Introduction to Commonwealth Funding Acknowledgements

HFMA are proud to have partnered with **Insert all Partnerships** in the development of the E-Learning Health Management & Finance Foundation Program. Overview

On the completion of this module, the learner will have gained an understanding of:

• Why Commonwealth funding is important • Governance of Commonwealth funding • How Commonwealth funding is Distributed • Commonwealth funding responsibilities • Additional Commonwealth revenue opportunities Why is Commonwealth funding important? Support for State and Territory Governments

The Commonwealth is the largest government funder of the health system, providing approximately 60% of total government health funding.

Without Commonwealth funding, State and Territory governments could not afford to fund and therefore run, health services.

(Australian Government: Reform of the Federation White Paper, 2016a Growth in Health Expenditure

The importance of Commonwealth funding for Australia’s health system is further affirmed by the fact that health expenditure is expected to be the main source of budgetary pressure over the next 50 years.

Prior to the 2014-15 Commonwealth Budget, Commonwealth health expenditure was projected to rise from approximately 4.1% of GDP in 2011-12, to around 7% in 2059-60. (Australian Government: Reform of the Federation White Paper, 2016b) PDF

PDF - Growth in total health expenditure, including annual growth, by source of funds, 2005-06, 2015-16

The following table clearly depicts growth in Commonwealth health expenditure over a 10 year period, notwithstanding a comparative increase in health expenditure by state/territory and local governments, as well as non-government sources over the same period. Link

Tough Choices: How to rein in Australia’s rising health bill

https://theconversation.com/tough-choices-how-to-rein-in-australias- rising-health-bill-13658

There are a number of factors contributing to a growth in health expenditure, with new, improved and more services per person being a major driver of health growth above GDP growth. To read more about why health costs are rising, follow this link. Additional revenue opportunities for health services

Some of the Commonwealth funding received by health services is uncapped, such as funding for the Medicare Benefits Schedule (MBS) and hospital funding.

This means that there are significant opportunities for health services to optimise Commonwealth funding and subsequently increase revenue. Who governs Commonwealth funding? Governance Structure

Council of Australian This diagram represents the main Governments (COAG) elements comprising the governance of Australia’s health system from a Commonwealth perspective. COAG Health Council (CHC)

Australian Health Ministers’ Advisory Council (AHMAC) Council of Australian Governments

“The Council of Australian Governments (COAG) is the peak intergovernmental forum in Australia.

The members of COAG are the Prime Minister, State and Territory Premiers and Chief Ministers, and the President of the Australian Local Government Association. The Prime Minister chairs the COAG.” (Council of Australian Governments, 2016a) Role of COAG

“The role of COAG is to promote policy reforms that are of national significance, or which need co-ordinated action by all Australian government. Where formal agreements are reached, these may be embodied in intergovernmental agreements, including National Agreements and National Partnership Agreements” (Council of Australian Governments, 2016a).

The Intergovernmental Agreement on Federal Financial Relations (IGAFFR) is an important example. COAG and the Intergovernmental Agreement on Federal Financial Relations

The COAG also agreed the IGAFFR and established a new framework for the Commonwealth’s financial relations with states and territories. The framework was introduced in 2009, “representing the single most significant shift in Commonwealth-state relations for decades.”

“Under the IGAFFR, all payments are processed centrally by the Commonwealth Treasury and paid directly to each state treasury. State treasuries are then responsible for distributing the funding within their jurisdiction.” (Council of Australian Governments, 2016b) Link

“The IGAFFR is designed to be a living document, with detailed arrangements set out in schedules which can be updated as necessary, with the agreement of COAG” (Council of Federal Financial Relations, 2016).

Follow the link to read further about the IGAFFR and its related schedules including: • Schedule F – National Agreements (including the National Healthcare Agreement and the National Health Reform Agreement); and • Schedule G – National Partnerships http://www.federalfinancialrelations.gov.au/content/intergovernmental_agreements.aspx COAG Support

COAG is supported by a system of ministerial councils and subsequent advisory councils. For health, this is the COAG Health Council, or CHC (i.e. ministerial membership), and its advisory body, the Australian Health Ministers’ Advisory Council, or AHMAC (i.e. health CEO membership).

