Labor Senators' Dissenting Report
1.1
The National Health Reform Agreement (NHRA) is a shared commitment to
national reform of public hospital and health services which outlines
conditions for calculating Commonwealth funding to the states as well as the
role of governments in the application of this funding.[1]
The adjustment in Commonwealth health funding to the states, announced as part
of the 2011-12 Final Budget Outcome and the Mid-Year Economic and Fiscal
Outlook (MYEFO) (published in September 2012 and October 2012 respectively),
was undertaken in accordance with the agreement between governments.[2]
1.2
The NHRA aims to improve transparency of public hospital funding,
patient access and the efficiency of public hospitals as well as performance
reporting.[3]
Funding from the Commonwealth under the NHRA is
subject to regular adjustments to reflect, amongst other things, changes in
activity and from 2014-15 will be determined on the basis of activity levels
set by the states.[4]
1.3
In 2012-13, the Commonwealth is providing $13.3 billion to Local
Hospital Networks and the states under the NHRA, which is an increase of 5.7
per cent over 2011- 12 funding.[5]
Funding for public hospitals is expected to grow by approximately 8.2 per cent
per annum from 2012-12 to 2015-16.[6]
This increase reflects in part the commencement of the Commonwealth’s
commitment under the NHRA to increase funding by at least $16.4 billion between
2014-15 and 2019-20, compared to the former National Healthcare Special Purpose
Payment (SPP).[7]
1.4
Additional funding to enhance public hospitals is also being provided
through the Commonwealth via National Partnership Agreements, with $4.1 billion
being paid since 2007-08 and another $59 million scheduled to be paid in the
remainder of 2012-13.[8]
Further, the Commonwealth has committed $5 billion for health infrastructure
across Australia under the Health and Hospitals Fund.[9]
1.5
Taking Victoria as an example of state specific funding outcomes, the
state is receiving a total of $3.6 billion in total health funding from the
Commonwealth in 2012-13.[10]
This includes the Commonwealth providing an additional $196 million in NHRA
funding (an element of the total funding the Commonwealth provides) to Victoria
this year compared with 2011-12.[11]
By 2015-16 total health funding from the Commonwealth to Victoria will equal
$4.5 billion, an increase of $900 million over four years.[12]
In terms of total National Healthcare SPP and National Health Reform figures,
Commonwealth funding to Victoria will increase by 38.1% from 2011-12 to
2015-16.[13]
1.6
Total Commonwealth funding for other jurisdictions will also be markedly
enhanced. For example, New South Wales, there will be an increase of 32% in
Commonwealth funding during that same period and in Queensland total funding
from the Commonwealth will increase 41.3%.[14]
(I) Adjustment
1.7
The process used to finalise the 2011-12 National Healthcare SPP and
update National Health Reform funding estimates for 2012-13 to 2015-16 at MYEFO
was consistent with the regular budget processes that Treasury undertakes
throughout each year.[15]
1.8
Professor Jane Halton, Department of Health and Ageing, told the
committee:
...I should make the point that, when it comes to
appropriations in relation to health, there are a number of appropriation items
which are standing appropriations. In other words, they reflect activity or
other parameter adjustments. The fact that there is an estimate included in the
Commonwealth Budget does not constitute a commitment to spend the amount of
money nominated in the line item of the budget.[16]
1.9
The Treasurer’s final determination of the 2011-12 National Healthcare
SPP made a downward revision to the amount initially estimated in the 2012-13
Budget. This revision was a result of advance payments made in 2011-12 being
higher than the outcomes specified in the Treasurer’s determination.[17]
The Federal Financial Relations Act 2009 clearly states that any difference
between the estimated and final outcome for the year is to be recouped by the
Commonwealth.[18]
1.10
Following finalisation of the MYEFO, the Treasury was able to commence
adjustments to 2012-13 National Health Reform payments, incorporating both the
updated 2012-13 National Health Reform funding profile for the year, and the
recoupment of overpayments made under the National Healthcare SPP in 2011-12.[19]
1.11
Mr Paul Gilbert, Victorian Branch of the Australian Nursing Federation
(ANF), explained to the committee that:
...what occurred was consistent with the terms of the
agreement. It might be prudent for people to look back and see what the terms
said.[20]
(II) Calculating the Adjustment
1.12
In the first two transition years of the NHRA, Commonwealth funding
variations may occur based on the application of the agreed funding formula set
out in the Intergovernmental Agreement on Federal Financial Relations (IGA)
that the Commonwealth and state Treasurers signed up to.[21]
The formula is calculated with reference to growth
in population estimates provided by the Australian Bureau of Statistics (ABS) weighted
