Dear Minister, please save yourself from activity-based funding

To the Editor: There must be a better way of funding public hospitals than basing it on historical spending without analysis of activity or outcomes.

The opinion by Stoelwinder describes some of the politics and history of health funding in Australia, and argues against activity-based funding (ABF),1 suggesting that innovation is stifled in such a funding model and that “less intrusive population funding” would be preferable. The reasons for these assertions are unclear.

ABF has been the basis of funding of private hospitals in Australia for many years. The counting method is the diagnosis-related group (DRG) system that is well established and regularly revised and updated. It is transparent and accountable, and it is reasonable to apply the method to public hospitals also. When applied properly it has the potential to limit “gaming”.

Stoelwinder implies that outcome measures could be used, but these are controversial and challenging to develop and it is not yet practical to apply these as a currency for funding. The Australian Commission on Safety and Quality in Health Care and the Independent Hospital Pricing Authority (IHPA) are working jointly on options for incorporating safety and quality factors into ABF modelling, although implementation will take some time.

The funding of health care is complicated by politics. Whether or not Australia has a single funding model in the future — something that would be potentially more efficient than the complex federal system that we have currently — the work of the IHPA in developing robust methods underpinning ABF will be of enduring value. ABF is the most appropriate currently available method of funding hospitals.