The stoush between the Federal Government and Victoria and  Queensland over hospital funding has demonstrated the fragility of the health  reforms that were meant to eradicate federal-state blame-shifting.


Here, a former health administrator, Stephen Duckett, who  has held senior positions at both levels of government, examines the dispute
that has hit Victoria.


He says there is a way out.  But that would require good intentions on both sides — a quality not  readily available these days.


Dr Duckett  is director  of the health program at the Grattan Institute, and his article first appeared  in The Conversation today.


He writes:

As Victorian hospitals have announced bed closures, job  losses and elective surgery delays over the past six weeks, cuts to health
service budgets look set to significantly affect patient care in the state.


The cuts are a result of a mid-year adjustment in health  funding, costing Victoria more than $100 million in 2012-13, with significant
cuts in Queensland as well.


The 2012-13  Budget estimated that $16 billion would be allocated to the states for  health care; this was revised down by more than $400 million in the mid-year  forecast to $15.6 billion.


So who is to blame?



The Victorian government would have you believe it’s the  Commonwealth’s fault for revising its funding allocation.  The Commonwealth blames the state for passing  the shortfall on to hospitals.


Federal Health Minister Tanya Plibersek will fly into  Melbourne this morning to meet with her Victorian counterpart, David Davis to  discuss the cuts.


Why the funding shortfall?


Current funding agreements provide that Commonwealth grants  to the states for health care are adjusted based on estimates of health
inflation, population change and the impact of technological change. All this  is agreed.


What went wrong?


What went wrong is that estimates of population growth (and  to a lesser extent, health inflation) changed.


The source of population growth estimates is the Australian  Bureau of Statistics (ABS), which changed its method of population estimation.  The only accurate measure of the population occurs at the census, and even that  isn’t perfect.


To check the census estimates, the ABS conducts a survey to  verify what was reported, to check on people who have come back home after  being away on census night and so on. For the 2011 census the ABS changed its methods, which changed the census base-line.


Between censuses, the ABS makes “inter-censal” estimates by  adding births, subtracting deaths and taking account of population movements.


Obviously the beginning and endpoints of the inter-censal  estimates ought to reconcile with the census, but for 2011 they were 300,000 or so people out.


Some states were previously recorded as having a larger population than the new estimates (NSW 1.3%  over, Victoria 1.6% over, Queensland 2.4% over), with other states being  slightly under counted.


The question then becomes, should this be reflected  immediately in reduced funds to the states?


Treasury plot


Treasurer Swan, hunting desperately for money to contribute  to achieving a sliver of a surplus goal, announced the $400 million hit to the  budgets of the over-counted states as part of the October Mid-Year  Economic and Fiscal Outlook.

The affected states have cried foul. The changes have taken  place mid-year, with no discussion or forewarning. It was a plot hatched in
Treasury, with health experts kept in the dark.


In most states budgets had already been issued to hospitals  and so in passing on the Commonwealth hit, the political accountability was made clear.


Hospitals, forced to revisit their budgets, have been  required to find savings quickly and have implemented a full year of cuts over
the five months after Christmas, exacerbating the impact of the Commonwealth cuts.


The Commonwealth has mounted a contemporary version of the  Nuremberg defence: it is simply implementing the formula that’s been agreed. It points out (correctly) that most states have squeezed their budgets and so the Commonwealth-attributed cuts are unfairly getting all the opprobrium.


The Commonwealth also points out that it is actually increasing its total contribution to health care, especially post 1 July 2014
when new growth funding arrangements, based on sharing the costs of increases in both the volume of patients treated and their costs (replacing the current  formula for growth) kicks in.


All that is moot, of course, as the Commonwealth has well  and truly lost the propaganda war. The public believes the front-line hospital
workers and managers who are standing up and pointing out publicly what’s happening locally in terms of bed closures.


And the killer punch  is that they are saying this was our budget before the Commonwealth changes and this is what it is now. The dots are pretty easily connected.


Finding a solution


The public has little patience with the blame game, and rightly so. The Commonwealth will need some fast footwork to get out of this
mess. It may be too late for it to retrieve its position, but one strategy is  to offer the state a cost-neutral deferral.


In its search for significant budget savings, the Kennett government negotiated such a deal for Victoria in the early 1990s. The Keating
government accepted a proposal from then Health Minister (the late) Marie Tehan  whereby Victoria got an increase in funds in the first couple of years of the Commonwealth-state funding agreement, offset by reduced funding in the later years.


The Commonwealth has committed significant growth funds from 2014 onwards; it should not be beyond the wit of good-intentioned people to negotiate a way where both sides can claim victory.


But there are two main problems with this suggestion.


On-again, off-again cuts are a management nightmare. And the  current state of the Commonwealth-state morass may mean that good-intentioned people are now few and far between.


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