Getting to Grips With the NSW Budget
Navigating a NSW budget is disorienting work, but when it comes to health spending it truly is a hall of mirrors.
This year we brought in the big guns to help us analyse the State Budget – especially in the context of State/Federal funding reforms.
National consulting firm Access Economics was commissioned by AMA (NSW) to give health spending in the NSW budget a thorough shake – and what fell out should be of great interest to doctors and patients alike.
For the first time in 15 years, the NSW government actually came in under budget for health in 2009-10. The report found that one likely cause of this unusual result was the practice of not filling vacant positions. While this might be good for the budget bottom line in a given year, of this practice is a NSW health system under even more stress.
Going forward, the total recurrent health funding for 2010-11 is budgeted to increase by 7 per cent over 2009-10. Access Economics, however, argues that an increase in health spending of 9% is required for the system to ‘tread water’.
Where does the money come from?
Funding for health in the NSW Budget comes from three sources:
• the Federal Government;
• retained revenue (that is, money generated by the health department through fees, charges, investments, grants etc); and
• the NSW Government.
In 2010-11, recurrent health spending is budgeted to reach $15.5 billion – an increase of 7% over the 2009-10 financial year. The Federal component of this is $4.5 billion (or 29%), while retained revenue provides $2.3 billion (14.8%), and the remaining $8.7 billion (56.2%) comes from the NSW Government.
Access also examined who was contributing the most to the increased funding. The Federal contribution increased by $500 million – or by 12.6%. Retained revenue also increased significantly – up by nearly $200 million to 9.7%. The State Government contribution, however, grew by a more modest 3.9%, or $320 million.
While the increased NSW Government contribution is in line with the overall rise in State Government revenue, it is well below the increased contributions from the Federal Government and from the health department itself. As the Access report states,
“In reality, NSW is resting on its oar and allowing the Commonwealth to row three times faster.”
Where does it go?
A major focus of AMA’s political advocacy has been directed at tackling the excessive waiting lists for elective surgery in NSW public hospitals. Governments at both State and Federal level have made a number of announcements over recent years about efforts to reduce waiting lists – but the problem remains.
Access Economics looked at the funding stream for elective surgery, and found more questions than answers.
In its National Health and Hospitals Network (NHHN) package, announced earlier this financial year, the Federal Government allocated $273.2 million in health funding to NSW. That funding included $48.5 million for recurrent spending in emergency departments, $76 million for sub-acute hospital beds and, critically, $96.9 million for elective surgery.
The NSW Budget papers acknowledge the NHHN funding contribution, but they are unclear as to where that money is actually going to be spent. In particular, the $96.9 million earmarked for elective surgery appears to be unaccounted for.
One explanation may be that the $96.9 million in funding for elective surgery has been quarantined by the Federal Government until the NSW Government reaches certain benchmarks or milestones. This explanation, however, is flawed, as the money does appear as revenue in the Budget documents as part of the $273.2 million NHHN package. If the funding can be included on the revenue side of the budget equation, it should also be included on the expenditure side.
AMA (NSW)has written to the Minister for Health to seek a full explanation of this anomaly, and several other related issues. See below title 'Letter to NSW Minister for Health' for more information.
Capital projects
The Access Economics report also found that capital spending had spiked by 40 per cent – up from $656 million in 2009-10 to $918 million in 2010-11. This increase should be welcomed, but unfortunately it comes after a massive dip in spending in 2009-10, so it seems the state has simply broken even for now.
Capital spending can be attractive to Government’s in an election year, as major projects are something tangible that people can see and touch. Projects funded in this year’s budget included:
• Planning and commencing projects at Dubbo, Lockhart, Tamworth, Wagga Wagga and Wollongong hospitals and Stage 1 of the Northern Beaches development;
• New mental health facilities at Hornsby, Nepean and Prince of Wales hospitals;
• $438 million to continue major redevelopments at Liverpool, Nepean Orange/Blookfield and the Royal North Shore hospitals;
• Commencing three new regional cancer centres at Gosford, Nowra, and Tamworth, and expanding the Illawaara Cancer Centre and the North Coast Cancer Institute (at Port Macquarie, Coffs Harbour and Lismore);
• Expanding the Multi-Purpose Service and HealthOne programs in rural and regional areas including new works at Cootamundra, Corowa, Gundagai, Pottsville, Quirindi, Rouse Hill and Werris Creek, and continuing works at Balranald, Coonamble, Eugowra and Manilla; and
• Investing in medical equipment and technology throughout the state.
Spending mix
The other item of particular interest in the Access Economics report was the shift in the State’s health spending mix since the late 1990s.
