Volume 198 - Issue 2
Adopting surgical innovation within activity-based funding for public hospitals
Authors: Michael D Coory, Bridie S Thompson and Susan J Jordan
Med J Aust 2013; 198 (2): 88. || doi: 10.5694/mja12.11206
Published online: 4 February 2013
Published online: 4 February 2013
Is activity-based funding stifling the use of new technologies in the public sector?
To the Editor: Activity-based funding (ABF) is being gradually introduced across Australia’s public hospitals, which means that payments will be made according to cost-weights in about 670 diagnosis-related groups (DRGs).1 ABF is not new. It has been used in the United States since 1983 and in Victoria since 1993, and is the dominant funding model in several European countries. But not all public hospital activity can be funded through ABF: research and teaching are typically block funded and smaller hospitals often require block funding.2
A dilemma for ABF is surgical innovation: new techniques, for which there is established evidence of health benefit, but for which the cost of delivery is higher (at least initially, because of training and equipment costs).3 In Australia, pharmaceutical innovation has become less problematic for public hospital budgets because the federal-funded Pharmaceutical Benefits Scheme covers much of the cost. In contrast, surgical innovation could become more problematic; that is, ABF could further stifle the use of new techniques in the public sector if they cost more than the cost-weight applied to a particular DRG.3
We use the words “further stifle” advisedly because budgetary constraints in public hospitals already appear to be slowing the pace of surgical innovation. A case in point is laparoscopic surgery for colorectal cancer. Randomised trials show that, compared with open surgery, laparoscopic surgery produces postoperative health gains (eg, less pain, faster return of bowel function, less pneumonia), with equivalent long-term oncological outcomes.4 Across Australia, adoption has been rapid in private hospitals (perhaps more rapid than anywhere else in the world), but public hospitals have lagged behind by about 5 years.5 Also, although initially more expensive than open surgery in terms of training and equipment, laparoscopic surgery results in shorter length of stay, with associated savings.
Given the unavoidable lag in updating DRGs, timely assessment of new technology is needed, linked to extra funding (either overt cross-subsidies allocated by local hospital networks or short-term block funding allocated by state and federal governments). Without such processes we risk creating a two-tiered health system: a private sector that is innovative and flexible, and can respond to technological advances; and a public sector without the incentives to keep pace.
Competing interests
No relevant disclosures.
References
- Duckett SJ. Designing incentives for good-quality hospital care. Med J Aust 2012; 196: 678-679. 0_BABIIBDJ
- Eagar K. ABF Information Series No. 1: What is activity-based funding? Wollongong: Centre for Health Service Development, 2012. http://ahsri.uow.edu.au/chsd/abf/index.html (accessed Aug 2012).
- Scheller-Kreinsen D, Quentin W, Busse R. DRG-based hospital payment systems and technological innovation in 12 European countries. Value Health 2011; 14: 1166-1172. 0_CBBBDHJI
- Fleshman J, Sargent DJ, Green E, et al. Laparoscopic colectomy for cancer is not inferior to open surgery based on 5-year data from the COST Study Group trial. Ann Surg 2007; 246: 655-662; discussion 662-664. 0_i1142878
- Thompson BS, Coory MD, Lumley JW. National trends in the uptake of laparoscopic resection for colorectal cancer, 2000–2008. Med J Aust 2011; 194: 443-447. 0_i1142883