Perspectives MJA 196 (11) · 18 June 2012 678 The Medical Journal of Australia ISSN: 0025- 729X 18 June 2012 196 11 678-679 ©The Medical Journal of Australia 2012 www.mja.com.au Perspective ublic hospitals in Australia are in for a shake-up over the next few years, with boards being reintroduced in many states and activity-based funding (ABF) being rolled out nationally. 1 ABF will replace global or historic budgets for hospitals in most states. National casemix classifications will be agreed, and the work of hospitals described and priced using these classifications. Australian refined diagnosis-related groups (AR-DRGs) will be used for inpatients, and other classifications will describe outpatient, emergency department, mental health and subacute activity. The national introduction of ABF will immediately improve transparency of federal funding support for hospital activity. The rhetoric associated with ABF also emphasises efficiency of hospital care. Much of this will depend on how states, who will manage the system, pass on incentives to local hospital networks. However, the National Health Reform Agreement goes further and declares that the Independent Hospital Pricing Authority (IHPA) will have regard to, among other things, clinical safety and quality (clause B12a) in setting a “national efficient price” for hospital activity. 2 It is probably a stretch to add “quality improvement” as a third objective (in addition to funding transparency and clinical safety), but certainly the National Health Reform Agreement signals a potential role for the IHPA in this area. Options for incorporating quality considerations Although generally still in pilot stages, there has been increased attention to the extent to which financial incentives might encourage good-quality care (“pay for performance”) and to what degree financial disincentives can be built in to discourage poor-quality care. A hesitant toe has been dipped into the water in England, where the Payment by Results scheme has recently introduced “best-practice” pricing strategies in four areas: cholecystectomy, hip fractures, cataracts and stroke. 3 In the United States, almost all contemporary implementations of funding reform involve a blend of efficiency and pay-for-performance aspects. 4 However, the policy enthusiasm for pay-for-performance appears to be greater than the evidence, which suggests only moderate efficiency gains. 5 What has moved from the stages of discussion and pilot testing to implementation is the obverse of pay for performance: non-pay for non-performance. Non-pay for non-performance Routine hospital datasets used for ABF distinguish between patients’ comorbidities present on admission and hospital-acquired complications. In the US Medicare system, a limited list of hospital-acquired conditions has been excluded from being used in assigning cases to its casemix classification and thus affecting activity-based payment. The current non-pay for non-performance regime shifts only a small amount of funding around, but has been extensively debated, perhaps because of its potential to affect hospital reputation. There are several options within the area of non-pay for non-performance, relating to which complications should not attract payment for their management, and what financial impact should be imposed. In its most narrow implementation, non-payment can be targeted at those complications that are clearly preventable and should never occur, with wrong-site surgery being the best example. The US Medicare system goes further, focusing on complications that “could reasonably have been prevented through the application of evidence-based guidelines” — such as catheter-associated urinary tract infections. 6 This would apply to conditions in the index hospital admission or to readmissions (or both). At the other extreme, one could determine that the treatment of all hospital-acquired conditions should not be funded. When a list of non-fundable conditions has been decided, one can then consider what kind of impact the scheme should impose. The softest form of payment impact is simply to exclude hospital-acquired complications from consideration in DRG assignment, as currently happens in the US. Most DRGs make a distinction between whether or not comorbidities and complications are involved, with more comorbidities and complications being associated with greater expected costs and a higher payment weight. At present, the DRG algorithm treats hospital-acquired complications and diagnoses present on admission (comorbidities) equally. This is, in a sense, perverse, as a hospital could receive a higher payment for a complication acquired by a patient under its care. However, including complications in DRG assignment (the current approach in Australia) could be argued to be fair to the hospital, as complications require additional resources to treat, and some are not preventable with current medical knowledge. A variant of this approach is to identify a risk-adjusted rate of complications for each hospital, and then not fund activities in hospitals with a rate of complications higher than the expected risk-adjusted rate. 7 The toughest form of payment impact would be to apply penalties for excessive rates of poor performance. From Designing incentives for good-quality hospital care P Stephen J Duckett PhD, DSc, FASSA, Professor of Health Policy School of Public Health, La Trobe University, Melbourne, VIC. s.duckett@ latrobe.edu.au doi: 10.5694/mja11.11464 Is now the time to send a signal that poor-quality care should not be rewarded in activity-based funding? “ one could determine that the treatment of all hospital- acquired conditions should not be funded ”