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Section A - Policy

2. Overview

Introduction

The 1999-2000 policy and funding directions are based on the successful consolidation of established policies introduced in previous years. The achievements to date have been impressive and no major overhaul is needed in 1999-2000. The focus for the coming year is on growth to expanding areas; extension of casemix funding models to rehabilitation; and establishing central service directions in terms of quality indicators and key service reviews. Refinement and monitoring of the acute casemix funding system continues and additional funding for key areas of trauma services; research; capital equipment; maternity services; breast care; and the new initiatives through the National Health Development Fund will ensure a vital and dynamic sector.

There is international recognition that growth in population, ageing of the population and newly available clinical treatments, drugs, diagnostic tests and other technological developments are increasing the demand for, and costs of hospital treatment. The 1999-2000 financial year recognises growth due to population demographics and the continuing increase in demand for health services.

The 1999-2000 year will see the continued development of a number of contestable projects. These include the Mildura Base Hospital, Berwick Community Hospital, Austin and Repatriation Medical Centre and Knox Hospital. Construction has started on the new Mildura Base Hospital and is due to be completed in September 2000. The new Berwick Community Hospital will start construction in August 1999 and will be operational around late December 2000. The Austin and Repatriation Medical Centre project brief will be released later this year. The hospital will provide a comprehensive range of tertiary services and will be co-located with the Mercy Hospital for Women which will be relocated from its current site in East Melbourne. Planning for the Knox hospital will continue through this year.

A new system for funding rehabilitation inpatients in major designated units will be introduced in 1999-2000. The new system, Victorian Rehabilitation Classification and Funding System (VicRehab), is based on the Casemix Rehabilitation and Funding Tree (CRAFT) classification. It will also provide new opportunities for transforming services to expand community and ambulatory services within service planning guidelines consistent with the directions outlined in Rehabilitation into the 21^st Century-A Vision for Victoria.

Increased funding from the Australian Health Care Agreement will again be passed directly to hospitals by way of additional operating funds; funding for capital equipment; and funding to support medical research and teaching. In addition, a series of new initiatives funded through the National Health Development Fund will commence during 1999-2000. The Victorian National Health Development Strategic Plan comprises nine programs focused around the reform themes of appropriate triage and referrals, strengthening health communications technology, re-engineering structural reform and developing a skilled workforce.

The major objectives for purchasing acute services from the hospital sector in 1999-2000 are to:

• Increase the number of patients treated in response to increased demand;
• Introduce an improved state-wide system of trauma injury management;
• Improve current performance for emergency and elective services, including a new focus on opportune health promotion;
• Improve access to antenatal and postnatal care;
• Extend casemix funding models to rehabilitation services;
• Encourage providers to develop systems which measurably improve quality and are more consumer focused;
• Encourage hospitals to maintain high technology standards, particularly ensuring adequate modern equipment;
• Fully implement the Victorian Ambulatory Classification and Funding System in major hospitals; and
• Improve access to specialist services in rural areas and support local decision-making with rural hospital targets set by regional consultation and agreement.

The development of the proposals and processes outlined in this document has been undertaken with extensive industry consultation. Industry groups have provided substantial advice and support in the development of general policy initiatives, classification and implementation issues. Details of committees are provided in appendix 1.

The total budgets for all hospitals from 1997-98 to 1999-2000 are given in table 1.

Table 1: Victorian Public Hospitals -Financial Performance and Budget

Notes:

1. Figures for 1998-99 are expected results and revised for additional ACHA funding received after release of Policy and Funding Guidelines.
2. Budget figures for 1999-2000 exclude additional capital equipment funding of $54 million, and additional funds which will flow following the agreement of an enterprise bargain with doctors and other staff.
3. Hospital profitability for 1998-99 is the major Network and Hospital's projection and the March position for other hospitals. Results are for the hospital entity excluding capital income and capital expenses depreciation and abnormal items.

