Casemix funding for acute hospital inpatient services in Australia

Casemix funding was introduced first in Victoria in 1993-94, and since then most States have moved towards either casemix funding or using casemix to inform the budget setting process. The five States implementing casemix have adopted some common funding elements: all use AN-DRG-3; all have introduced capping, msot commonly at the hospital level; and all ensure accuracy of diagnosis and procedure coding through coding audits. Two funding models have been developed. The fixed and variable model involves a fixed grant for hospital overhead costs and a payment for each patient treated, covering only variable costs. The integrated model provides an integrated payment to hospitals for each patient treated, covering both the fixed and variable costs. There are different weight setting processes and base prices between the States, which result in marked differences in the price paid for the same type of case treated in similar hospitals. Learning across State boundaries should be encouraged, with knowledge of what is effective and what is ineffective in casemix funding arrangements being used to develop Australian best practice in this area.