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Performance of Public and Private Hospital Systems

Supplement to Research Report

The Commission has prepared a supplement to its December 2009 report Public and Private Hospitals. The supplement was released on 18 May 2010.

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  • Key points
  • The Commission recently completed a Research Report on the performance of public and private hospitals which compared costs, infection rates and other indicators (PC 2009). That report also considered rates of, and impediments to, informed financial consent; and assessed potential indexation factors for the Medicare Levy Surcharge income thresholds.
  • A part of that study used multivariate techniques which estimated that hospital output was typically around 20 per cent below best practice. This was based on preliminary analysis of just a single year of data because of significant delays in accessing data.
    • The modelling in this supplement draws on three additional years of data, as well as improved data quality and estimation methods, and finds that hospitals are operating around 10 per cent below best practice. While this estimate is more reliable, it remains an estimate given the limitations to the data.
  • In this supplement, the Commission has compared hospital performance in terms of:
    • hospital - standardised mortality ratios - as a measure of the effectiveness and 'quality' of hospital care
    • efficiency - measured by the extent to which hospitals made best use of their resources to provide services.
  • Hospital-standardised mortality ratios were estimated to be generally similar between very large public and private hospitals. However, smaller private hospitals had noticeably better mortality ratios than similar-sized public hospitals.
    • While this might indicate differences in management and clinical competence, it could also indicate the tendency for smaller public hospitals to be the only major source of clinical care in remote and very remote areas.
  • Australian acute hospitals were estimated to have scope to improve their efficiency by about 10 per cent under the existing policy environment.
    • For-profit and 'public contract' hospitals were estimated to be more efficient than public hospitals on average, in terms of their potential to increase output for a given set of inputs.
    • However, for-profit, not-for-profit and public hospitals were found to be similarly efficient with respect to their potential to economise on input use for a given level of output.
  • Smaller public hospitals, many of which are located in more remote communities, were found to be less efficient than similar-sized private hospitals, possibly due to lower occupancy rates.
  • The Commission also sought to measure the determinants of hospitals costs, but the available financial data, such as capital and medical costs, were inadequate.
  • There are various other shortcomings in data quality and availability. These would need to be overcome if policy analysts and other researchers are to produce improved estimates of efficient costs of providing hospital care.