Let Hospitals Take Control

Seldom does a week go by without another story in the media about the financial woes of our public hospital system.

The latest indicator is the Auditor-General's report released last week which found that 15 of Victoria's public hospitals currently face "financial difficulties" and that a further 22 hospitals have unfavourable financial results.  In aggregate, the report found that the public hospital sector recorded an operating deficit of $121 million, and that the large metropolitan hospitals experienced the largest deficits.

Clearly this is not sustainable;  however the problem is not a lack of overall funding or staff, but rather centralised control.

The Bracks Government has pumped an additional $1.7 billion into the hospital system over the last four years representing an average increase in spending of 5 per cent annum in real per capita terms.

The Bracks government has also hired nearly 3,500 additional nurses.  The additional staff has allowed hospitals to open wards and reduce waiting lists.  The costs of the additional staff are covered in full with the payments made to the hospitals.

Additionally, the public hospital system has benefited from the growth in privately health insurance.  Since the introduction of the 30 per cent rebate and associate incentives, the up-take of private insurance has increased by half to 45 per cent of the population.  Professor Ian Harper of the Melbourne Business School recently estimated that this rise in private insurance has injected an additional $1 billion into the health system.  Moreover, he found the public hospital system to be a major beneficiary both in the form of reduction in demand and additional funding from private patients using public services.

The central reason for the deficit is the failure of the State government to include the costs of depreciation in its payments to the hospitals.  The Health Department's rationale is that it needs control over the capital works spending.  While it does need a coordinating role to avoid unnecessary duplication, it does not need control over the up-keep of existing equipment.  Faced with a lack of cash for repair and maintenance, hospitals managers face the choice of either allow existing assets to run down or to run deficits.  They have chosen the later.

Another major impediment to effective management of hospital resources is the centralised control over the workplace.  Staffing costs make up over 60 per cent of the costs of a hospital.  Moreover, to be effective and efficient, hospitals require a great deal of flexibility in the rostering and movement of staff, particularly the nursing staff who are the back bone of any hospital.

However, the Bracks Government has effectively taken control over staffing levels away from hospitals.  In 2000, it negotiated an enterprise agreement which applied to all hospitals that specified a fixed ratio of 4 patients to each nurse.  This ratio applies across all hospitals, hospitals wards and times of day.  In short, it removed from the managers' control the single most crucial factor in the effective operation of a hospital.

The large hospital deficits are thus not a symptom of a lack of funds but of an inflexible, centralised system.

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