for hospital utilisation, the rolling five-year average of growth in the
Australian Institute of Health and Welfare (AIHW)
Health Price Index and a technology factor
(which is fixed).[22]
1.13
The joint submission from the Department of Health and Ageing and
Department of the Treasury (joint Health and Treasury submission) noted that:
All nine jurisdictions have agreed that this formula reflects
the costs of delivering public hospital services. The funding formula ensures
the Commonwealth provides funding which reflects increasing demand for health
services – as costs or population levels change, Commonwealth funding changes. The
components of the formula ensure that the Commonwealth does not under-fund
services if costs and/or population growth are higher than expected, and
conversely does not over-fund if costs and/or services are lower than expected.[23]
(i) Population Growth
1.14
In terms of population growth estimates, the ABS submission explained
that the bureau introduced innovations that directly improved the quality of
estimated resident population (ERP) figures when putting together the
preliminary official population estimates based on the 2011 Census.[24]
The innovation was the introduction of Automated Data Linking which meant an
improved measure of net undercount than would have previously been possible
under other Census estimates.[25]
The submission noted that:
This major improvement resulted in a lower estimate of how
many people the ABS needed to add to the 2011 Census counts when deriving
Australia’s official population estimates for 30 June 2011. The ABS estimated
that the previous method would have added in around 247,000 people who were not
actually in the population.[26]
1.15
Ms Gemma Van Halderen, ABS, informed the committee that this
recalculation occurred in a transparent and open fashion. Ms Halderen stated
that the ABS:
...put out advice prior to the population census in 2011 that
it was going to be using a new method of measuring the quality of the census. We
then put out advice in 2012, when the first census release came out and when
first population estimates came out...Like the Australian Institute of Health and
Welfare, we are very open and transparent in our methods and how we approach
things.[27]
1.16
Professor Stephen Duckett, in responding to the question of whether the
Commonwealth’s application of population figures was fair, indicated that it
was. He stated before the committee:
In brief, yes...My view is that it was fair of the Commonwealth
to say, “We are going to use the latest estimates that are available of
population and we believe these are what should be applied.” I think that is
fair...[28]
(ii) Health Price Index
1.17
The AIHW advised that growth in the Health Price Index for the last
available year of 2010-11 was the lowest for a decade and that this was a result
of moderation in medical inflation rates and the price of the Australian dollar
(which leads to a fall in the price of medical and surgical equipment sourced
from outside Australia). This lower growth has driven down the overall
five-year average of the index calculated by the AIHW.[29]
1.18
David Kalisch, AIHW, stated in the submission to the committee that:
On the issue of transparency, the AIHW fully explains the
method of calculation for the THPI [Total Health Price Index] in our annual Health
expenditure Australia report, which is released around September each
year....I would suggest that the Committee does not confuse the issue of
transparency which we have demonstrated with the perspective of those who
believe the numbers should be higher in order to produce a higher funding level
to state governments.[30]
(III) Timing
1.19
Much of the criticism directed at the Commonwealth relating to the
adjustment in funding has focussed on the timing of the decision and the
deadlines placed on states to adjust their budgets. However, the Commonwealth
actually departed from normal practice by spreading the residual adjustment
over the remainder of the 2012-13 financial year, commencing in December 2012.[31]
This was done to assist states in managing cash flows even though normal practice
is to make adjustments in full in the next available payment.[32]
1.20
The Federal Financial Relations Act 2009 actually indicates that
any adjustments should be made in the first practicable financial year
following the change.[33]
Further, the IGA requires that adjustments to account for the difference
between estimated and actual outcomes are to be acquitted in the first
available payment.[34]
1.21
Mr Peter Robinson, Treasury, informed the committee:
In this case, we have spread the adjustment to the SPP over
the course of 2012-13. So we have gone as far, I guess, as we could in terms of
the legislative basis that we have for making adjustments.[35]
1.22
The NHRA was an agreement signed off by all governments after extensive
negotiations. The nature of the agreement and how funding would be calculated
were known to all jurisdictions for a substantial period of time and the
Commonwealth made deliberate efforts to even out the adjustment whilst abiding
by relevant legislative requirements.
