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Wednesday, 24 August 2011
Page: 9142


Ms ROXON (GellibrandMinister for Health and Ageing) (10:03): I move:

That this bill now be read a second time.

I am pleased to introduce this legislation which will bring into effect a key part of the government’s national health reforms. The establishment of the Independent Hospital Pricing Authority will help to deliver a more sustainable, efficient and transparent health system for Australians.

The introduction of this bill and, once enacted, the establishment of the Pricing Authority build on this government’s strong track record in delivering health reform and will complement the work of the Australian Commission on Safety and Quality in Health Care and the National Health Performance Authority.

This bill is a direct result of the government’s Council of Australian Governments agreement with all states and territories. The final terms of this agreement were signed on 2 August.

There are a number of critical elements of these reforms—including 1,300 more sub acute beds across Australia, new targets and reward funding for emergency departments and elective surgery, transparent performance reporting through the MyHospitals website and the establishment of local hospital networks and Medicare Locals to improve local governance.

In total the agreement will mean an additional $19.8 billion for hospitals over this decade from the Commonwealth government. $1 billion of this has already flowed to states for new sub acute beds and faster access for patients to services.

The Commonwealth will be a true partner in the hospital system with a commitment to funding 50 per cent of the growth funding for hospital services. This will be fully implemented from 1 July 2017, with a 45 per cent commitment from 1 July 2014. This extra growth funding will apply to the increase in the cost of services—as well as the increasing demand for new services with the ageing of the Australian population.

This commitment to growth is vitally important as the states would not have the capacity to fund the increasing cost of services on their own—particularly since the Commonwealth’s share of hospital funding has been dropping over the past decade. This agreement will once and for ever put that to an end.

This also creates a better incentive for the Commonwealth to invest in primary and preventative health services to keep people healthy and out of hospital.

However, we were not going to agree to extra funding without critical reform. Currently, the Commonwealth provides funding for public hospitals through a block grant, negotiated through health care agreements. It is up to the individual states to determine how this funding is distributed across public hospitals and health services.

The previous health agreement negotiated in 2008 provides $64 billion—which is a lot of money for the Commonwealth not to know what services are being funded, or the level to which they are funded. It is without significant levers to drive change and improvement across those public hospitals.

So in this new health system there will be no more billion dollar block grants: no more blank cheques with no accountability for where that money is spent.

This is why the reform agreement will deliver activity based funding across the country from 1 July 2012. Local Hospital Networks will be paid for the services that they actually provide.

This is a major microeconomic reform that will help to increase the efficiency of services because the introduction of price signals will mean there is an incentive for hospitals to maximise the services they deliver at or below the efficient price. This will ensure that more services can be delivered locally. It will also be important for growing areas of Australia where often under the old system public hospital funding does not catch up with the demands that they have.

And it is important for taxpayers that their funding is transparently reported, with funding according to services provided paid directly to local hospital networks through a new national health funding pool. This means Australians will know what is being bought through our massive investment in hospitals—what services are delivered, by which local hospital network they are delivered, and at what cost. The reform will also help to identify underperforming hospitals so that those causes can be remedied and the lessons of highly performing hospitals can be shared.

The introduction of activity based funding was a key recommendation of the National Health and Hospitals Reform Commission. They concluded that the introduction of activity based funding would result in efficiencies of between $500 million and $1.3 billion—the equivalent of which would be hundreds of extra hospital beds.

It is also of interest to the private health sector where activity based funding has been in operation for some time. Once in national operation across public hospitals there will be an unprecedented amount of information available. In the future this will help to consider smarter deployment of resources. This is a system that has been successfully deployed in Victoria and South Australia previously.

However, a key difference from the system currently in place in Victoria and South Australia is that the price for services will be determined independently from government and health department bureaucrats.

That means that the decision will be based on an assessment of the costs, facts and projections—rather than the political or budgetary interests of the government at the time. This is done by creating a new authority—at arm’s length from all levels of government—to independently determine the efficient price.

The authority will have strong independent powers: it will be for public hospitals what the independent Reserve Bank is for monetary policy. This is unprecedented for the public hospital system.

The result will be a thorough and rigorous determination without fear or favour to governments. The government is confident that the authority will provide the health system with the stability and robustness that the Reserve Bank has provided for monetary policy for decades.

And because the government will fund growth at a fixed percentage of the price that the pricing authority determines, the funding that hospitals will receive will not come down to the traditional blame game negotiations but rather what is actually needed to be invested. The umpire’s ruling will be final and the Commonwealth will pay its share of growth on that basis. In deciding the efficient price, the authority will take submissions from the public, stakeholders and governments and then make its own determination of what is an efficient price.