The increase in funding outlays over the last two budgets totals $363 million and is a result of increased funding flowing from the Australian Health Care Agreement which was signed in September 1998. This funding was passed directly to hospitals by way of additional operating funds or additional funds for capital equipment in 1998-99 and has again been maintained in 1999-2000.

In 1999-2000, the total operating Budget has increased a further $82 million over the 1998-99 budget. The Government's budget process requires an annual productivity saving of 1.5 per cent from all Government sectors including the hospital sector. However, additional funds have been provided to the sector for 1998-99 recognising that the growth in population and its ageing increases the demand for all hospital services.

In 1999-2000, the total capital equipment budget is $54 million. This does not include expenditure on Y2K remediation. This is a major and significant increase in funding and represents a policy whereby a larger share of replacement plant and equipment is to be directly funded.

The budget figures do not contain an allowance for prospective wage increases (i.e. those not yet agreed) but which will impact 1999-2000 hospital expenditures. Adjustments to budgets will be made when the outcome of prospective wage negotiations is known.

The increased funding of hospitals together with a continued focus on efficient management, has improved the financial position of hospitals. In April 1999, it is expected that the hospital sector will earn a small surplus of about $27 million, based on the projections of the Networks and major hospitals, and the nine months results of smaller hospitals.

This is a significant improvement over the position of 1997-98 when the industry as a whole made a small deficit of $0.5 million, due mainly to losses by Networks and major providers of $8 million, offset by small surpluses in smaller rural hospitals.

The Victorian population is growing at approximately 0.9 per cent each year. The ageing of the population is expected to increase demand for public hospital services by a further 0.7 per cent per year, as older people have a much higher per capita use of hospitals than others and tend to stay in hospital longer because of generally slower recovery and associated illnesses. Advances in technology, communication and public expectations are expected to increase demand by a further 1.4 per cent.

To meet these combined demand factors additional recurrent funding of $64.8 million (3 per cent) has been provided. Throughput growth will be allocated according to the principles agreed within the budget process. This incorporates demographic growth, technology related growth, and 'unexplained' growth partly reflecting declining private health insurance levels.

All hospitals will receive some throughput growth, with higher growth targetted to A1 hospitals (to assist in the cost pressure of new technologies); to targetted areas of demographic growth; and to large regional hospitals.

2.2.2 Technology Growth

The use of new technology can enable previously untreated conditions to be treated and may substitute for current treatments, including drugs. New technologies may increase the initial cost of treating certain conditions, but have greater longer term benefits on quality of life and costs of overall treatment. Examples include implantable devices to close atrial and septal defects of the heart, treatment of premature babies and polymerase chain reaction (PCR) technology to assess conditions such as hepatitis C, TB and HIV.

Public hospitals will receive additional recurrent funding of $10 million to meet costs associated with new technological developments in 1999-2000 until these costs are incorporated into subsequent cost weight studies. Procedures which have received grant funding under this program for two years will be fully incorporated into casemix funding from 1999-2000, where this is appropriate. In rare instances (e.g. PET) ongoing specified grants will be used to replace new technology funding.

Applications for funding will be sought in August 1999, with an increased emphasis on demonstration of evidence for introduction of the technology.

2.2.3 Private Patient Revenue

The Australian Health Care Agreement includes a mechanism by which the States are reimbursed by the Commonwealth for changes in the level of private health insurance held. Each time the proportion of Victorians with private health insurance reduces 1 per cent below the December 1998 level the Commonwealth will provide additional funds to the State. Conversely, increases in private health insurance above a threshold level will result in a reduction in payments to the State. While the proportion of Victorians holding private health insurance has increased since the Commonwealth introduced the 30 per cent rebate on 1 January 1999, the threshold level is not expected to be reached in 1999-2000. Thus no adjustment has been made to hospital revenue budgets and hospitals are expected to retain their levels of private patient revenue over 1999-2000.

Growth funds are carefully targetted to meet public patient growth demand. Funds are no longer provided to automatically restore site-specific declines in private patient revenue. As a result, the policy foreshadowed in the 1998-99 Policy and Funding Guidelines is now in place. Hospitals and Networks from 1999-2000 onward are effectively net funded and must manage their own revenue shortfalls or gains within any year.