(IV) State Responsibility for Impact on Healthcare Services
1.23
Labor Senators note that the Commonwealth is actually providing an
additional $716 million in public hospital funding to the states in 2012-13
compared to 2011-12.[36]
Also, the states have numerous options at their disposal to adapt to the
funding adjustment. For example, the joint Health and Treasury submission
noted:
The Commonwealth will also provide States with $48.2 billion
in “untied” GST payments in 2012-13, which States could apply to public
hospital services if they choose to do so. The 2012-13 MYEFO adjustment varied
the Commonwealth payment in 2012-13. It does not automatically flow that this
should have a negative impact on patient care or services.[37]
1.24
The NHRA recognises that the states are the system managers of the
public hospital system. A core element of being the system manager of public
hospitals is to ensure that services are appropriately funded. Clause A60 of
the NHRA states:
States will determine the amount they pay for public hospital
services and functions and the mix of those services and functions, and will
meet the balance of the cost of delivering public hospital services and
functions over and above the Commonwealth contribution.[38]
1.25
This means that where Commonwealth funding increases or decreases
according to the agreed funding formula, the state has the critical role of
assessing whether the state’s funding contribution requires adjustments to
enable the Local Hospital Network to meet the level of services set out in
their Service Agreement. Some states have met their obligations; for example Dr
Mary Foley, New South Wales Department of Health, told the committee:
In New South Wales, the state Treasury has maintained our
level of funding, in keeping with the service agreements and new funding model
we implemented on 1 July last year.[39]
1.26
Other states have not met their obligations under the NHRA and have
instead blamed the Commonwealth funding adjustments for service reductions
driven by their own funding cuts. The submission from the ANF Victorian Branch
states in the context of cuts to the Victorian health system that:
...while these cuts [in the Victorian health system] have
occurred subsequent to the Federal Government adjustments to state funding, it
does not immediately follow that this is the sole cause or motivation for the
cuts.[40]
1.27
Furthermore, Labor Senators note allegations put before the committee
that the Victorian Government may have acted to ensure that the Commonwealth
funding adjustment was implemented in such a manner as to maximise service cuts
to Victorians. Mr Gilbert stated:
It has been put to me that there was one example where a
health service proposed to deal with the cuts by way of not closing any beds or
reducing theatre sessions and that that proposal was rejected in favour of one
that closed beds and reduced theatre sessions. I think [Victorian Health]
Minister Davis, as is his role, for the good of Victoria, in his view, ensured
that the impact was as severe as it could be in order to generate the positive
outcome.[41]
1.28
When questioned on whether he thought that the Baillieu Government
intentionally sought to make the adjustment in Commonwealth funding appear more
severe as part of a public relations effort, Mr Gilbert responded:
I am saying that a hospital changed its proposal to deal with
the cuts [following submission to the Victorian Department] to one that had a
greater media impact. I am saying this was consistent with the minister’s
message. Whether the minister ever had communication with that health service,
it [sic] will never know.[42]
1.29
Despite the protestations of the Baillieu Government, data recently
released by the AIHW demonstrates that Victorian hospitals were tracking well
below their performance targets prior to concerns being raised about the
Commonwealth funding adjustment. In fact, Victorian hospitals were only seeing
62.8% of emergency patients within four hours in the September quarter, and
only seeing 65% on time over the 2012 calendar year, figures were well below
the target of 70% for the year.[43]
1.30
It is because of the Victorian
Government’s inability to manage their own health system that
the Commonwealth is paying $107 million directly to Local Hospital Networks and
not to the Baillieu Government.[44]
This payment was necessary because of the decision of the Baillieu Government
to make substantial cuts of some $616 million from the Victorian health system.[45]
1.31
The ANF Victorian Branch submission also observed that Victoria has
previously issued, through its Department of Health, quarterly reports of
elective surgery waiting lists and emergency department waiting times. As the
submission suggests, these are reasonable measures against which to assess the
impact of any cuts on patient care and services. However, since June 2012, the
Victorian Government has failed to update these reports.[46]
1.32