(Council of Australian Governments Health Council, 2014c) 8 COAG Councils

In 2013, COAG streamlined its councils from 22 to 8 – these are: • Federal Financial Relations Council • Disability Reform Council • Transport and Infrastructure Council • Energy Council • Industry and Skills Council • Law, Crime and Community Safety Council • Education Council • Health Council COAG Health Council

“The COAG Health Council (CHC) and its advisory body, the Australian Health Ministers’ Advisory Council (AHMAC), provide a mechanism for the Australian Government, the New Zealand Government, and State and Territory governments to discuss matters of mutual interest concerning health policy, services and programs.”

(Council of Australian Governments Health Council, 2014a) COAG Health Council Membership

Membership of the CHC include Commonwealth, State, Territory and New Zealand Ministers with responsibility for health matters, and the Commonwealth Minister for Veterans’ Affairs.

(Council of Australian Governments Health Council, 2014b) CHC Terms of Reference

As per the COAG Health Council 2014 Terms of Reference, the CHC is to consider increasing cost pressures whilst providing a forum for continued health issues cooperation. In addition to this, the CHC will:

• Fulfil regulatory / governance obligations that fall within the health portfolio in the areas of national registration and accreditation; • Ensure that the responsibilities given to Ministers with responsibility for health matters in various COAG agreements and decisions are met; and • Consider matters reported to the Council by relevant advisory groups

(Council of Australian Governments Health Council, 2014b) Broad Areas of CHC Oversight

The CHC is involved in the following broad areas: • Hospitals and related Health Services • National Partnership Agreements • Local integration of local hospital and primary care networks • Better integration of acute care and primary health care pathways for patients • Better coordination of care for people with chronic and complex conditions • eHealth • Health workforce • Cancer care • Mental health reform • Closing the Gap Link

To read further about the COAG Health Council 2014 Terms of Reference, follow the link and download the COAG Health Council Terms of Reference PDF:

http://www.coaghealthcouncil.gov.au/ AHMAC

AHMAC is the advisory and support body to the CHC and operates to deliver health services more efficiently through a coordinated or joint approach on matters of mutual interest. The AHMAC is responsible for providing effective and efficient support to the CHC by: • Advising on strategic issues relating to the coordination of health services across the nation and, as applicable, with New Zealand • Operating as a national forum for planning, information sharing and innovation.”

(Council of Australian Governments Health Council, 2014c) AHMAC Membership

AHMAC membership is comprised of the heads of: • The Australian Government health department • Each State and Territory health department • The New Zealand health authorities • The Australian Government Department of Veterans’ Affairs

(Council of Australian Governments Health Council, 2014c) Responsibility for and flow of public hospital funding Responsibility for Public Hospital Funding

“Under the National Health Reform Agreement, the Commonwealth, state, and territory governments are jointly responsible for funding public hospital services, using either activity based or block funding” (National Health Funding Body, 2016).

Commonwealth national health reform funding for public hospitals is paid monthly into a Pool which consists of eight state and territory bank accounts, with the Reserve Bank of Australia (National Health Funding Body, 2016). The Administrator – National Health Funding Pool

The Administrator is selected by the CHC and is a single independent statutory office holder, appointed to the position under the legislation of the Commonwealth and each state and territory. The Administrator is not subject to control or direction of any Commonwealth Minister – he is independent of Commonwealth, and State / Territory departments.

As outlined in the National Health Reform Agreement, the Administrator, with support from the Funding Body, administers and oversees payments into and out of the Pool for each state and territory, and reports on various funding and service delivery matters.

(Administrator National Health Funding Pool, 2013). Link

http://www.publichospitalfunding.gov.au/national-health- reform/funding-flows

It is important to have an understanding of how Government funding flows to health services, including the main types of funding. The following information depicts this in a simplified way. Link

http://www.nhfb.gov.au/health-reform/

Follow this link to read further about the National Health Funding Pool, National Health Funding Body, National Health Reform, and the National Health Reform Agreement. Regulation of Commonwealth Funding

Although the health system is heavily regulated, the Commonwealth Government’s expectation is that regulation is reduced, and only used where it is required. Commonwealth funding is regulated by the Administrator of the National Health Funding Pool, who also provides advice to the Treasurer. When concerning private and public hospitals: • Each state and territory has legislation relevant to the operation of public hospitals • Each state and territory government licenses or registers private hospitals How is Commonwealth funding distributed? Commonwealth Government schemes

“Government-funded schemes are large-scale systematic plans or arrangements aimed at giving all Australians access to adequate, affordable healthcare” (Australian Institute of Health and Welfare, 2016a). There are numerous Government schemes, however we have chosen to focus briefly on four prominent schemes listed below: 1. Medicare Benefits Scheme – a universal public health insurance scheme 2. The Pharmaceutical Benefits Scheme (PBS) 3. Private health insurance scheme 4. Aboriginal and Torres Straight Islander (ATSI) Scheme Medicare Benefits Scheme

In 1984, Medicare was introduced to provide free or subsidised treatment by health professionals (doctors, specialists and optometrists).

