Business-as-usual is killing our hospitals.

The nation’s public hospital system is even sicker than it looks. There are practical, affordable ways to make it better – but not if governments go on doing the same things.

Not this way ... too expensive, too slow, too wasteful

Australia has retreated a very long way from its ideal of universal health care: the principle that people should be treated appropriately and according to their need, not according to their ability to pay.

In every corner of the nation’s health system, that basic principle – the essence of the fair go – has been in retreat for decades. Nowhere is it more obvious than in public hospitals that, despite massive expense, are enveloped in rolling crises.

Public hospitals all over the country are overcrowded, inefficient, bad for staff and worse for patients. They badly need more space, more staff. But why, when so much money is being spent?

Between 2012-13 and 2021-22, the money going into public hospital services rose from $53 billion to $77 billion – and that’s adjusted for inflation. The nominal increase would be far greater.

That’s for day-to-day recurrent costs – treating patients, paying wages, keeping the lights on. Capital spending – on buildings and equipment – is much less. For public hospitals, that all comes from state and territory governments. The following chart shows the total amount for the health sector, but almost all of that goes towards hospitals. (The spike in 2016-17 is because South Australia assigned the entire cost of the new Royal Adelaide Hospital to a single year.)

The contrast in expenditure trends between recurrent and capital is revealing. Capital loses out. Recurrent costs have increased at an accelerating rate. Though capital spending is somewhat volatile, the decade trend shows the rate of investment has been falling in real terms.

That imbalance causes serious problems for hospitals – and for patients.

Who’s treated (and who's not)

Governments and hospital administrators initially dealt with the shortage of beds by reducing average lengths of stay and eliminating surge capacity. Both of those strategies had significant clinical problems for staff and patients, and neither provided long-term solutions. Increasingly over the past decade, the focus has been on manipulating patient intakes to make the figures look good while trying to control spending and, as a result, delivering less overall care.

Take the split between patients who stay in hospital for one or more nights, and those whose are admitted, treated and discharged within the day. In 2021-22 the average cost of a same-day patient was $1,611. For overnight or multi-day patients, it was $11,929 – 640% more.

Back in 2012-13, there were 11% fewer same-day patients in the nation’s public hospitals than overnight ones. But the proportions switched dramatically and by 2021-22, there were 46% more same-dayers than overnighters.

This index shows how the two have pulled apart, indicating how significantly cheap patients are being preferred over expensive ones.

This is a problem, largely hidden from attention, that shows how inadequate and maladministered resourcing has distorted the entire public hospital system. There’s no good reason to think there is now a greater proportion of people in the community needing same-day care than there was a few years ago – or that there are fewer needing longer-term treatment. But same-day patients are quick, easy and cheap. Overnighters are slow, difficult and expensive. They are also sicker and generally in greater need of hospital care.

Although the numbers of overnight patients have been relatively flat for some years, the cost of treating each one has soared, further increasing the incentive to treat selectively those who take up less time and money. (A separation is defined as “a completed episode of patient care”.)

 Same-day costs, on the other hand, have consistently lagged numbers, indicating the accelerating trend of favouring the cheap. After all, a 20-minute cataract operation costing $3,900 reduces the elective surgery waiting list by one. So does a cardiac artery bypass graft costing $94,000. Both are classified as “elective”.

The total amount spend on same-day patients has risen in nominal terms by 97% and, for overnight, by only 48%. But because the overnight costs started from a much higher base, the dollar amounts are very different. Same-day patients cost $2.6 billion more in 2021-22 than they did a decade earlier but overnight costs went up by $9.8 billion.

The upshot is that, despite the switch from expensive patients to cheaper ones, the impact on hospital budgets remains immense and perhaps, in the longer term, represents an unsustainable load on overstretched state government budgets.

Until 2016, the cost of treating an average inpatient was falling. Patients were being discharged sooner and staff were working ever harder. That couldn’t continue, and in 2016 the cost trajectory went into reverse. If costs continue to increase as fast as they have in the past few years, the outlook is grim. The trendline in the chart below shows what is likely to happen if these trends continue.

The selective mix of patients, favouring the cheaper ones at the expense of those needing more expensive care, has limited the rise in overall expenditure, but not by much. When we look at the total amount spent on acute public hospital treatment in Australia, the trends look remarkably similar to the per-patient data.

Overcrowding kills

Overcrowding in hospitals is disruptive, inefficient and expensive. It’s the main reason why so many people needing treatment can’t get it. It also costs lives.

 Just look at one aspect: bed block in emergency departments. This happens when patients needing admission to a specialist ward are kept in emergency for too long. In Australia, that’s been defined as eight hours or more.

There’s a vast body of Australian and overseas research showing that bed block at that level increases someone’s relative risk of death by between 20% and 30%. That means that if you have a 10% risk of dying when you come through the door, that risk increases to 12% or 13% after eight hours or so. And as time spent in bed block increases, the risk also increases in a linear fashion.

