The death knell for small hospitals

By Simon Benson and Sue Dunlevy
From: The Daily Telegraph
March 04, 2010 12:00AM

NSW Health officials warned that as many as 100 smaller community hospitals may become financially unviable under a new payment-per-service model unveiled in Prime Minister Kevin Rudd's hospital reform plan yesterday.

Professor Bob Farnsworth, chair of the Sydney Illawarra Area Health Service's health advisory council, said Mr Rudd's reforms were "appalling" and "potentially a disaster" for NSW.

"It is taking healthcare in NSW back 20 years," said Professor Farnsworth, who is also the director of surgery at Prince of Wales Hospital.

"This was a great opportunity to come up with a logical, efficient and effective single-funding system for healthcare. Some of our hospitals will struggle to operate under case mix funding. All our small regional hospitals are very much at risk."

Senior NSW Government sources said as many as 100 regional and rural hospitals could become unviable.

Under what Mr Rudd described as the biggest change to Australian healthcare since Medicare, the Federal Government will become the major funder of hospital services, which will be run by local managers.

The Commonwealth will take $90 billion over five years - $50 billion over the first three - in GST revenue from the states to fund a new National Health and Hospital network.

Mr Rudd will no longer provide states with money to run their hospitals, instead he will directly fund the local hospital networks, boosting the Commonwealth's share from 35 per cent to 60 per cent.

The new funding system will remove the current caps placed on hospital budgets. A price will be set for each service, with the Federal Government paying 60 per cent of that.

This price will cover the "efficient" cost of hospital services and states such as NSW, which provide inefficient services, will have to subsidise those extra costs from state budgets.

"The Australian Government's decision to take on the dominant funding role for the entire public hospital system is designed to end the blame game, to eliminate waste and to shoulder the funding burden of the rapidly rising health costs of the future," Mr Rudd said yesterday.

Senior NSW Government sources said the plan would not put any more money into the health system.

They said the 100 hospitals across regional and rural NSW would be financially unviable under the casemix system, which allocated funding on a per-procedure basis, because the volume of medical procedures in small hospitals was too low.

"The State Government will have to make a decision as to whether it can continue to subsidise these hospitals or close them," they said.

Greater Western Area Health Service health advisory chair Dr Steve Fleckhoe fears for the future of 44 hospitals in his western NSW region.

"I am absolutely sure that the small hospitals . . . could not possibly fit into a casemixed model," he said. "It worries the heck out of me. The worry was always that an efficiency model would be applied that didn't take into account other circumstances."

Mr Rudd's office said the reforms would not force any hospitals to close.

His office guaranteed that medical services to regional hospitals in NSW would be retained and assessed by the proposed new independent umpire.

"There will be loadings to recognise the needs of people in regional Australia," a spokesman said.

Mr Rudd will also move to take over from the states' primary care services, such as community health centres, mother and baby clinics, drug and alcohol services and community based mental health services.

The changes will start to be introduced in 2011 but voters will have to re-elect Mr Rudd twice before the new system takes full effect in 2013-14.

"There is a lot in these proposals that has the potential to significantly improve our hospital services," said Australian Medical Association president Andrew Pesce, but he said NSW hospitals might lose if the payment-per-service system did not take into account care and training costs.