Medicare benefits are based on a schedule of fees called the Medicare Benefits Schedule (MBS), which, after discussion with the medical profession, is ultimately decided by the Commonwealth (Australian Institute of Health and Welfare, 2016). Adherence to the Schedule of Fees

Apart from optometry, practitioners are not required to adhere to the schedule of fees and can charge more than the scheduled fee. Under such circumstances, the patient is required to pay the extra amount called the ‘gap’ payment (Australian Institute of Health and Welfare, 2016). Medicare Reimbursements Outside a Hospital Setting

When a person visits a doctor outside a hospital setting, Medicare will reimburse: • 100% of the MBS fee for a General Practitioner • 85% of the MBS fee for a Specialist If the doctor bills Medicare directly (i.e. bulk-billing), the patient will have no out-of-pocket expense. If the doctor charges more than the MBS fee, the patient must pay the gap (Australian Institute of Health and Welfare, 2016). Link

Although Medicare covers part or all of the cost of a number of items, there are some medical costs that Medicare does not cover. Follow the link to find out some examples. https://www.privatehealth.gov.au/healthinsurance/whatiscovered /medicare.htm What are the elements of the MBS?

The key components of the MBS are: • MBS item numbers – the unique identifiers of up to five digits for each individual item listed in the MBS • Descriptors – a description of the item • Fee applicable – the fee from which the benefit payable is calculated • Billing rules – rules that establish the circumstances in which a benefit can be billed. Sometimes the rules apply limits to the amount or frequency of the amount that can be billed. Billing rules are specific to the relevant schedule – e.g. the pathology services table sets out rules specific to billing pathology services (Paxton Partners, 2011). Pharmaceutical Benefits Scheme

The Commonwealth Government subsidises a wide range of prescription pharmaceuticals under the Pharmaceutical Benefits Scheme (PBS). Generally speaking, the State and Territory governments cover the cost of pharmaceuticals provided in public hospitals, meaning the patient receives them for free. Under the PBS, Australians pay only part of the cost of most prescription medicines bought at pharmacies – the rest of the cost is covered by the PBS (Australian Institute of Health and Welfare, 2016). How much do patients pay for pharmaceuticals?

“The amount paid by the patient varies, up to a capped maximum which is different for general patients and for those with concession card” (Australian Institute of Health and Welfare, 2016). Once the cap is reached, general patients pay a small co-payment while for concession card holders, additional PBS items are free of charge.

If a medicine is not listed under the PBS schedule, the consumer must pay the full price as a private prescription. Non-PBS medicines are not subsidised by the Australian Government (Australian Government: Private Health Insurance Ombudsman, 2016b). Private Health Insurance Scheme

“Although private health insurance is not compulsory, at June 2013, 10.8 million Australians (47% of the population) had some form of private hospital cover and 12.7 million (55%) had some form of general treatment cover” (Australian Institute of Health and Welfare, 2016).

The existence of private health insurance helps to ease the burden of health expenses on the Medicare system. Evidence also suggests that people are more likely to increase their uptake of health services if they are covered under private health insurance, thus contributing to a healthier population (Parliament of Australia, 2016). Government Taxation Rebate

The Commonwealth also provides the Private Health Insurance Rebate to encourage people to take out and maintain private health insurance. The rebate is means tested and calculated on a tiered system. It can be as low as 0% or as high as approximately 37%.

People without private health insurance pay a Medicare levy surcharge, while people who do not purchase private health insurance by the age of 31, will usually need to pay higher premiums if they purchase private health insurance in the future (Australian Government: Private Health Insurance Ombudsman, 2016a). Link

http://www.privatehealthcareaustralia.org.au/have-you-got-private- healthcare/benefits-to-you/

In addition to the Government taxation rebate, there are other benefits for patients who are covered by private health insurance, including: Private Patient Hospital Funding

Part of the cost of being admitted as a private patient is covered by a private activity based funding contribution, which is paid to hospital by the State government, however originally comes from the Commonwealth government.

