Governments could save a billion dollars a year by cutting waste in public hospitals, according to a former top health bureaucrat.
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A report by the Grattan Institute think tank found a high level of unexplained variation in the average cost of comparable procedures between hospitals. For example, among the five hospitals nationally that perform the most gall bladder removals, median costs range from $4200 to $8000. In NSW hospitals, the average cost of the procedure varies from $3500 to $8000.
Grattan Institute researchers led by Stephen Duckett, a former head of the federal health department, analysed public hospital cost data to identify differences that could not be explained by patient or hospital characteristics. It finds in some cases the cost of providing the same kind of care to the same kind of patient was two or three times more than in other hospitals in the same state. The researchers calculate these unexplained costs amount to at least $928 million a year across the nation.
"Every year public hospitals spend $1 billion with little or no benefit," Dr Duckett writes. "The money is not used to provide better care. It is simply being spent inefficiently and could be better spent."
Dr Duckett says NSW and Victoria were the states with the lowest costs per admission, but said even in these states there was a high degree of variation between hospitals. The average cost of an admission varied by $1000 in Victorian hospitals and $2500 in NSW hospitals.
Dr Duckett says these differences could be because hospitals were paying too much for supplies, keeping patients in hospital longer than necessary or having too many staff per patient.
From July, the Commonwealth share of public hospital growth funding will be based on the patients they treat and the procedures carried out, rather than historical allocations. Dr Duckett says this development, and better cost data provided an opportunity to drive efficiency.
He argues states should set prices based on average costs, once avoidable costs have been removed, and hospitals should be provided with more data to help them improve.
He says savings made by states would flow to the Commonwealth, because under the new system, the Commonwealth contribution to growth funding was based on average costs.
Spending on hospitals is the fastest growing area of government expenditure.
Dr Duckett also argues against states bailing out hospitals that fail to manage their budgets effectively, reasoning that such payments retrospectively set a higher price for poor performers. He argues when a state makes an unplanned block payment to a hospital network, this should trigger a performance audit.