If private patient revenue reduces as a result of a subsequent decline in private health insurance and the Australian Health Care Agreement compensation clause is triggered then hospitals will be reimbursed accordingly. The Department will only consider additional requests for funding of reduced private patient revenue on an exceptional basis, and as a consequence of unforseen events outside the hospital's control.

2.2.4 Quality

Development of quality of care performance measures continues to be a major strategic direction for the Department. Work on development or refinement of indicators is occurring for each of the following different dimensions of quality: access to care; acceptability of care; appropriateness, effectiveness and safety; variations in care; and continuity of care. Indicators at both state and hospital level are being developed for use. Indicators currently in development will be part of the suite of measures used to inform Government and the public about the performance of the health care system. In addition to the work on development and implementation of indicators, the Department is also examining the best ways to report on quality of care to different interested groups and the public. Some indicators (e.g. those relating to elective surgery and emergency) are used to assess eligibility for bonus funding. These bonus schemes will continue and the concept is being extended in a limited way to the area of discharge planning.

The Department has a number of programs and initiatives aimed at improving quality of care both in general and in some specific areas such as infection control. Funding in addition to WIES funds is provided to help improve access to care; the effectiveness and safety of care; and continuity of care. These programs are further detailed in Chapters 7-10.

An additional $16.4 million will be provided to improve maternity services throughout the State. In 1999-2000, $14.3 million will be allocated to Networks and hospitals to provide additional antenatal and postnatal care, with particular emphasis on domiciliary care; increasing women's choices of models of care; and improved services to women with special needs. Recurrent funds are also available to improve birthing services for Aboriginal and Torres Strait Islander people. Short term funding is available to develop evidence based consumer information and fund initiatives designed to encourage system wide adoption of practices and care pathways that are known to improve the effectiveness of care in pregnancy and childbirth.

2.2.5 Innovative Programs

Effective Discharge Strategy: Effective discharge is a key priority in 1999-2000. The Effective Discharge Strategy is a systematic approach to understanding, measuring and improving discharge planning processes and their outcomes. In 1999-2000 the budget for this Strategy is $8 million-$6 million from the Acute Health Division and $2 million from Aged, Community and Mental Health Division.

Organ Donation Services: A major new initiative for 1999-2000 will be the establishment of a central coordination service for organ donation. The aim of this service is to improve rates of organ donation through an integrated and cohesive service system in Victoria that provides effective and caring services for donors, recipients and their families.

Post Acute Care Program: This Program started in 1996-97 as a joint initiative of the Acute Health and Aged, Community and Mental Health Divisions. It promotes early identification of patients at high risk of hospital readmission. The Program has a total operating budget of $8.2 million and in 1998-99 was expanded to further extend coverage in metropolitan and rural areas with a total of 16 projects.

Bionic Ear Program: Initial studies reveal that the bionic ear program may have significant benefits, not only for patient welfare but also in reducing longer term educational costs for children who receive this device. In 1999-2000, there will be a 20 per cent increase in the bionic ear program. A study will be undertaken during the year to consider funding on a total episode of care basis and to further evaluate long term benefits to education.

2.2.6 Information, Information Technology and Telecommunications (I, IT & T)

A commitment of $100 million over four years 1998-2001 has been made by Government towards improving the information technology capability in public hospitals. $12.5 million will be provided again in 1999-2000 for the further implementation of the Hospital Information, Information Technology and Telecommunications Strategy. Released in late 1996 by the Minister for Health, the Strategy has been well-received by the public hospital industry. The Strategy is phased over several years, and defines performance measures in the form of information capability at the end of each phase. Funding allocations have been made on the basis of business plans from Networks and priority plans for the rural technology alliances together with Year 2000 priorities. These plans will be key components of local information technology strategic plans. The Hospital Information, Information Technology and Telecommunications Strategy is consistent with the Government's overall multimedia strategy. Funding for 1999-2000 will again concentrate on resolution of Year 2000 problems as was the case last year.

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