The inquiry also heard that ordinarily Victorian health services enter
into Statements of Priorities with the Victorian Department of Health which
indicate what services they intend to provide. Unlike in previous years, these
statements have not been published, although according to the ANF Victorian
Branch an initial set was negotiated and signed but not published once the
Commonwealth funding adjustment was announced.[47]
The committee heard that:
They would have been a good benchmark on which to judge the
impact of the federal cut because you could have said, “Looking at what was
going to happen before anyone knew about the federal cut, we could say this is
what happened as a consequence of the federal cut”.[48]
1.33
Another key concern raised at the inquiry was
the fact that the Victorian Government has refused to provide the
independent Administrator of the National Health Funding Pool with details on
how it is allocating the Commonwealth funding.[49]
When questioned on why the Victorian Government would not want this data
published Professor Duckett responded to the committee:
I do not know. I think it is very regrettable, as I said in
my opening statements. I think part of these reforms are about transparency,
and I think that the Victorians should supply that data to the independent
administrator; it is part of the reforms they agreed to.[50]
1.34
The ANF Victorian Branch submission speculates as to the reasons
for these various omissions on the part of the Victorian Government:
It may be inferred from this that cuts to services were
already intended...the timing of the Gillard Government funding adjustment has
enabled the entire woes of the Victorian health system to be blamed on the
actions of the Commonwealth. The absence of usually available State statistics
has made this an easier task.[51]
1.35
This misleading attribution of blame to the Commonwealth may apply even
where health services have specifically linked changes in their services to the
Commonwealth’s funding adjustment. Mr Gilbert stated before the committee that:
...there were substantial cuts going on in, for example,
elective surgery procedures that were indeed publicly announced at Christmas
before last and they were already impacting on health services. Simply because
a statement says that it is because of something [adjustment in Commonwealth
funding] is not itself evidence to me that that is the case.[52]
1.36
Labor Senators encourage all states to transparently reveal how Federal
Government funding to their health systems is being spent and take
responsibility for cuts in funding that occurred independently from the
adjustment in Commonwealth funding announced last year.
(V) Response to Recommendations
1.37
In relation to recommendation 1, Labor Senators do not consider it
necessary to reinstate funds to the states and territories for the years
2011-12 and 2012-13 that were affected by the release of MYEFO. The decision to
alter Commonwealth funding was done in accordance with a formula designed so
that the Commonwealth does not over-fund if costs or services are lower than
expected.[53]
A decision on whether other jurisdictions will receive a funding rescue package
similar to the one provided to Victoria will be made by on a case by case
basis. However, Labor Senators point out that other states have succeeded in
meeting the costs of health services from their own budgets.[54]
As noted, the New South Wales Government absorbed the Commonwealth funding
adjustment from across the entire state’s budget and there was no reduction of
funds dedicated to health services.[55]
1.38
Labor Senators reject the premise of recommendation 2. In order to
secure the emergency funding package to Victoria the Commonwealth has had to
redirect funding from the Seamless National Economy National Partnership, with
the balance of the $107 million to come from decisions on future funding
projects for the state.[56]
This, however, is not a threat to the state’s taxpayers but rather a necessary
commitment on the part of the Commonwealth to ensure that essential health
services meet the needs of all Victorians. Such a step would not have been
necessary if the Baillieu Government had not cut hospital budgets and then
engaged in a cynical scare campaign aimed at falsely attributing blame to the
Commonwealth.[57]
1.39
In terms of recommendation 3, Labor Senators think that the Commonwealth
should retain discretion to bypass existing arrangements and fund state
hospitals or hospital administrators directly in order to swiftly secure vital
health services. Although this approach does depart from regular funding
processes, it may be necessary in particular circumstances such as in Victoria
where the Baillieu Government cut $616 million from the state’s health system.[58]
The Commonwealth would of course prefer to avoid future emergency rescue
payments and encourages all jurisdictions, including Victoria, to support the
NHRA and fulfil their obligations as system managers of the public hospital
system.
