The buck stops here: Health Minister Michelle O’Byrne and Premier Lara Giddings. Picture: Rob Walls,

The failure of Tasmania’s hospitals to use their dollars efficiently not only means Tasmanians have to endure a lower level of care than the rest of the country but is also likely to deprive the entire state budget of tens, and eventually hundreds, of millions of dollars in lost GST revenue.

Under the federal government’s new public hospital funding scheme, the Commonwealth will pay what it considers a fair price for every service that hospitals actually deliver rather than, as before, distributing the cash on a population basis.

Previously, less-efficient systems like Tasmania’s could meet budgetary constraints not by improving the way they use their resources but simply by treating fewer patients. Now, if they do less they’ll be paid less ‒ at least for the share of funding that comes from Canberra.

Despite some recent improvements, the Tasmanian hospital system is massively less economically efficient than its mainland counterparts. According to new figures the average hospital service costs 16% more in Tasmania than in the nation as a whole.

The federal government now baulks at funding that gap. It says it doesn’t want to go on paying for inefficiency. What they’re saying ‒ though never in so many words ‒ is that a dollar spent in Tasmania will only buy them 84 cents’ worth of health services. In other words, we’re a poor investment and will remain so until we get our hospitals in order.

This funding gap ‒ between what we will get now, and what we would have got under the old system ‒ is tens of millions a year wide. Just how big is unknown. But a glimpse is given in a document from Canberra’s new Independent Hospital Pricing Authority leaked to the Tasmanian Times last year. This document showed the Authority’s calculations, at that time, of ‘winner’ and ‘loser’ states under the new system. Tasmania would lose $80.7 million a year in federal hospital funding.

But in the health reform deal signed by all nine Australian governments, the inefficient states were given what looked like a get-out-of-gaol card in the form of a funding guarantee. Until 2020, states which would have got more under the old system will have their funding calculated as it used to be ‒ on a population basis, rather than according to the new national efficient price.

So most politicians, and many bureaucrats, seem to have stopped worrying about that looming funding gap.

But almost as soon as getting that top-up money under the funding guarantee, Tasmania will lose it again through another mechanism. This is where it gets even more complicated. But it’s important, so bear with me.
Now, there are two main ways the states get money from Canberra. One is the GST, which we can spend however we like. The other is money earmarked for particular purposes, like hospitals and schools. Unlike the GST, which pays the poorer states more per capita than the richer states, this specific-purpose money has to be distributed strictly according to population. Tasmania has 2.3% of the population, so we are entitled to 2.3% of this money. And no more.

Each year, the Commonwealth Grants Commission looks at what each state and territory has received in this earmarked funding. If one state has got more than its population share, its share of GST in subsequent years is gradually reduced by that amount. This money is then put into a pool and redistributed to all states and territories according to their population entitlement.

Let’s say that in one year Tasmania gets $100 more than our entitlement in hospital funding. In year two, nothing happens because it takes a while for the figures to come in. But in each of years three, four and five, our GST will be docked by $32.35, which is one-third ‒ $33.33 ‒ minus 2.3%, or 98 cents.

Eventually, we would end up with $2.30 of the original $100. Bigger states would benefit much more from the money originally intended for us. NSW would get about $30, Victoria about $25 and Queensland about $19.

Because the new national efficient price system for hospital services treats all states equally, any money one state gets on top of this through the funding guarantee will be subject to redistribution by the Grants Commission. The more we draw on it, the more we will lose later on.

And if we go on drawing on that funding guarantee ‒ as we will have to, until our hospitals can work within the new efficient-price system ‒ the more we will end up losing from our GST.

On present indications, as we draw more and more on this top-up cash, the amount to be repaid is likely to mount up to hundreds of millions of dollars. This would affect not just our hospitals but all aspects of the state government’s budget. Expect less money for schools and police.

The same thing happened with the deal Denison independent Andrew Wilkie struck with the federal government for rebuilding the Royal Hobart Hospital. This year, our GST is being docked by almost $90 million. Next year it will be almost $95 million, and the same again the year after.

While Tasmania’s GST take is still suffering from the Royal Hobart deal, the hit from the hospital funding guarantee will add to the pain, probably by at least as much again.

In 2020, unless our hospitals have become greatly more efficient, we will be hit with another double-whammy. Not only will the funding guarantee be cut off, but we will also still be paying back the amount we got in previous years.

ABOUT THE AUTHOR: Martyn Goddard is an independent health policy analyst based in Hobart. He has been a member of several key Commonwealth committees, including the peak ministerial advisory group on AIDS and hepatitis, and was the first consumer member of the Pharmaceutical Benefits Advisory Committee, which evaluates drugs for listing on the PBS. He has conducted many policy reviews and submissions for Commonwealth and other organisations, and is a former health policy spokesman for the Australian Consumers’ Association. Before becoming involved in health, he was a journalist and documentary producer, mainly at the ABC in Sydney and Melbourne. This paper has not been funded or in any way controlled by any person or organisation other than the author.

Martyn Goddard’s archive of analyses for Tasmanian Times, here