However, as we explained in our 2019 Card Report, Commonwealth contributions to public hospital funding are indexed annually, but the efficiency gains of public hospitals in the previous period are included. This means that Commonwealth funding will be indexed at a rate reflecting the increased costs of public contributions to the hospital and offset by efficiency gains. While the most recent data show that the annual rate of price indexation for public hospital funding is 2.1 per cent per annum at 62, 62 per cent of total periodic expenditure by public hospitals is allocated to salaries and salaries63. The growth in nurses` salaries is currently about 2.5% per year64. The larger the difference between the rate of indexation of Commonwealth funding prices versus the underlying increase in hospital costs (wages and technologies), the greater the pressure on public hospitals to fill the funding gap for hospital activities through efficiency gains. The new agreement recognizes that coordination of patient care requires the Commonwealth and states to cooperate in joint planning and funding of health care at the local level, which encompasses the continuum of care. The only Commonwealth funding to offset the cost of coordinating care is the previously announced $100 million Commonwealth Health Innovation Fund, which will be distributed across all states and territories.50 Once this punctuated funding has been exhausted, the operating costs of coordinating patient care will have to be funded by the Commonwealth`s current fiscal framework. Under the new 2020-25 agreement, insured patients still have the option of choosing private treatment for patients in a public hospital. However, there are new measures to ensure that these private patient choices are completely revenue neutral for the treating public hospital. The methodology has not yet been determined. The new agreement develops innovative clinical ways to improve patient outcomes and better coordinate patient care. But the type of innovative hospital services cannot be different from the type of service used for Commonwealth funds in 20108.
This may change if longer-term reform details are developed49. In May 2020, the Commonwealth and all state and territory governments signed a new addendum on public hospital funding, which amends the national health reform agreement for the period from July 1, 2020 to June 30, 202545. This new agreement extends the current funding formula for public hospitals in most cases for an additional five years. The Commonwealth will continue to cope with 45% of the effective growth in public hospital activities, which is limited to 6.5% per year. Small public hospitals, where 100% funding is not sustainable, remain different funding models. While there are some exceptions to this rule for specialized services, the vast majority of public hospital services will continue to be funded in the same way over the next five years.