospitals (e.g. mothercraft)
and small metropolitan hospitals
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SMALL RURAL HOSPITALS ARE HIGHLY DIVERSE
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Gove: 32 acute beds, very remote, Indigenous
population, about 2,200 acute inpatients, provides
district medical officer service to region
Beaconsfield MPS: 4 acute beds, 18 aged care beds,
outer regional, 28 acute inpatients with LOS of 23
days, no theatre, no outpatient services, GP visits 3
days/week to provide medical service
Karratha: 28 beds, remote, 3600 acute inpatients,
16,700 ED and 8,000 non-admitted services, mining
and Indigenous community
Crystal Brook: 19 beds, outer regional, 550 acute
patients, 1200 ED and 1700 non-admitted services,
high level residential aged care under MPS program
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DIVERSITY OF ACTIVITY AND COSTS ACROSS SMALL RURAL HOSPITALS
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DESIGNING A FUNDING MODEL

Consultations with states and rural health services
(through the National Rural Health Alliance) to
identify:
1.
2.
3.
What factors are now or should be included in block
funding for small rural hospitals?
What explains differences in costs across small rural
hospitals?
How ‘at risk’ should funding be for small rural
hospitals?
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DESIGNING A FUNDING MODEL (2)
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Responses to these issues:
1.
2.
3.
Existing block funding: in most states, funding is historically
determined; there is no robust ‘formula’ that pays block
funding by size, location, type of services (e.g. maternity,
surgery)
Cost drivers: many factors are likely to be relevant
including: service mix, medical staffing model, location,
travel time and distance, access to specialist services,
patient factors including Indigeneity
Funding risk: simple model is paramount; most or all of the
funding should not be at risk; there should be a flat
‘availability’ payment that varies by the size of the facility
and reflects the fact that costs are largely fixed for small
rural hospitals
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GROUPING SMALL RURAL HOSPITALS
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Hospitals were grouped into categories based on:
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Size - as measured by volume of activity (total National
Weighted Activity Units), resulting in 7 groups (A to G)
Location – as measured by ASGC remoteness classification –
5 groups
Theoretical total of 35 groups, but major city hospitals
subject to bilateral negotiation, plus 2 cells had no
hospitals, resulting in 26 groups of small rural hospitals
It was decided that ‘size’ would be assessed using 3
year average annual total NWAU
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This provides greater funding stability for hospitals if there
is volatility in service provision levels
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KEY BLOCK FUNDING CONCEPTS IN 2013/14
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Availability payments: funding that recognises fixed
costs of ‘keeping the doors open’; is based on funding
being stable even if service provision varies (up or
down) during the year
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Service capability payments: funding that provides an
activity-related payment for larger rural hospitals;
based on total activity (NWAU) provided 3 years earlier
so not at risk; intended to provide incentives for
continuing service provision and growth in activity in
these hospitals; potential transition to ABF or mixed
ABF/block funding arrangements
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FUNDING MODEL 2013/14
1.
2.
3.
4.
The 410 small rural hospitals are categorised into 26
groups, based on total NWAU and ASGC
Each of the 26 groups is assigned a relative cost weight
(for the availability component)
IHPA has determined the average National Efficient
Cost of small rural hospitals is $4.738 million in
2013/14
Each hospital receives block funding for availability
based on multiplying their relative cost weight by the
National Efficient Cost; for example:
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Group A (low volume) inner regional hospitals: $1.56m
Group G (high volume) very remote hospitals: $20.51m
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FUNDING MODEL 2013/14 (CTD)
5.
There are two groups of hospitals with higher activity
volumes and higher costs:
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6.
Rural hospitals in Groups F and G also receive a Service
Capability Payment
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Group F: provides between 1500-2649 NWAU
Group G: provides ≥ 2650 NWAU
In 2013/14, this is paid at $498 for each NWAU
It is about 10% of total funding in Groups F and G hospitals
Service capability payments provide an incentive for these
larger rural hospitals to maintain or increase activity with a
3 year lag; states can advise IHPA of significant, permanent
changes to activity level, so that the service capability
payments can be varied more rapidly
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FUTURE ISSUES
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Block funding is for ‘public hospital services’
eligible for CW funding under the NHRA – this is
not the same as determining a sustainable
funding model for the whole entity (which might
include aged care, primary care and other
services)
The block funding model is neutral as to the type
of services provided, or whether services are
provided in particular locations – these are
planning decisions made by States/LHNs
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