Productivity Commission Report Into Hospital Costs - Public vs Private Hospitals

By Nicki Bourlioufas
26/10/09

Administration costs are growing in hospitals Australia-wide while waiting times for elective surgery rise and bed numbers remain static, according to a Discussion Draft released by the Productivity Commission.

An increase in the annual number of hospital treatments per capita, against a stable number of beds per capita, also suggests that people are staying in hospital for shorter periods of time, the draft report found. On average, half of all in-patient treatments administered by Australia' public hospitals are same-day admissions.

At the same time, out-patient services increased more than 10 per cent from 2003-04 to 2007-08, the report found.

While reducing elective surgery waiting times has long been a priority of governments around Australia, waiting times for elective surgery have in fact risen over the past four years, according to the Productivity Commission.

The Discussion Draft responds to a request by the Australian Government to examine three aspects of the health care system - the relative performance of public and private hospitals; rates of informed financial consent for privately-insured patients; and the most appropriate indexation factor for the Medicare Levy Surcharge income thresholds. A final report is due in December 2009.

Fat at the top

While patients are waiting longer for elective surgery, resources devoted to bureaucracy are rising quickly. "Available data suggests that there has been relatively rapid growth in administrative staff," the Commission said.

Between 2001 and 2006, the number of medical administrators and nursing directors employed across all areas of the health system grew by 69 per cent compared to 23 per cent for all health workers.

In recent years, concerns by medical professionals have been expressed about a rapid increase in hospital administrative staff relative to numbers of beds and treated patients.

Nurses represent the largest share (45 per cent) of the public hospital sector workforce nationally. Diagnostic and allied health professionals, and administrative and clerical staff, each represent approximately 15 per cent of the workforce, while medical officers represent just 11 per cent of all staff. Domestic and other staff constitute the remaining 13 per cent.

The average salaries of medical officers vary across states. Comparatively high annual salaries are offered to medical officers in the Northern Territory and Western Australia (up to $27 000 more than the national average), while medical officers receive the lowest annual average salaries in New South Wales, South Australia and the ACT.

Public, private costs similar

Public and private hospitals are estimated to have similar average costs despite significant differences in the composition of costs, the Commission said.

After adjusting available data, the Commission found medical and diagnostics costs and prostheses costs are higher in private hospitals while general hospital costs and capital costs are higher in public hospitals.

Private hospitals higher labour productivity than public hospitals and appear to operate relatively leaner staffing levels than public hospitals, according to the report.

This is partly due to case-mix and patient differences. The public sector's hospital activity is concentrated on medical cases, including more unpredictable cases typically admitted through emergency departments. The private sector's activity is more concentrated on surgical procedures, which are typically elective, and patients tend to come from more advantaged socioeconomic backgrounds.

Other findings include:

• Elective surgery in public hospitals is more accessible for disadvantaged socioeconomic groups, but tends to be less timely than in the private sector.
• While waiting times for elective surgery has lengthened in public hospitals, proportionally fewer patients are waiting more than one year.
• Among admitted patients nationally, the most frequent type of diagnosis handled by Australia's public hospitals is a disease and disorder of the kidney or urinary tract, or 21 per cent of all hospital treatments.

Australia spends about 9 per cent of its gross domestic product on health care, and hospital services account for around one-third of this. There are currently 768 public hospitals and 556 private hospitals nation-wide, providing 4.7 and 3.1 million episodes of care respectively for admitted patients in 2007-08.

Australia's spending on health goods and services is now in excess of $100 billion a year, according to a report released in September by the Australian Institute of Health and Welfare.

The report, Health Expenditure Australia 2007-08, shows total health expenditure in Australia was $104 billion in 2007-08.

The state and territory governments provide around 53 per cent of funding for public hospital services, while the Australian Government provides around 40 per cent and non-governmental sources contribute around 7 per cent.

Around 80 per cent of patients in private hospitals are privately insured and the majority of private hospital funding is received from private health insurers for treating their members.

The Commission found that only a small proportion of private patients incur out-of-pocket expenses without providing informed financial consent. The medical profession has facilitated best practice by educating practitioners and using internet-based packages to inform consumers, the Commission said.

The most appropriate indexation factor for the Medicare Levy Surcharge income thresholds is Average Weekly Ordinary Time Earnings, the report said.

Experimental data

Comparing the relative performance of hospitals has been challenging, the Commission said. There are major differences within and between the public and private hospital sectors that make like-for-like comparisons difficult.

'Existing data collections are limited by inconsistent collection methods and missing information', said Commissioner David Kalisch. 'The Commission has sought to address these limitations, but its initial cost estimates should be considered experimental.'

Data enhancements for public hospitals foreshadowed by governments over the next few years and expanded reporting for private hospitals would better enable future comparisons.

But more improvements could be made, such as consistent national reporting of costs and infections for both public and private hospitals, the Commission said.

The limited available evidence suggests that private hospitals have lower infection rates than public hospitals, but this result could be misleading because private hospitals on average treat patients who have a lower risk of infection.

Half of Australia's public hospitals are located in New South Wales and Victoria, reflecting their high population shares.

Public hospitals vary widely in size: the majority have 50 beds or fewer, yet around 10 per cent have over 200 beds. Tasmania, South Australia and Queensland have the highest concentrations of small-scale hospitals.

Compared to large hospitals, small hospitals are less likely to be able to take advantage of economies of scale or reallocate their resources when workflows vary, thereby appearing relatively less efficient.

Private hospitals tend to be concentrated in major cities. In comparison, public hospitals are more widely distributed across the country.

On average, Australia's public hospitals provide 2.7 beds per 1000 residents. A general feature of most states and territories is that more beds per capita are available in remote or very remote areas than in major cities or regional areas.