Funding issues for Victorian hospitals:the risk-adjusted vision beyond casemix funding

Abstract

This paper discusses casemix funding issues in Victoria impacting on teaching hospitals. For casemix payments to beacceptable, the average price and cost weights must be set at an appropriate standard. The average price is based ona normative, policy basis rather than benchmarking. The 'averaging principle' inherent in cost weights has resulted insome AN-DRG weights being too low for teaching hospitals that are key State-wide providers of high complexityservices such as neurosurgery and trauma. Casemix data have been analysed using international risk adjustmentmethodologies to successfully negotiate with the Victorian State Government for specified grants for several highcomplexity AN-DRGs. A risk-adjusted capitation funding model has also been developed for cystic fibrosis patientstreated by The Alfred, called an Australian Health Maintenance Organisation (AHMO). This will facilitate thedevelopment of similar models by both the Victorian and Federal governments.