Incorporating Safety and Quality Measures Into Australia's Activity-Based Funding of Public Hospital Services

In a bid to improve quality of care, numerous countries have incorporated rewards and penalties into the funding and pricing of hospital services. This paper outlines recent advances in Australia to incorporate financial penalties for hospital acquired complications (HACs) and avoidable hospital readmissions (AHRs) adjustments into the funding of public hospital services. It describes the work in the development of suitable measures to identify episodes, the design of the analytical approach used for risk adjustment and the calculation of the funding implications including dampening effects to account for the level of risk. Using the 2019 to 20 round of data collection, this paper reports on the risk adjustment analysis, incremental costs of HACs and AHRs, and the funding dampening effects, the paper further discusses the implementation strategies undertaken by the Independent Health and Aged Care Pricing Authority (IHACPA) to ensure transparency, stakeholder consultation and engagement. The paper argues that both the technical development and its implementation strategies have been central to making safety and quality an integral and accepted part of Australia's public hospital funding arrangements.