Health costs watch dog established

By Dr. Ananya Mandal, MDAug 24 2011

An organization that would independently determine the efficient price of services in hospitals will be announced by the Australian federal government as consumer concern about the rising cost of healthcare deepens.

The Independent Hospital Pricing Authority (IHPA) would bring unique scrutiny to hospital costs and save up to $1.3 billion a year, the Health Minister, Nicola Roxon, said. She added that the authority “will be for public hospitals what the independent Reserve Bank is for monetary policy. This is unprecedented for the public hospital system.” Its rulings will help determine the amount the Commonwealth pays for hospital services as part of its health funding restructure agreed with the states. The mechanism would ensure more services were delivered locally, important for population growth areas where existing hospital funding often failed to keep pace with local demands, Ms Roxon explained.

“This is a major micro-economic 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,” she said.

An Essential Media poll this week saw 44 per cent of people surveyed put health insurance costs in their top three concerns, with the next biggest concern, expressed by 39 per cent of respondents, being the quality of care in hospitals.

The Coalition has opposed the legislation and the government is battling to get enough independent MPs to pass it in the House of Representatives.

Ms Roxon will tell parliament on Wednesday the new funding model will improve efficiency because hospitals will pocket the savings if they deliver services cheaper than the efficient price. “The authority will have strong independent powers,” she said.

The body will also determine block grants to be paid to hospitals that don't switch to activity-based funding because of their location or the fact that they specialise. The IHPA's first chair, appointed by the commonwealth, is Shane Solomon. He is currently the lead partner for KPMG's Australian healthcare practice. Mr Solomon previously ran Hong Kong's hospital authority. Prior to that he managed Victoria's case-mix system. The authority's first deputy chair, appointed with the agreement of the states and territories, is Jim Birch. He currently works for Ernst and Young but previously held a senior position within South Australia's health department. “Both have extensive experience in health administration and in activity-based funding in Victoria and South Australia respectively,” Ms Roxon said.