Briefing paper

Is it possible to incorporate quality into hospital pricing systems?

22 Jul 2013

Australia has recently implemented an activity - based funding system for public hospitals. Policymakers and providers are keen to ensure that the price paid for health care services stimulates improvements in quality and safety , but some remain scept ical that this can be achieved through pricing mechanisms.

There are four main ways of linking quality and safety to hospital pricing in the context of activity based funding:

Best-practice pricing

This involves making evidenced - based decisions on what constitutes ‘best-practice’ for the treatment of a particular condition, then paying health services a set price when they provide best-practice care.

Normative pricing

This involves using price to influence the delivery of care (for example, providing incentives to deliver more care in the home for certain conditions or to provide day surgery options where appropriate).

Structural models of pricing quality

This involves linking funding to meeting accreditation standards or participating in benchmarking activities or clinical quality registries.

Payment for Performance (P4P) or quality pricing

This involves using financial incentives and/or disincentives to encourage providers to behave in certain ways that will improve quality and safety. This paper briefly examines the strength of the evidence for each of these pricing models. It considers both peer-reviewed research as well as non peer-reviewed material, such as program evaluations and government reports.

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