Every hospital dollar spent must punch above its weight – Critical report highlights immediate need to overhaul healthcare spending to improve and safeguard care

The demand for hospital care is only set to grow with Australians’ longevity and population increases. The simplistic move to simply spend more is enticing but tax hikes or cuts to other public services have their limits. The recently released Grattan report is forthright and insightful in its findings, smarter spending should and must “make every dollar go further.” They study hospitals currently leading the way; High-performers should be emulated, poor performers should face consequences.

It has only taken ten years for Australia’s spending on public hospitals to double. A decade ago it was sitting at $56 billion, it’s now inching towards $90 billion, at $87 billion in 2024. Asking any anthropologist or geopolitical scientist, access to hospital medical care is a pillar of a healthy society, in every sense of the word. And yet the reports of Australian hospitals under strain are only increasing, ambulance ramping times have ballooned, waits for surgery have stretched and many personnel say they’re approaching burnout. The need for effective reform with effective results is long overdue. 

Wasteful spending impacts lives

For those who have experienced waiting in ambulances for care, or attempted to support their senior loved one in navigating the health and aged care sectors, the lived experience of navigating an ineffective system is both grievous and deeply frustrating.

The Grattan Institute’s in-depth investigation and data gathering has culminated in strong words for government and leadership with budgetary responsibility.

“Australian governments waste $1.2 billion a year on avoidable spending in public hospitals which does nothing to improve patient care.”

For the thousands of front-line staff in hospitals and aged care, as well as those in their care, family members, and countless provider leaders, the thought of wasteful spending is galling and horrifying. There is only increasing need, every dollar must be used to its utmost to serve Australians.

Each hospital dollar must be the pinnacle of productive and effective spending. In the vein of pushing reform into this space, the report translates the wasted money into the number of lives impacted, “with realistic budgets, funding reform, and better system management, that money could pay for an extra 160,000 hospital visits each year.”

Procedure cost variance

The report highlights a key problem in public hospital spending, variance in same procedures across hospitals. Accounting for any difference between patients and hospitals that would reasonably impact cost, the report shows that in Victoria, the average cost of a knee replacement “varied by $13,600 between high and low cost hospitals”. In Queensland the difference is $11,000 and in NSW, $9,000. The researchers note, “It’s the same for other procedures, and in every state and territory.”

It is from these figures alone that the $1.2 billion of wasted money is uncovered. The report details that, “if costly hospitals reached the middle of the pack for efficiency in their state, governments would save $1.2 billion every year.”

It is likely that the figure of wasteful spending surpasses the $1.2 billion, which also means the true figure can, with effective reform now, be put to better use. 

Cost cut, quality kept

The researchers are adamant, cutting cost does not necessitate the cutting of quality. They indicate countless opportunities to “safely deliver care for less.”

“In England, doctors use AI notetakers to spend less time on paperwork and more time with patients. In Canada, one in three people who get a hip or knee replacement safely go home the same day, freeing up hospital beds.”

Broken funding model

The report sheds light on the cyclical system of state hospital budgets and the ineffective and negative consequences.

“Australia’s approach to funding hospitals is broken, and it blocks productivity. State governments set unrealistically low budgets at the start of the year, then bail out hospitals when they run a deficit at the end of the year. The annual rollercoaster makes it harder for hospital leaders to properly plan and invest.”

The researchers call for a reset in funding models. Mitigating “budget blowouts and bailouts”, funding is advocated to be “fair and predictable”. Echoing the recent and ongoing tussle state ministers have with Canberra over health spending, the report indicates the federal government’s contribution should increase in keeping with growing demand.

However, rather than a carte blanche cheque, “to promote productivity, federal funding should grow a little slower than the growth in costs.”

In a move that is likely to vindicate the calls of aged care leaders and advocates across the sector, the report finds that interim spending is incumbent on the federal government to manage the ethical, moral and logistical indictment on the system of seniors stuck in hospital, “the federal government should pay for temporary solutions for patients stuck in hospital waiting for aged care or disability services.”

Budget reform

The report calls for state governments to set and reinforce realistic budgets for their hospitals systems, closely linked to cost and population growth.

The attitude must be to maximise budgets instead of inflating them, “new, more efficient prices for each admission should encourage best practices, such as safe same-day care. The states that adopt more efficient prices should get a more generous cap on funding growth from the federal government.”

As populations swell, the researchers encourage state governments to utilise economies of scale, in capturing savings from size through the centralising of, “procurement and procedures, and slashing the cost of temporary staff.”

Hospitals must receive realistic budgets, the report states, in order to support effective planning and efficiency. The responsibility to “drive productivity” however, never leaves the State, “scot-free bailouts should end.”

Poor performer consequences

Echoing the advocacy of many aged care heads, poor performers should not be propped up at any cost. Not only does it encourage ineffective practices, waste, and exposing seniors to sub-par care, it impacts those diligently working to meet compliance standards, and even more so, those that go above and beyond to provide excellence in care.

The report seconds this sentiment firmly indicating to both federal and state governments to embed consequences in the procedural handling of poor hospital leadership staff.

“There should be serious consequences for hospital deficits, including CEOs and boards losing their jobs. But good performers should get three-year budgets, and all hospitals should get support to improve.”

Elevating accountability

The report lists out clear recommendations to guide reform. A particular focus is on increasing transparency towards hospital productivity.

“Governments should publish comparable hospital-level data on cost, length of stay, complications, and staffing.” Embedding accountability into regular reporting is an integral tool both government and the health sector can leverage to chase and sustain productivity in spending and care.

The report also calls on the government to ask the independent pricing authority to assess prices that reflect what care “should cost, freeing up at least $1 billion to reinvest in care. After five years, the new prices should be used as the national prices for hospital care.”

While the report articulates that “realistic budgets” must be worked towards, “based on fair estimates of cost and demand”, the approach is not complete without accompanying accountability measures.

State and territory governments are encouraged to, “set performance expectations with criteria-based standards, monitor closely, and follow through on consequences including sacking CEOs and boards for unwarranted deficits.”

Improvement opportunities now

Some sentiment in the improvement and safeguarding of hospitals has been to sit in the complexity, and while the problems are significant, the researchers pin-point reform initiatives that can be activated immediately.

·   “Fund major productivity transitions, such as new IT systems.”

·   “Buy more goods and services in bulk at a state level.”

·   “Cap the wages hospitals can pay temporary doctors and nurses.”

·   “Centralise more procedures in high-volume surgical centres.”

·   Amalgamate hospital governance, so more budget goes to care and less on back-office duplication.”

The report is unequivocal, hospitals are simply too important to Australia and Australians to be “held hostage by bogus budgets.” However, equally as important, with ever rising demand for care, the researchers note that the need to become more efficient is not a negotiable, it is paramount for the system’s survival.

The report and its experts highlight that governments have no choice but to solve both problems. In continuing to fund hospitals with dynamic budgets linked to demand and cost growth, the support and incentives to enforce smarter spending, resulting in sustainable quality care, is not a nice to have, it is mandatory to safeguard a sustainable and reliable health system.