1.40
In response to recommendation 4 the Commonwealth will, depending on the
circumstances, consider how to apply funding adjustments if and when they arise.
In the present scenario, the Commonwealth spread the funding adjustment over
the course of the financial year even though it would have been permissible to
make the adjustment earlier (i.e. first available payment).[59]
Under the NHRA, there will continue to be regular variations in Commonwealth
funding for public hospital services. Commonwealth funding is calculated
according to a designated formula agreed to by all jurisdictions and the
formula will change depending on the inputs into that formula.[60]
As part of the NRHA, all states have agreed to a future process of six-monthly
reconciliations of Commonwealth funding against public activity levels and
funding from the Commonwealth will vary if actual activity differs from what
was originally forecast.[61]
Also, it is important to remember that the states will be able to amend the
service levels outlined in Service Agreements at any time. The Commonwealth’s
activity based funding will be based on the forecast activity in these
agreements, meaning that it will be varied if amendments are made by the
states.[62]
1.41
Labor Senators do not support recommendation 5 and believe that the
Commonwealth should be afforded the flexibility to rearrange health payments as
considered suitable depending on a variety of factors. The
adjustment in funding was not undertaken to reimburse the Commonwealth for an
ancillary purposes; it was done completely in accordance with the NHRA.
1.42
In terms of recommendation 6, Labor Senators note that the nature of the
Health Price Index and how it was calculated was one of the conditions for
Commonwealth funding set out in the IGA which all jurisdictions were aware of
prior to the recent Commonwealth funding adjustment. The Commonwealth has no
present plans to alter the formula.
(VI) Conclusion
1.43
The NHRA ensures that all states will receive additional Commonwealth
funding for public hospitals compared with the National Healthcare SPP.[63]
Adjustments to Commonwealth funding were not arbitrarily decided but rather
were consistent with the regular budget processes that Treasury undertakes
throughout each year after due consideration of the estimated population growth
and the Health Price Index.[64]
Some states have refused to meet the requirements of the NHRA and perform their
role as system managers. This has impacted on service delivery in those states.
1.44
It is also important to consider that the NHRA contains a dispute
resolution clause which is available to all jurisdictions and could have been
utilised to handle this matter currently before the committee.[65]
However, as the Department of Health and Ageing mentioned during the inquiry,
the dispute resolution arrangements have not been triggered by Victoria or any
other state.[66]
If the Victorian Government or any other government was confident that the
funding adjustment was unreasonable it could have opted to employ this clause
at any time after the Commonwealth Treasury informed state Treasuries on 3
November 2012 that adjustments would occur across the remainder of the 2012-13
financial year.[67]
1.45
The timing of the adjustment has provided an opportunity for the
Victorian Government to attempt to lay blame on the Commonwealth for its own
health funding cuts. This is a false ascription of culpability that ignores the
fact that the NHRA contains mechanisms to adjust Commonwealth funding in
accordance with the application of a known formula. The states have an important
role to play as system managers and this is explicitly recognised in the
agreement.[68]
1.46
The Commonwealth and the states signed up to the NRHA to secure the
future health of Australia with less waste and increased transparency and
accountability. Labor Senators urge all states and other stakeholders to
closely scrutinise the terms of the NHRA and recognise that the adjustment was
in keeping with the agreement.
Senator Helen Polley
Deputy Chair
Senator Anne
McEwen
Senator for
South Australia
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