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Safety and quality

In 2020, all Australian governments signed the Addendum to the National Health Reform Agreement 2020–25 (the Addendum). Under the Addendum, the Independent Hospital Pricing Authority (IHPA) is required to continue reforms integrating safety and quality into the pricing and funding of public hospital services to improve patient outcomes, provide incentives for best practice, decrease avoidable demand for public hospital services and signal to the health system the need to reduce instances of poor quality patient care. These reforms have occurred across three key areas:

  • sentinel events
  • hospital acquired complications 
  • avoidable hospital readmissions

IHPA and the Australian Commission on Safety and Quality in Health Care (the Commission) continue to work collaboratively with Australian governments to facilitate the incorporation of safety and quality measures into the determination of the national efficient price.

Sentinel events

Sentinel events are a subset of adverse patient safety events that are wholly preventable and result in serious harm to, or death of, a patient.

In 2002, Australian Health Ministers agreed on the first version of the Australian Sentinel Events List. Since 2007, states and territories have reported annually on sentinel events in the Productivity Commission’s Report on Government Services. Public reporting of sentinel events is intended to facilitate a safe environment for patients by reducing the frequency of these events.

In July 2017, IHPA introduced a funding approach for sentinel events whereby no funding is provided if an episode of care includes a sentinel event. A zero National Weighted Activity Unit (NWAU) is assigned to these episodes. This approach is applied to all hospitals, comprising services funded on an activity basis or a block funded basis.

The the Commission is responsible for managing the Australian Sentinel Events List.

In 2018, the Commission completed a review of the Australian Sentinel Events List to ensure that each sentinel event meets the definition and criteria of a sentinel event.

Hospital acquired complications

A hospital acquired complication (HAC) refers to a complication that occurs during a hospital stay and for which clinical risk mitigation strategies may reduce (but not necessarily eliminate) the risk of that complication occurring.

The national list of 16 HACs was developed by a Joint Working Party of the the Commission and IHPA. The Commission is responsible for the ongoing curation of the HACs list to ensure it remains clinically relevant.

In July 2018, IHPA introduced a funding adjustment for HACs whereby funding is reduced for any episode of admitted acute care where a HAC occurs.

The reduction in funding reflects the incremental cost of the HAC, which is the additional cost of providing hospital care that is attributable to the HAC. This approach recognises that the presence of a HAC increases the complexity of an episode of care or the length of stay, driving an increase in the cost of care.

The HAC funding approach incorporates a risk adjustment model that assigns individual patient episodes with a HAC complexity score (low, medium or high). This complexity score is used to adjust the funding reduction for an episode containing a HAC, on the basis of the risk of that patient acquiring a HAC. Factors like patient age, gender and major diagnostic category are accounted for in this model. The detailed technical specifications for how IHPA developed the HAC funding approach and risk adjustment methodology is available in the National Pricing Model Technical Specifications.

IHPA has also included risk adjusted HAC rates in the National Benchmarking Portal to enable hospitals to benchmark and assist in driving improvements to patient outcomes.

Avoidable hospital readmissions

An avoidable hospital readmission occurs when a patient who has been discharged from hospital (the index admission) is admitted again within a certain time interval (the readmission), and the readmission:

  • is clinically related to the index admission
  • has the potential to be avoided through improved clinical management and/or appropriate discharge planning in the index admission.

The Commission was tasked with developing and maintaining a list of clinical conditions considered to be avoidable hospital readmissions. In June 2017, the Australian Health Ministers’ Advisory Council approved the list of avoidable hospital readmissions, readmission diagnoses and condition-specific readmission intervals.

In July 2019, IHPA commenced a 24-month shadow period to trial three funding options intended to assist in preventing avoidable hospital readmissions. Following public and jurisdictional consultation, the funding approach was finalised for implementation from 1 July 2021.

Under the funding approach for avoidable hospital readmissions, a risk-adjusted National Weighted Activity Unit (NWAU) adjustment is applied to the index episode, based on the total NWAU of the associated readmission. A risk adjustment model has been derived for each readmission condition, which assigns the risk of being readmitted for each episode of care, based on the most clinically relevant and statistically significant risk factors for that readmission condition. The detailed technical specifications for how IHPA developed the avoidable hospital readmissions funding approach and risk adjustment methodology is available in the National Pricing Model Technical Specifications.

IHPA also intends to include risk adjusted avoidable hospital readmission rates in the National Benchmarking Portal to enable hospitals to benchmark and assist in driving improvements to patient outcomes.