It will have regard to core principles such as access, clinical safety and quality, efficiency and effectiveness and the financial sustainability of the system. It will also consider the actual costs of delivering services in a wide range of hospitals and the expected changes in the costs of services from year to year.

These reforms will help to ensure that hospital financing can dynamically adjust to:

shifting populations;

local demographic characteristics;

changing costs of delivering medical services from technological and clinical innovation; and

the complexity and location of delivering hospital services.

The hospital pricing authority will also have a role in determining amounts for block funding, which will be used in hospitals that have low levels of activity and therefore would not be able to meet their community service obligations on activity based funding alone. This will provide important protection for rural hospitals, and for specialised units such as bone banks.

The authority will also determine loadings to apply on top of the national efficient price—taking into account factors for legitimate and unavoidable variations in the cost of service delivery, including those driven by hospital size, type and location.

The bill outlines specifically the functions of the authority that give effect to the COAG agreement. These include:

determining the national efficient cost and price for health care services provided by public hospitals;

developing classification systems for health care and other services;

determining adjustments to the national efficient price to reflect legitimate and unavoidable variations in the costs of delivering health care services;

formulating data standards and requirements relating to public hospital functions and costs, to be provided by states and territories; and

providing assessments or recommendations in regards to health care cost-shifting and cross-border disputes.

The last point is particularly important as the Australian health system has never had a mechanism before to help resolve cost-shifting and cross-border issues in a definitive, long-lasting and nationally consistent manner.

The membership of the authority is prescribed in this legislation. The chair will be appointed by the Commonwealth, the deputy chair appointed with the agreement of the states and territories, and seven remaining members appointed on agreement of the Commonwealth, states and territories.

COAG agreed last Friday to two important appointments to this authority—the chair, who will be Mr Shane Solomon, and the deputy chair, who will be Mr Jim Birch. Both have extensive experience in health administration and in activity based funding in Victoria and South Australia respectively.

At least one member of the authority will have particular healthcare expertise in rural and regional areas. This will ensure the pricing authority understands the challenges that our country’s expanses pose as we strive to deliver world-leading health care to all Australians.

There will also be two important committees established under the legislation—for clinical expertise and for jurisdictional representations. Having appropriate clinical expertise will be crucial to classifying hospital activity in clinically meaningful ways. Likewise it will be important for the authority to have dialogue with representatives from the states, territories and the Commonwealth, particularly so that the implementation of the new arrangements happens successfully.

As specified in the COAG agreement, there will be an interim authority established as a Commonwealth executive agency. This will be until the permanent body is established as a statutory authority through this bill.

Both the chair and deputy chair will start work with the interim authority to ensure a smooth transfer to the statutory authority once that starts operation.

Consistent with COAG’s original decision in April 2010 and reaffirmed in the National Health Reform Agreement, the pricing authority is to be established as an independent, statutory authority under the Financial Management and Accountability Act 1997, providing assurance as to its operational autonomy and integrity.

A chief executive officer will be responsible for the day-to-day management of the pricing authority, appointed by the pricing authority in consultation with the minister. The chief executive officer will serve on a full-time basis for a period of up to five years and is eligible for reappointment. In carrying out its primary functions, the pricing authority will inevitably come into possession of confidential material, including personal information.

The bill establishes stringent safeguards to protect that information by creating an offence for unlawfully disclosing that information. This recognises the potential seriousness that flows from improper use of such information.

This legislation is already a bipartisan bill, as it comes to the parliament based on the COAG agreement reached with three states with Liberal premiers. However, the government also hopes that this can be a bipartisan bill in this federal parliament and that the Leader of the Opposition will see the importance of reforming the health system.

We know that he is already a supporter of activity based funding. We know this because he said so just last week to the dinner of the Australian Medical Association in Parliament House: 'I’m pleased that we are moving towards a system of case mix or efficient price funding because in the end it’s important that if people do more, they get more. We have to fund activity, which is what case mix funding does. Block funding tends to fund inactivity.'

That was not the only time either. On 15 February this year he described it as 'a positive step', and on 5 August 2010 he said that he would implement such a system if he won the last election. However, that last pledge has to be taken with a grain of salt since he also promised to cut all the funding we had allocated to make this happen.

But even earlier than that the Leader of the Opposition supported these reforms way back when he was the health minister, saying on 18 September 2007 it meant a 'focus on services rather than on global budgets'.

So this legislation will be yet another test for the Leader of the Opposition. Does he support what he has been clear he thinks is the right policy or will he continue with his cheap and cynical approach of opposing all reform that this government works on?

I hope for the sake of the millions of Australians who rely on public hospital services that he chooses the former. Patients, doctors and nurses have been waiting too long for the efficiency, transparency and proper funding that this bill will help to deliver.

I commend the bill to the House.

Debate adjourned.