Bed block is also a good measure of hospital overcrowding. If there’s some spare capacity – as there should be – these figures should be low. The more overstretched a hospital is, the more people are affected by bed block. Right now, the number of premature deaths caused by bed block is likely to be in the tens of thousands.

The most telling statistic is the time waited in EDs by people needing admission at the 90^th percentile. That’s the time in which 90% of patients have been admitted to a ward and 10% are still waiting. It shows how much worse the situation is now than it was even a few years ago.

This table shows the most bed-blocked medium-to-major public hospitals in the country. Some, like the Launceston General Hospital in Tasmania and the Campbelltown Hospital in Sydney have long had appalling bed block. But others have become much, much worse in a fairly short period.

 Building better

The main problem with the public hospital system is not under-funding, but rather the ways that money is used. We have an extraordinarily inefficient, wasteful system that must change if it is to survive.

We need more space in our hospitals and more alternatives to expensive acute care. We’re getting nowhere near enough of either.

The extraordinary costs of building public hospitals would understandably deter any politician from willingly undertaking a major project, no matter how badly needed it may be. Major projects around the nation have been characterised by massive cost blowouts, delays, political humiliations, parliamentary inquiries and equipment failures.

State governments have been extraordinarily expensive and wasteful builders, spending on average four times as much as private hospital operators typically spend on a comparable project.

Here are three examples, all from 2017-18: a 250-bed extension to the Royal Hobart Hospital, the new 298-bed Perth Children’s Hospital and the Royal Adelaide Hospital. In today’s dollars, each bed cost between $3.1 million and $4.9 million, providing an average of $3.9 million.

The private sector does this much better, building a given hospital facility at about a quarter of the ruling public sector amount. In today’s dollars, four major projects were delivered at an estimated average of $990,000 per bed.

The greatest risk to financial outcomes is the efficiency – or otherwise – of the planning, contracting and construction of facilities. Costs and timelines of previous hospital-related projects have blown out substantially, creating costly delays and political problems for the commissioning government. The causes of this dysfunction have been documented many times and repeated many times.

These include complex, uncertain governance structures with nobody in effective control; bureaucratic inexperience; accepting the cheapest tender rather than the one giving best value; and leaving consultation with staff until construction is under way.

To avoid these problems, state governments should appoint a hospital development specialist, preferably from the private sector, to be in control of the overall project and reporting directly to the Health Department Secretary and the Health Minister. Initial plans should then be drawn up and rendered into computer walk-through designs, preferably using virtual reality so staff can make sense of the plans. Comprehensive and final consultations with staff and others should be undertaken on the basis of these walk-through plans. Only then should tenders be called and construction begun.

What do patients actually need?

A huge cohort of people occupying expensive acute beds don’t need to be there but have nowhere else to go. On average, an acute overnight patient stays in hospital for 4.5 days. Some are there for much longer. But far too many only need such a high level of care for a day or two before they enter a convalescent period until they’re fit enough to go home. Acute wards are not the best place for people needing convalescent and rehabilitation care, but those step-down facilities – though much cheaper and much more clinically appropriate – have not been provided. So they stay where they are, taking up beds other patients desperately need.

We don’t know how many there are, because health departments have never systematically identified the problem or investigated it. But we can get an idea of the problem from anecdotal reports by senior hospital doctors.

At the Royal Hobart Hospital, about a quarter of patients in acute medical wards on any given day don’t need to be there but can’t yet be discharged. In surgical wards, it’s about a third. Those people would be far better treated in facilities built to nursing home standards but with extra rehabilitation and nursing care.

Nursing homes are typically built for around $400,000 a bed, about a tenth as much as the public sector has been spending on building its general hospitals.

Recurrent costs would also be much less too. The Productivity Commission puts the cost of a single day in residential aged care at $253. The need for extra staff and equipment in convalescent and rehabilitation facilities would cost substantially more – say, $400 to $500 a day. But keeping someone in an acute bed who doesn’t need to be there costs about $1,500 a day.

There are big savings to be made here – but no state is even looking.

Those patients stuck in acute wards appear to be taking up an increasing proportion of beds. There are two probable reasons for this. One is that when there is a finite supply of beds, the number of patients unable to be discharged can easily build up. The second is that hospitals, unable to treat everyone, are concentrating on those they can’t ignore. That means they’re treating a sicker group of patients, each of whom is likely to spend longer in hospital.

There are many ways of reducing costs and improving care at the same time. But we don’t seem to be looking too hard for those. Meanwhile, business-as-usual threatens to destroy much of what remains of Australia’s system of universal health care.

 Data are mainly from the Independent Health and Aged Care Pricing Authority (National Hospital Cost Data Collection) but also from the Australian Institute of Health and Welfare (Health Expenditure Australia and Emergency Department Care).