Performance-based hospital funding: a reform tool or an incentive for fraud?

Hospital incentive funding has been promoted as a tool for health care reform. However, overseas experience has shown that funding changes can influence hospital casemix coding practices.1 In the Australian states of Victoria and New South Wales, hospital incentive funding has resulted in fraudulent reporting of hospital performance data (Box 1 and Box 2). Data fraud raises important questions about the governance of hospitals and monitoring by state and territory governments of public hospital systems.

In addition, Queensland’s commission of inquiry into Bundaberg Base Hospital found that performance-based funding contributed to Dr Jayant Patel’s “sustained path of injury and death” in that too much emphasis was placed on attaining target numbers, and too little on patient care.12 In the context of Bundaberg Base Hospital allowing its budgetary concerns to dictate elective surgery throughput, the inquiry found that “Dr Patel made himself so valuable in that respect that the administrators were plainly reluctant to offend him, let alone investigate him”.12

The combination of performance data manipulation, data fraud and variable interpretation of reporting requirements has meant that comparisons of hospital performance among states are meaningless. In the absence of adequate funding to maintain basic services, performance-based funding has prompted hospital data fraud in Victoria and NSW. To date, the possible relationship between key performance indicator (KPI) fraud and the practice of paying KPI-based salary bonuses to hospital administrators has not been investigated.

The Commonwealth Corporations Act 2001 established national standards for the honest reporting of financial data and information that is financially sensitive, and for the open disclosure of potential conflicts of interest by directors of publicly listed companies. Breaches of these standards of behaviour attract criminal penalties for individual directors of publicly listed companies under Section 1308 of the Corporations Act.

Any attempts to promote health care reform in Australia through the use of incentive funding schemes must be backed up with legislation making clear that data corruption is not tolerated in the public sector, just as it is not tolerated in the private sector. Such legislation must be nationally uniform so that it regulates and defines the terms used in hospital data reporting processes to allow meaningful comparisons to be made among public hospital systems, and to allow appropriate evaluations of the impact of government health policy changes.

Even if hospitals were adequately resourced, poor management practices could lead to inefficient use of resources and decreased hospital performance. Comparative performance indicators that relate various hospital expenditures to their impact on patient care and measurable patient outcomes, such as the incidence of pressure ulcers after hospital admission, need to be developed. Focusing on patient outcomes would remove some of the current anomalies of casemix funding, such as the false economy of premature discharge of patients from hospital. Readmission of these patients is administratively treated as a “new” hospital admission that generates additional funding. The true cost of what is in fact a failed discharge is a financial impost on the community, not to mention a distress to patients, their families and carers.

Systems for reporting the performance of Australian public hospitals are inadequate. Systems have to be developed to provide nationally consistent reporting, with protection against potential hospital administration conflicts of interest, fraudulent manipulation of data and variable interpretation of reporting rules. Consideration should be given to making the Australian Bureau of Statistics responsible for collecting and protecting hospital data through regular independent audits. If meaningful health care reform is to be achieved in Australia, we need to change hospital management culture by making hospital data corruption and deliberate misinformation of the community a criminal offence.