The efficient price: an opportunity for funding reform

Abstract

Objective. Proposed Australian healthcare reforms describe a move towards partial Commonwealth funding of public hospitals, whereby hospitals will be paid an ‘efficient price’ for each separation, incorporating both the costs and benefits of services. This paper describes a potential approach to setting the efficient price using risk adjusted cost-effectiveness (RAC-E) analysis.

Methods. RAC-E analysis uses a decision analytic framework to estimate lifetime costs and survival for individual patients, which are standardised by comparing observed and expected values. Analysis of standardised costs and effects at different hospitals identifies efficient hospitals, from which efficient prices can be defined.

Results. A RAC-E analysis of services for stroke patients at the four main public hospitals in South Australia demonstrates the need to account for costs and benefits in identifying efficient hospitals. The hospital with the best patient outcomes incurred additional costs relative to less effective hospitals. If an investment of AU$14 760 to gain an additional life year in stroke patients is deemed to be a cost-effective use of resources, then the most effective hospital is also the most efficient hospital.

Conclusions. The applied RAC-E analysis demonstrates a framework for comparing the economic efficiency of care provided at different hospitals, which provides a basis for defining the efficient price and appropriate funding incentives to achieve better patient outcomes.

What is known about the topic? The efficient price is a recently introduced concept used in the context of the recent healthcare reforms produced by the Australian government. The stated objective in setting nationally efficient prices for public hospital services is to ‘strike an appropriate balance between reasonable access, clinical safety, efficiency and fiscal considerations’. There has been no explicit discussion to date about specific processes for estimating the efficient price.

What does this paper add? This paper introduces risk adjusted cost-effectiveness (RAC-E) analysis as a framework for identifying hospitals that achieve the best balance between costs and outcomes in the provision of services for specific diagnostic groups, and hence provides the basis for estimating efficient prices.

What are the implications for practitioners? The efficient price will determine a significant proportion of funding for public hospitals. Practitioners need to be aware of the rationale and potential consequences of the efficient price, and to be sure that the method used to estimate the efficient price is robust and transparent.