Comment / Insights into the tariff

Australia appears to have a good understanding of what a tariff can
and can’t do – is there a lesson for the NHS?

By Sue Lorimer

In a respite from the planning round in February, I took a long-planned holiday to Australia. The news on the delay to the tariff following consultation had just broken as we set off, so it seemed a great opportunity to have a look at how the Australian tariff system is working in Victoria.

Although on holiday, it was hard to resist a visit to the Royal Children’s Hospital in Melbourne. Andrew Whittingham, director of management accounting – a Merseyside ex-pat – showed me and friend (fellow NHS finance practitioner and nominated note-taker for the day, Kim McNaught) around the state-of-the-art facilities and gave us an overview of its healthcare system.

The hospital, which is funded by a sort of private finance initiative, provides a friendly and colourful environment for children. It makes extensive use of telehealth, incorporates predominantly single rooms and has facilities for parents to stay.

In short, the hospital is a credit to its staff’s innovative thinking and their understanding of children. So how do they pay for it? Although the hospital is funded by a mix of state, national government and insurance payments, it receives about half of its Aus$500m dollar budget from a tariff system.

There are some key differences from our own tariff. Australia uses a currency based on diagnosis related groups (DRGs) – which takes a different approach in some areas, such as no unbundling of critical care services.

The tariff has never been extended to accident and emergency services, which are paid for on a block contract. And capital costs are funded outside tariff, meaning Melbourne’s ‘unitary payments’ are paid centrally by the state.

Other things are more familiar. As with some specialist services in England, Victoria’s specialist providers receive an annually negotiated grant to top up the average cost-based tariff income to recognise their additional costs. And there is a system of marginal rates on some contracts.

Although the tariff has been uplifted by 1.7% this year, the hospital needs to achieve efficiencies to cover cost pressures. As in the UK, improving patient flow is at the heart of the efficiency push.

However, I saw an interesting use of a patient-tracking system that helped
share responsibility between wards and A&E for hitting the hospital’s target of admitting or discharging 81% of patients within four hours.

As in the UK, there are staffing pressures. Australian hospitals struggle to find cost-reducing efficiencies when there are mandated nurse staffing ratios.

The state has, in the past, put a ban on use of agency staff. While this gridlocked the hospital system for a few weeks, it resulted in a massive upsurge in recruitment – even if small amounts of agency usage have subsequently crept back in.

Now, the hospital uses a pool of flexible staff, similar to a nurse bank but with a number of guaranteed shifts per week, which has appealed particularly to newly qualified nurses keen to gain experience in different areas of the hospital.

So what, you might ask? It is perhaps no surprise to find another health system facing similar cost and service pressures and no surprise that there is no obvious magic solution. But one thing stood out – the tariff in Victoria is not expected to be the highly sophisticated solution that appears to be the holy grail we are seeking in the UK. There is an acceptance that tariff works better in some areas than others and sometimes more pragmatic, negotiated solutions are needed.

The tariff in England has delivered benefits over the years, underpinning waiting time reductions and driving important costing and coding improvements. And the current work – examining the potential for capacity payments alongside activity payments for urgent care and to develop year-of-care models for long-term conditions – moves us absolutely in the right direction.

In many areas, we lead the international community. But we should also learn from other approaches, such as that in Australia. We need to keep evolving the tariff but we can’t expect it to fix everything or to provide all the levers for service improvement, cost reduction and transformation.

We need to keep a sense of pragmatism as we continue our tariff journey.

Contact the president:  [email protected]