The efficient price: an opportunity for funding reform.

OBJECTIVE Proposed Australian healthcare reforms describe a move towards partial Commonwealth funding of public hospitals, whereby hospitals will be paid an 'efficient price' for each separation, incorporating both the costs and benefits of services. This paper describes a potential approach to setting the efficient price using risk adjusted cost-effectiveness (RAC-E) analysis. METHODS RAC-E analysis uses a decision analytic framework to estimate lifetime costs and survival for individual patients, which are standardised by comparing observed and expected values. Analysis of standardised costs and effects at different hospitals identifies efficient hospitals, from which efficient prices can be defined. RESULTS A RAC-E analysis of services for stroke patients at the four main public hospitals in South Australia demonstrates the need to account for costs and benefits in identifying efficient hospitals. The hospital with the best patient outcomes incurred additional costs relative to less effective hospitals. If an investment of AU$14760 to gain an additional life year in stroke patients is deemed to be a cost-effective use of resources, then the most effective hospital is also the most efficient hospital. CONCLUSIONS The applied RAC-E analysis demonstrates a framework for comparing the economic efficiency of care provided at different hospitals, which provides a basis for defining the efficient price and appropriate funding incentives to achieve better patient outcomes.