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Performance of Public and Private Hospital Systems

Research report

This research report was released on 10 December 2009.

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  • Key points
  • Media release
  • Contents
  • Errata
  • Although there is significant diversity within and between the public and private hospital sectors, there are sufficient similarities to warrant comparing them, ideally in a way that takes account of differences in the services provided and patients treated.
  • Existing datasets on hospital costs are limited by inconsistent collection methods and missing information. The Commission has sought to address these limitations by drawing on various data sources and incorporating adjustments to make the data more comparable. Nevertheless, the resulting estimates should be considered experimental.
  • The Commission's experimental cost estimates suggest that, at a national level, public and private hospitals have similar average costs. However, significant differences were found in the composition of costs. General hospital costs were higher in public hospitals. Medical and diagnostics costs and prostheses costs were higher in private hospitals. Capital costs were higher in public hospitals, but this result is particularly reliant on a range of data sources and adjustments to make the data comparable.
  • Australia does not have a robust nationally-consistent data collection on hospital acquired infections. 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.
  • Other partial indicators show that:
    • private hospitals have higher labour productivity and shorter lengths of stay than public hospitals, but this is at least partly due to casemix and patient differences between the public and private sectors
    • elective surgery in public hospitals is more accessible for disadvantaged socioeconomic groups, but tends to be less timely than in the private sector.
  • A multivariate analysis of hospital-level data suggests that the efficiency of public and private hospitals is, on average, similar. The output of individual hospitals in both sectors is, on average, estimated to be around 20 per cent below best practice.
  • Improvements could be made to data collections to improve the feasibility of future comparisons. Foreshadowed changes under the National Healthcare Agreement will help in this regard, but more improvements could be made, such as consistent national reporting of costs and infections for both public and private hospitals.
  • Only a small proportion of patients incur out-of-pocket expenses without receiving sufficient prior information to give informed financial consent. The medical profession has facilitated best practice by educating practitioners and using internet-based packages to inform consumers.
  • The most appropriate indexation factor for the Medicare Levy Surcharge income thresholds is average weekly ordinary time earnings.

Background information

Greg Murtough (Inquiry Research Manager) 03 9653 2163

Public and Private Hospitals Can Improve Efficiency

The average efficiency of public and private hospitals is about 20 per cent below best practice after adjusting for differences in what hospitals do and who they treat, according to a Research Report released today by the Productivity Commission. However, the Commission also found that the private sector tends to be slightly more efficient among large hospitals, while the public sector tends to be more efficient among small hospitals.

The Report 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.

'Comparing the relative performance of hospitals has been challenging. There are major differences within and between public and private hospital systems that make like-for-like comparisons difficult', said Commissioner David Kalisch. 'There are also data limitations, which the Commission has sought to address. Future comparisons will be assisted by enhanced data collections for public hospitals already foreshadowed by governments and would be further improved by expanded reporting for private hospitals.'

Based on available data, the Commission also found that:

  • public and private hospitals have similar overall costs, but there are differences in the composition of costs - medical and diagnostics, and prostheses are more costly in private hospitals; while general hospital costs and capital costs are higher in public hospitals
  • private hospitals appear to have lower infection rates than public hospitals (but private hospitals generally treat patients who have a lower risk of infection)
  • private hospitals have higher labour productivity and shorter lengths of stay than public hospitals (partly due to differences between the sectors in what they do and who they treat).

Responding to other aspects of the reference, the Commission found that:

  • only a small proportion of private patients incur out-of-pocket expenses without providing informed financial consent
  • the most appropriate indexation factor for the Medicare Levy Surcharge income thresholds is Average Weekly Ordinary Time Earnings.

Background information

Greg Murtough (Inquiry Research Manager) 03 9653 2163

Leonora Nicol (Media, Publications and Web) 02 6240 3239 / 0417 665 443

  • Preliminaries
    Cover, Copyright, Foreword, Terms of reference, Contents, Abbreviations, and Glossary
  • Overview - including key points
  • Findings
  • Chapter 1 Introduction
    1.1 What the Commission has been asked to do
    1.2 Report structure and study approach
    1.3 Future data improvements
    1.4 Conduct of the study
  • Chapter 2 Australia's public hospital sector
    2.1 Role and structure of public hospitals
    2.2 Characteristics of public hospitals
    2.3 Services provided by public hospitals
    2.4 Workforce characteristics
    2.5 Recent developments in public hospitals
  • Chapter 3 Australia's private hospital sector
    3.1 Structure of private hospitals
    3.2 Characteristics of private hospitals
    3.3 Services provided by private hospitals
    3.4 Workforce characteristics
    3.5 Private freestanding day hospitals
    3.6 Recent developments in private hospitals
  • Chapter 4 Public and private hospitals in the health system
    4.1 Similarities and differences
    4.2 Relationship between the two sectors
    4.3 Possible directions for hospitals
  • Chapter 5 Hospital and medical costs
    5.1 Cost indicators
    5.2 Data sources and estimation methods
    5.3 Cost per casemix-adjusted separation
    5.4 Average cost of individual DRGs
    5.5 Improving future cost comparisons
  • Chapter 6 Hospital-acquired infections
    6.1 Types of hospital-acquired infections
    6.2 How should infection rates be measured and compared?
    6.3 Available evidence on hospital-acquired infections
    6.4 Developments to improve future comparisons
  • Chapter 7 Other partial indicators
    7.1 Productivity
    7.2 Access to hospital services
    7.3 Quality and patient safety
    7.4 Developments to improve future comparisons
  • Chapter 8 Multivariate analysis
    8.1 About the Commission's multivariate analysis
    8.2 Profile of hospitals in the sample
    8.3 Factors affecting hospital performance
    8.4 Factors contributing to best-practice benchmarks
    8.5 Hospital efficiencies
    8.6 Further analysis
  • Chapter 9 Informed financial consent
    9.1 Potential impediments to the provision of informed financial consent
    9.2 Informed financial consent data sources and their suitability
    9.3 Rates of informed financial consent
    9.4 Out-of-pocket expenses
    9.5 Future data improvements
    9.6 Best-practice examples of IFC
  • Chapter 10 Indexation of the Medicare Levy Surcharge income thresholds
    10.1 Background to the Medicare Levy Surcharge
    10.2 Why index the MLS thresholds?
    10.3 Possible indexation factors
    10.4 Assessment of potential indexation factors
  • Appendix A Public consultation
  • Appendix B National Healthcare Agreement performance indicators
  • Appendix C Other health performance monitoring frameworks
  • Appendix D Constructing estimates of hospital and medical costs
  • Appendix E Multivariate analysis in detail
  • Appendix F State-level data on hospital-acquired infections
  • Appendix G Referee reports on mode
  • References

The following errata (updated 10 December 2009) have been issued for the Public and Private Hospitals research report. The chapter on the website has been amended to reflect these errata.

Appendix E: Multivariate analysis in detail