A person with private health insurance can still opt to be treated as a public patient in a public hospital (Australian Institute of Health and Welfare, 2016).

It is therefore important that health services firstly recognise private patients, and think of innovative ways to capture private patient revenue. Aboriginal and Torres Straight Islander Scheme

In addition to providing mainstream services for all Australians, the Commonwealth Government also delivers a range of specific measures to meet the needs of the Indigenous population.

For example, the “Closing the Gap PBS Co-payment Measure improves access to PBS medicines for eligible Aboriginal and Torres Strait Islanders who are living with, or at risk of, chronic disease. Closing the Gap prescriptions attract lower or no patient co-payment for PBS medicines” (Department of Human Services, 2016). Link http://www.health.gov.au/internet/main/publishing.nsf/Content/ mc15-002185-close-the-gap

From a sustainability perspective, Indigenous Australian health funding is largely supported by governments, as the proportion of funding by the non-government sector is comparatively less when compared to non-Indigenous Australian funding. Such factors support the need for initiatives such as Closing the Gap Commonwealth Funding Responsibilities Under the National Healthcare Agreement

“The National Healthcare Agreement defines the objectives, outcomes, and performance indicators, and clarifies the roles and responsibilities that guide the Commonwealth and States & Territories in delivery of service across the health sector” (Department of Health and Human Services, 2009).

Within the National Health Agreement, the Commonwealth funding responsibilities are either solely that of the Commonwealth, or shared with the States and Territories (Department of Health and Human Services, 2009). Commonwealth Sole Funding Responsibilities

Responsibilities funded • Education of health Aboriginal and Torres solely by the professionals Strait Islander primary Commonwealth (i.e. not • Health services for healthcare by the State / Territory) eligible veterans • Research through the include: • Residential, community National Health and • Access to private and flexible aged care Medical Research medical care services Council (NHMRC) • Access to • Purchase of vaccines • Medicare Benefits pharmaceuticals (PBS) under national Scheme (MBS) • Access to private health immunisation (Council of Australian insurance (private arrangements Governments, 2012a) health insurance scheme) • Community-controlled Commonwealth Joint Funding Responsibilities

Responsibilities shared and jointly funded by the Commonwealth, States and Territories include: • Public hospital services • Aboriginal and Torres Strait Islander health services • Health workforce training • Emergency responses • Blood and blood products (Council of Australian Governments, 2012a). PDF

Health Expenditure Australia 2014-2015

This PDF gives a clear depiction of the structure of the Australian healthcare system, and its funding flows in 2014-2015. PDF

AIHW – Australia’s Health System 2016

Delving a little deeper into Australia’s health funding arrangements, we can see who has ultimate responsibility for the services that are funded, as well as more clearly see the break-up of funding sources. Commonwealth Funding Streams

As mentioned previously, the Commonwealth funds its responsibilities either on its own, or in a shared capacity with the States / Territories. Under the National Health Reform (NHR) Agreement, these responsibilities are funded through a range of streams including: • Activity Based Funding – hospital services provide to public patients in a range of settings and funded on an activity basis • Block Funding – hospital services provided to patients in public hospitals better funded through block grants, including relevant services in rural and regional communities • Public Health Funding – public health activities managed by States and Territories (Council of Australian Governments, 2012b) How Are Public Hospitals Funded?

Under the National Health Reform Agreement, the Commonwealth, States, and Territories are jointly responsible for funding public hospital services, using the following two major streams: • Activity Based Funding (ABF) • Block Grant Funding (Council of Australian Governments, 2012b). Link

https://www.ihpa.gov.au/

Although you are not required to know how to calculate ABF, it may be helpful to gain a basic appreciation of the building blocks involved. Follow the link to read more. Public Hospital Eligibility for Commonwealth ABF or Block Grant Funding

Under the National Health Reform Agreement, the scope of public hospital services that are funded on an activity or block grant basis and are eligible for a Commonwealth funding contribution currently includes: • All admitted and non-admitted services • All emergency department services provided by a recognised emergency department • Other outpatient, mental health, sub-acute services and other services that could reasonably be considered a public hospital service. (Council of Australian Governments, 2012b). Public Hospital Revenue Direct from Commonwealth

As previously mentioned, public hospital revenue that comes from the Commonwealth is first fed to the States / Territories via the National Health Funding Pool (i.e. ABF) or via the State Managed Fund (i.e. block grant funding) (Administrator, National Health Funding Pool, 2016).