The proportion of the health budget spent on acute inpatient services fell dramatically from a high of 58% in 1996, before flattening out at of 47% from 2001 onwards. The proportion of the health budget spent on rehabilitation and extended care services has gone down steadily since the 1995-96 budget. Conversely, a greater proportion of funding has been directed towards areas such as population health, outpatient services, emergency services and mental health. In this regard, NSW is akin to other states around the country that have experienced similar trends.
Are the budget figures credible?
Access Economics highlighted a significant problem with Treasury estimates of health spending figures. Health is a tough one for treasuries; it confounds usual budget spending estimates because productivity gains are so hard to assess. According to Federal Treasury Department models, capital spending produces a productivity gain, which is held to reduce costs in real terms. However, health care abounds with examples of where productivity gains do not reduce costs at all. Rather, they improved quality.
In simple terms, investments in the latest health technology do not necessarily bring a financial pay-back, but they usually do lead to better health outcomes. The return on investment comes from people who are able to live longer, healthier lives. Budget papers, however, try to quantify the benefits in terms of a financial return, which is a misleading (and inappropriate) way to measure the worth of health and hospital expenditure.
Access also found a systemic pattern across the past 14 State Budgets of underestimating the actual recurrent health spending. And the degree of underestimation has been significant. Access found that:
“On average, for the period 1996-97 to 2009-10, revised health spending has come in 2.7% higher than the Budget estimate.”
The NHHN: Light at the end of the tunnel?
The new National Health and Hospitals Network (NHHN) seems to have disappeared from the national news agenda of late, and it will be fascinating to see to what role it plays in the federal election. Regardless, the NHHN will mean a thorough reshuffling of the health spending deck. The Commonwealth will retain a third of the States’ GST revenue and use it to directly pay new local hospital networks, rather than going through State treasuries.
Access Economics had a look into what this will mean in real terms for health spending, but unfortunately the forward estimates for the NHHN in the Commonwealth budget are so heavily qualified that it is impossible to make a prediction.
What is clear at this point though, are the risks involved with the new system.
Currently the Commonwealth and the States are circling each other: the Federal Government says the level of NHHN benefit will depend on the States’ ability to reform, while the States say that the outcome will depend on the Commonwealth’s ability to fund and manage the new local networks. This does raise the spectre of the dreaded ‘blame game’, which the NHHN was promising to end or, at the very least, limit.
The other key concern is that of transparency. For years, being unable to see and understand where millions in health spending are going has been of huge frustration to the AMA (NSW) and everyone else with an interest in our system. At this stage the NHHN forward estimates are murky, but the situation will become critical if this lack of accountability and transparency continues on past the new system launch date of 1 July 2011.
As the Access Economic analysis of the NSW State Budget has shown, keeping Governments accountable for the way they allocate and spend health funding is not as easy as it should be. Doctors and patients have wandered the hall of mirrors for long enough.
Letter to NSW Minister for Health
AMA (NSW) believes that it is crucial that the expenditure of funds allocated by the Commonwealth Government for health purposes must be transparent and easily understood. Accordingly, we wrote to the NSW Minister for Health on 6 July 2010 seeking clarification of a number of issues highlighted by the Access Economics report, as well as some other issues.
The questions raised are highlighted in bold below.
NSW Government figures indicate that 12,153 additional elective surgery procedures were preformed during 2008. Australian Institute of Health and Welfare statistics reveal that there was a fall in elective surgery admissions in both 2007-08 and 2008-09.
How can the discrepancy between AIHW statistics and NSW Government statistics about elective surgery be explained? Are the additional procedures elective only or do they include emergency (unplanned) procedures?
The 2010-11 Commonwealth Budget papers and the NSW Budget papers show that $273 million in Commonwealth health reform funding is available to NSW this financial year for various purposes. However, it is not clear if or how this funding is allocated in the NSW Health budget.
Is the $273 million NHHN funding (including the elective surgery funding) included in the NSW Health budget for 2010-11? If yes, please provide details of how it is included on both the revenue and expenditure sides.
The 2010-11 Commonwealth Budget papers and the NSW Budget papers also show that $84 million of health reform funding was allocated to NSW last financial year.
Where and how has the $84 million NHHN funding provided by the Commonwealth to NSW for 2009-10 been allocated?
The NSW Budget announced that under the COAG agreement there will be additional funding for 380 acute beds and 105 sub-acute beds. However, the Budget does not specify the source of funding for these beds (note that the Commonwealth Budget health reform funding provides funds for sub-acute beds but not specifically for acute beds).
You have recently made several welcome announcements about the use of health reform funding for additional beds for various hospitals, e.g. $6 million for 20 new acute beds at Royal North Shore Hospital (media release 29 June 2010). Is this funding part of either the $84 million or the $273 million? If so, from which component(s) of this funding does it come?
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