CARR, Mr Trevor, Chief Executive Officer, Victorian Healthcare Association

[14:41]

Evidence was taken via teleconference—

CHAIR: Welcome, Mr Carr. Information on parliamentary privilege and the protection of witnesses and evidence has been provided to you. The committee has your submission, and I now invite you to make a short opening statement. At the conclusion of your remarks, I will invite members of the committee to put their questions to you.

Mr Carr : I am giving evidence from the point of view of heading up a peak body in Victoria that has the experience of 18 years of working with activity-based funding. I will not dwell on our submission, because you have received that and had the opportunity to read it.

On a macro level, we are reasonably supportive of the concept of having an independent hospital pricing authority and having some of the benefits that might be drawn nationally from the benchmarking power that can follow the evaluation that goes into setting prices. I think that has been a missing feature of the Australian health care system in the public sector, and I think that can certainly help us better understand the cost inputs that we are all trying to deal with.

The context of the VHA's response was mainly about some of the issues that have been drawn to our attention over the years of working with governments in setting price from an activity-based viewpoint and the experience that we have had with that—particularly with some of the traps that can be fallen into with regard to the delivery of maternity services and their pricing, considerations of pricing chronic care and some of the new, fairly significant cost drivers around ICT type initiatives and the impact that they might have prospectively in terms of cost considerations.

That is a very broad overview of the issues that we have highlighted in our submission. Rather than dwell on the detail of the submission, I am happy to take Q&A. As you understand, I am travelling at the moment, so it is not the easiest thing to dwell for too long on trying to make long statement.

Senator FIERRAVANTI-WELLS: We have just heard from the interim authority, and I am sure that they are looking forward to hearing about your experiences in Victoria. Where do you see the deficiencies in this legislation?

Mr Carr : Our response has not been so much a critical evaluation of every element of the legislation as it has been based on the practical experience of working with activity-based funding. We have not offered a critique of the relationships that are expressed and the real intent of the legislation as much as we have focused on the outcome of the concept of activity-based funding and looking for equitable pricing across the nation.

Senator FIERRAVANTI-WELLS: You make a comment in your submission about the weighted inlier equivalent separation funding model. You are suggesting that that could be the way to go in setting an efficient price—is that what you are saying?

Mr Carr : Yes. Generally the price is something that is set around a common denominator. The common denominator of one is based around experience of inputs and the time to treat. That is where the weighted inlier equivalent comes from. If you look at a routine maternity case in Victoria , that carries a cost weight of about 0.9 and then the baby itself carries a cost weight of 0.15 to 0.2 or something in that order. So overall you get a multiplier effect of 1.1 or thereabouts for that particular activity. The weighted inlier equivalent approach is really just an arithmetic application of the efficient price.

Senator FIERRAVANTI-WELLS: And you have found that it works well particularly with mental health and aged care.

Mr Carr : I think it could work in all sectors. The risks and the things to be aware of are the permutations around geography. That generally goes to scalability. If you are a regional service provider of obstetric services providing an important role towards sustainability in those communities, you are probably not going to enjoy the same cost benefits of a major metropolitan provider. I focus on obstetrics because it is the one that resonates and that we can understand most readily in using it as an example. But the example is the same no matter whether you are talking about surgical services for endoscopic procedures or mental health services or aged-care services. The input cost and the capacity to achieve efficiencies vary according to scale.

The example we put into our paper was about some of that early recognition in Victoria about scalable efficiencies, where there are a number of different price points for weighted inlier equivalent separations in Victoria that over time just moved in lockstep. We do not believe that that reflects the original premise that differential pricing was intended to reflect. We are saying that these are the traps that we need to be very aware of as we enter this process of looking for the efficient price and the application of efficient price across Australia.

Senator FIERRAVANTI-WELLS: Hence your comment about the compounding of the failure of funding models to reflect increasing input costs. In effect, you are really saying that to determine—and this was the point that various others have picked up—the variations between local areas, local hospital networks, that needs to be reflected in some way in the differing costs at those levels in terms of how best to determine the efficient price there.

