Hospital funding is blowing out a key budget battleground for states

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This would be on top of the $1.4 billion for senior care, personal protective equipment, testing, treatment and respiratory clinics that Butler announced on Monday.

When asked if the health budget would take inflation into account, Butler said the Independent Health and Aged Care Pricing Authority, which sets official prices for the hospital system, “updated this cost scheme to reflect prices”.

“It does now, especially because of the impact that inflation over the course of this year is having on hospital systems,” he said.

But hospitals won’t see any extra money from this cost update until 2023-24 – and states and territories argue this will come too late as they work through hundreds of thousands of elective surgeries delayed by the pandemic.

The cost of PPE has increased more than 600 percent since December 2019.

The cost of PPE has increased more than 600 percent since December 2019.Credit:Steven Siewert

Hospital costs are rising so fast that states and territories are expected to exceed the cap this financial year, leaving them to shoulder the higher costs alone.

A spokeswoman for NSW Health Minister Brad Hazzard said the methodology behind the National Hospital Funding Agreement “does not reflect the price increases, particularly following COVID-19 and supply chain issues as well as inflation”, resulting in funding that was “unrealistically low”.

A Victorian Government spokesman said public hospitals needed “an appropriate funding model and cost-sharing arrangement … not one where the Commonwealth’s funding contribution to states is capped at 6.5 per cent each year”.

The Independent Pricing Authority for Health and Aged Care sets hospital funding by calculating the so-called “effective price” of hospital services using a complex calculation based on data that is three years old.

Tasmanian Premier and Health Minister Jeremy Rockliff said all states and territories were struggling with rising costs to deliver public hospital services “while dealing with unpredictable peaks in demand due to the pandemic response”.

The issue had recently “been elevated as a significant priority across the country”, Rockliff said, with the premier, chief ministers and health ministers across the country joining forces to call for “a fairer funding arrangement with a review of the way funding is calculated on. .”

In its determination of hospital funding for the current financial year, published in March, the rates authority said it was not possible to definitively account for the ongoing impact that COVID-19 may have on hospital service delivery and costs in 2022-23.

Albanese promised before the election to “sit down and negotiate” with the states on the hospital funding deal orchestrated in 2018 by then-prime minister Malcolm Turnbull, which imposed the 6.5 per cent growth cap and set the Commonwealth contribution to new costs at 45 per cent.

States and territories are calling for this to be raised to 50 per cent in the new deal to be negotiated next year and begin in 2025.

A recent AMA analysis of public hospital data showed that cleaning costs rose 35 per cent in the five years to 2019-20, with costs of treating emergency patients for heart attacks, septicemia and kidney or urinary tract infections rising by 6 to 9 per cent each year .

Unions are fighting for bigger pay rises as hospital workers grapple with the soaring cost of living after the consumer price index rose 6 percent in the 12 months to the June 2022 quarter. In NSW, the nurses’ union is demanding a 7 per cent pay rise.

Melbourne University Professor Stephen Duckett, a health economist who served as health minister in the Keating government, said the 50/50 cost-sharing agreement needed to be extended to help public hospitals meet the higher demand caused by the pandemic.

Duckett said the 6.5 per cent funding cap was a cost-cutting measure with “no public justification” and that if it was legitimate when the hospital deal was signed, “it’s not legitimate now”.

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