Summary of funding policy
The department will pay one price for admitted acute activity funded by the Department of Veteran’s Affairs and Transport Accident Commission from 2016-17. This approach replaces the system of three or four prices, which were based on the location and the size of the health service.
The price the department pays health services is matched with a target cost recovery proportion. For DVA funded activity, the department has set a price the delivers approximately 95 per cent cost recovery, at the system level. For TAC funded activity, the department has set a price that provides approximately 90 per cent cost recovery across the system.
The funding from DVA and TAC that the department receives is not fully passed onto health services in the price. The remaining funding flows to health services as part of other grants, such as capital, depreciation and teaching and training.
The TAC cost recovery is lower than the DVA cost recovery. This is a result of differences in the level of funding received from each entity. In the future, if a higher price for acute admitted activity is negotiated with TAC, this will be passed onto health services to equalise the cost recovery for TAC funded activity with the DVA cost recovery point.
Justification for the funding policy approach
The funding policy to move to a single DVA and TAC price is based on:
- One price signal
- Cost recovery aligns with full cost recovery principle for third party payers
- Retain funding for capital expenditure.
One price signal
The department is adjusting prices so that eventually there will be one price signalling the efficient production of care for each type of activity. This change is happening across all activity regardless of the organisation paying for the care.
The reason for this change is that moving to a single price recognises that different price signals should reflect the efficient production of different models of care, not different efficiency levels for the same care delivered by different health services.
Full cost recovery for third party payers
Full cost recovery is one of six principles that the department uses when negotiating prices with payers for patients receiving care from Victoria’s public health system. The full cost recovery principle indicates prices are set at a level that is sufficient to fully recover costs, including capital and depreciation where this is appropriate.
The other principles include:
- simplicity and transparency
- methodological consistency across patient cohorts
- funding based on activity
- equitable so prices are the same for the same service
- efficient and effective service delivery.
Funding retained for other areas of expenditure
The department retains some of the funding received from DVA and TAC and does not pass this onto health services for the activity they undertake. This funding contributes to other costs, such as capital, depreciation and teaching and training.
Manager, Health Service Budgets
Phone: 61 3 9096 8572