Mr Carr : Correct. It is a very difficult thing to get the right balance around because it opens up some of that qualitative assessment that can then be criticised as all sorts of other agendas. It is a very difficult area and one that I think is going to need to be very closely and carefully watched by Tony as the chief exec and by the board of the group.

CHAIR: If I could just follow that up. In terms of the experience in Victoria, we heard from Catholic Health this morning, who provide some public services in some of their hospitals throughout the country, particularly on the eastern border. Can you outline your experience dealing with the Catholic Health system in Victoria.

Mr Carr : There are three denominational providers in the public healthcare sector in Victoria—the St Vincent's Hospital, the Mercy Group and also Caritas Bethlehem. Each of those services, with the exception of Bethlehem, have worked with the activity based funding model for some time now and have experienced the same operational issues as the nondenominational providers. At times they have felt pressured under the different models and at times they have worked quite successfully with the models. I am not sure what more I can add or if I need to get a further explanation of the question.

CHAIR: It was just in terms of taking into consideration the public services provided for those hospitals. I am quite happy with your response there. If we can move on, the other issue we have canvassed throughout the evidence today is in relation to the data collection and the problems with it. I was wondering if you could outline for us your experience in Victoria and then some of the problems that we may incur by trying to do it Australia wide.

Mr Carr : Just before I move on to that, I am not sure whether you are aware but we also have a private provider of a public hospital in Victoria. It is the Mildura hospital where the Ramsay group have the administration of that hospital under contract with the Victorian government and are working within the activity based funding model in running that hospital and obviously trying to derive from the activity based funding model profit for that private enterprise of the Ramsay group. It is quite an interesting adjunct to the denominational question that there is also a private provider involved in public health care in Victoria.

To move to the data question, data is always a very difficult thing if you do not have the systems in place to accurately capture, evaluate and use the data in a benchmarking or useful way. We are still struggling with many of those elements in Victoria. We are all still fairly immature nationally in terms of capturing data electronically and deriving the best use of that data electronically. We have the first step towards an electronic health record starting in Australia from 1 July next year, although there are some challenges embedded within that approach. We have had attempts in Victoria to standardise record numbers of the unique identifier for a patient across the state. We have been unsuccessful in that to date. It is easier to imagine how you might like to use data than it is to consistently capture the data on a national footprint. The challenge will be to ensure that adequate investment goes into the systems that are designed to capture the data that we want for the evaluation that we are seeking on a national basis.

The challenge in terms of outcomes and performance in the past has been that you set up a range of performance measures and people then concentrate on those performance measures and might take their eye off some of the other aspects of the business. Then that becomes an issue publicly. It becomes a bit of a bouncing ball somehow. It is quite challenging to get the right context at the outset to fully understand how you want to use the data to make sure that you value add to any data capture by building understanding for the people who are actually submitting it so that you do create that benchmarking capacity and make sure that the systems at least have a consistent footprint nationally so that we know that we are capturing equal to match with equal.

CHAIR: I will turn to comments that you have made in your submission on page 3 which relate to technology and the impact changing technology has. Can you just elaborate on that for the committee.

Mr Carr : Sure. One of the issues that we currently have that our members are struggling with is the costs associated with trying to implement the previous government's HealthSMART strategy and the particular products that were prescribed under that strategy and the changed management costs associated with it. The point that we were making is that this is the leading cost, whereas the data that goes into determining the price in Victoria generally has a two-year lag time. So a lot of the real costs associated with ICT implementation in Victoria is not currently reflected in that pricing evaluation because of that two-year lag. Our members are now experiencing the full reality of that impact. Therefore, they have a cost driver that is leading it in front of the reward mechanism that they are getting through activity based funding. The point we are trying to make is that where some of these new technologies are clearly gaining momentum, and there is an expectation from the basis of policy to implement that, we cannot always wait for the evaluation of pricing, which is always lagging, to determine what that fair price should be. Sometimes we actually have to look at other policy drivers to cost inputs and factor those elements into whatever we come up with as the supposed efficient price or the fair price.

CHAIR: Thank you for your submission and for joining us via teleconference this afternoon.