However, some public hospital revenue comes directly from the Commonwealth – we will now focus briefly on the following: • Outpatients – Private (MBS) Clinics • Inpatient – Private (MBS) Practice • Commonwealth grants Outpatients – Private (MBS) Clinics

Public outpatient funding is capped, therefore establishing a private (MBS) clinic enables hospitals to provide specialist services that would otherwise not be available to patients. It serves community demand for access to specialist services and attracts specialist and teaching opportunities.

Private (MBS) Clinics receive no public funding – all costs in offering the service rely on billing Medicare under the specialist’s provider number.

There are Medicare requirements that need to be met – the private (MBS) clinics function in accordance with these requirements (Department of Health & Human Services, 2011). Opportunity for Additional Revenue – The Outpatient Private (MBS) Picture

1) Patient referred to a specialist via a GP, hospital doctor or another specialist. The referral must meet Medicare requirements 2) Patient elects to be treated as a private patient 3) Referral is triaged and allocated to the private specialist clinic 4) Patient presents as scheduled 5) Specialist treats the patient and after the consultation, the patient reports to the clinic reception to sign the bulk bill assignment form 6) Hospital bills Medicare under the specialist’s provider number on behalf of the specialist 7) The service is charged at 85% of the MBS fee – the bulk bill rate The Outpatient Private (MBS) Picture (cont.) • 7) Medicare pays for the service electronically and the revenue is then allocated according to the specialist’s Private Practice Agreement • 8) The portion of revenue that is allocated to the hospital is called a facility fee. This fee covers the cost of running the private (MBS) clinic • 9) Diagnostics related to the private specialist consultation are also billed to Medicare, pending the patient signs the bulk bill assignment form (Department of Health & Human Services, 2011). Further Revenue Opportunities for Private (MBS) Clinics It is not uncommon for a patient to require consultations from multiple specialists associated with their condition. All of these activities are billable at the same rates (see example diagram below).

MBS Item Number MBS Item Description 85% MBS

110 Initial consultation $128.30

116 Review consultation $64.20 Link

The following links provide further reading around private (MBS) clinics in Victoria.

Link – Specialist Clinics in Victorian Public Hospitals: A resource kit for MBS-billed services https://www2.health.vic.gov.au/getfile/?sc_itemid=%7B5402894B-0E6B-4E88-92EB- 7796636CA4CF%7D&title=Specialist%20clinics%20in%20Victorian%20public%20hospitals %20%3A%20A%20resource%20kit%20for%20MBS-billed%20services

Link – Specialist Clinics in Victorian Public Hospitals: Access Policy https://www2.health.vic.gov.au/getfile/?sc_itemid=%7BE6447CD4-2AD8-48B3-8760- 08A028FC788E%7D&title=Specialist%20clinics%20in%20Victorian%20public%20hospitals %3A%20Access%20policy Inpatients – Private (MBS) Practice

Patients have a choice to be treated as public or private, and most hospitals waive excess fees and co-payments to encourage patients to elect to be treated as private. Opportunity for Additional Revenue – The Inpatient Private (MBS) Picture

1. Patient elects to be treated as a private patient 2. Hospital bills the private health insurer under the hospital’s provider number for bed fee accommodation and prostheses 3. Private health insurer pays 100% of the accommodation and prostheses services billed 4. Medicare pays 75% of the MBS fee for diagnostics, consultations and procedures and the private health insurer pays the remaining 25% of the MBS fee. These services are billed and paid under the specialist’s provider number (Paxton Partners, 2011) The Inpatient Private (MBS) Picture

Although public ABF attracts more revenue when compared to private ABF, this picture depicts how utilising and maximising inpatient private (MBS) practice can result in substantial additional revenue Public ABF for the health service. Private ABF Commonwealth Grants

Particular grants are awarded to hospitals directly from the Commonwealth. These can change from time-to-time such as with a change of government. Examples if such grants include: • National Health and Medical Research Council (NHMRC) grants • Commonwealth capital projects grants Other

There are many and varied other types of funding for hospitals that come directly from the Commonwealth, such as: • The PBS Section 100 – Highly Specialised Drugs Program funds • Specific hospital funding e.g. for DVA patients • Funding for various programs • National Partnership Agreements. References