The Box compares key elements of inpatient funding arrangements across the States. Funding models Two basic funding models have been developed. The initial Victorian model was based on fixed and variable components, following the recommendations of the 1990 Scotton and Owens review of the prospects of casemix funding in Australia. 12 Queensland has also adopted this model. The theory behind this approach is that efficiency is maximised if the incentives are such that hospitals can treat additional patients up to the point at which marginal treatment cost equals marginal revenue.
Marginal revenue is the variable payment made by State health authorities.
This fixed and variable model mitigates the incentive for hospitals to maximise admissions. Thus, States retain control over growth in system capacity. The alternative model is used in Western Australia and Tasmania, which both provide an integrated payment to hospitals for each patient treated covering both the fixed and variable costs. South Australia also uses an integrated payment system, but if a hospital does not achieve the negotiated volume target, payments are discounted, effectively recognising that the savings to hospitals are at marginal or variable costs. Cost variability It would be expected that the utility of treating a patient in a particular DRG would be constant across all hospitals.