The fixed and variable model involves a fixed grant for hospital overhead costs and a payment for each patient treated, covering only variable costs. The integrated model provides an integrated payment to hospitals for each patient treated, covering both the fixed and variable costs. There are different weight setting processes and base prices between the States, which result in marked differences in the price paid for the same type of case treated in similar hospitals. Learning across State boundaries should be encouraged, with knowledge of what is effective and what is ineffective in casemix funding arrangements being used to develop Australian best practice in this area. South Australia 4 followed in 1994-95, with a casemix funding approach modelled substantially on the Victorian scheme 5 and also accompanied by significant budget cuts.
Funding is distributed to areas based on their population.
Even in New South Wales, policy documents emphasise the importance of casemix in informing budgets for hospitals and in paying for patients across regional boundaries. The Northern Territory and the Australian Capital Territory have also incorporated elements of casemix funding, but because of their small populations and small number of distinct providers, funding arrangements are essentially determined individually, even when an elaborated formula is used. The budgets of hospitals could thus be determined primarily on performance or output, rather than negotiation, history or politics. The five States implementing casemix funding have all adopted some common funding elements. Secondly, as these funding arrangements coincided with budget reductions, all the States have introduced capping, most commonly at the hospital level with hospital-specific targets.