Image for The destructive madness of hospital funding

*Pic: From Michael Ferguson’s Facebook page HERE

The number of patients being treated in Tasmania’s public hospitals is set to fall for the first time in almost a decade. The yawning gap between funding and actual costs make that inevitable.

Next year, nominal funding given to the hospitals for the direct treatment of patients will rise by 0.9 per cent and over the four years of the forward estimates by 3.7 per cent.

But costs are rising much faster. Just to stay where we are, with the number of patients rising by their usual long-term average, costs will outstrip funding by $92 million next year and $367 million over four years.

By 2019-20, the hospitals will have to trim their costs by 30 per cent. And because years of cuts under Labor and Liberal governments have already pushed the system to breaking point, no fat is left. There will be no alternative to cutting staff and treating fewer patients.

The Tasmanian president of the Australian Medical Association, Associate Professor Tim Greenaway, puts in this way. ‘Doctors and nurses just can’t work any harder than they do at the moment. They’re already pushed to the limit.

‘The problem with Tasmanian public hospitals is capacity, not inefficiency. Year after year of budget cuts by successive state governments have already made our public hospitals concentrate on the most acutely ill patients, who cannot be ignored, at the expense of others,’ said A/Prof Greenaway, a specialist endocrinologist at the Royal Hobart Hospital.

‘People with chronic disease, those needing elective surgery or treatment by a specialist physician are increasingly being ignored. Even now, some may never get the treatment they deserve.’

Now we enter wonk territory, but bear with me.

Next year the dollar amount for treating patients goes up by 0.9%, down by 0.4% the next year, then up by 0.2%, and finally (in 2019-20) up by 3.1%. Over four years, nominal funding for patients increases by just 3.7%.

So the government, technically, is right when it says it’s putting more money into health than ever before. But that is deliberately misleading.

Price inflation in hospitals ‒ the cost of things we buy already, such as wages, existing drugs and supplies ‒ is rising by about 3% a year.

Then there are the costs of new things ‒ an ever-increasing number of patients, new drugs and new technologies. Over the decade from 2004 to 2014, the most recent figures available, those costs rose by 4.6% annually.

So put those two together: 3% for the existing stuff, 4.6% for the new stuff. That’s 7.6% a year, every year.

Over the four years, then, the amount the government is putting into patient care will fall short of basic price inflation by $165 million and total long-term costs by $367 million. That means that as a result of the real-life cuts in this budget, the state’s public hospitals will be left with 30% less money to treat their patients.

So what will they do? The will do what any organisation has to do in these circumstances. They will cost costs.

No matter how much pressure the government puts on unions and pay claims, they do not control wages. That’s up to the Industrial Commission. And they can’t change the cost of drugs and other equipment because they don’t have enough market power to do so.

There’s a limit to the extent that they can forego the purchase of new drugs and new technology: these things rapidly become the standard of care to which every hospital must conform.

The only thing left to cut is patient numbers. Because this is the third budget in which the government has cut real funding, that’s already happening. Over the long term the number of inpatients (weighted for cost and complexity) was previously rising by about 4% a year. In 2013-14, Labor’s last year, the increase was 9.5%. In calendar 2015, under the Hodgman Liberal government, it shrank to 1.1%.

Within the next year or two it will go into reverse and the number of patients will fall for the first time in many years ‒ slowly at first, then more quickly. Over the four years, normal costs will outstrip funding by 30%. But because they can’t control all costs equally, hospitals will have to cut patient numbers by much more than 30% over the four years just to stay within budget.

The most seriously ill people, who cannot be ignored, will continue to be treated. More and more, everyone else ‒ people with chronic illness, those needing elective surgery, and those just wanting to see a specialist ‒ will be ignored. The condition of many of those who are ignored will deteriorate until they, too, become seriously ill and have to be have late but expensive treatment, soaking up funds that would be more wisely spent treating patients early. And so the vicious cycle will continue.

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*Martyn Goddard has written extensively on the health system. His articles are HERE

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