The Australian Health Care Agreements

The Australian Health Care Agreements (AHCAs) are five-year bilateral agreements between the Australian Government and each State and Territory Government for the provision and joint funding of public hospital services in Australia. The AHCAs are the largest, in monetary terms, of all Australian Government Specific Purpose Payments.

The current AHCAs provide for Australian Government funding of up to $42 billion over 2003–04 to 2007–08. They also require the State and Territory Governments to contribute an estimated $58 billion to public hospitals over the same period. This means that total government expenditure on public hospital services under the AHCAs in this period will be some $100 billion.

In 2004–05, hospital emergency departments treated about 4.3 million people, and public hospitals admitted some 3.7 million public patients.

Australian Government expenditure under the current AHCAs was $7.49 billion in 2003–04, $7.95 billion in 2004–05 and $8.32 billion in 2005–06. AHCAs funding for 2006–07 is budgeted at $8.77 billion, or 21 per cent of the Health portfolio budget. After the Medicare Benefits Schedule, it is the largest program in the Health portfolio.

The primary objective of each AHCA (set out in clause 6) is to secure access for the community to public hospital services, based on the following three principles:

(a) eligible persons are to be given the choice to receive, free of charge as public patients, health and emergency services of a kind or kinds that are currently, or were historically, provided by hospitals;

(b) access to such services by public patients free of charge is to be on the basis of clinical need and within a clinically appropriate period; and

(c) arrangements are to be in place to ensure equitable access to such services for all eligible persons, regardless of geographical location.

The AHCAs allocate responsibilities and obligations to both the Australian Government and the States and Territories. The Australian Government has three main responsibilities under the AHCAs and these are administered by the Department of Health and Ageing (Health). They involve funding the States and Territories, subject to their compliance with their obligations; funding, and developing policy for, national program activities; and publishing an annual report: The State of Our Public Hospitals.

The States and Territories must provide public hospital services in accordance with the AHCAs. In order to qualify for the full level of funding available under the AHCAs, each State and Territory must satisfy three specific requirements: adhere to the clause 6 principles; contribute substantial funding of their own and increase this funding at a rate which at least matches the estimated cumulative rate of growth of Australian Government funding under the AHCAs; and meet certain performance reporting requirements.

Health is required to test compliance with these requirements to assess whether the States and Territories are meeting their obligations each year, and to advise the Minister for Health (Minister). The level of financial assistance provided is dependent on whether the Minister is satisfied that the State or Territory is meeting its obligations.

Audit Approach

The objective of this audit was to determine whether Health adequately assessed the State and Territory Governments' compliance with their obligations under the terms of the AHCAs. In conducting the audit, ANAO addressed the following criteria:

• if Health assessed whether the States and Territories were adhering to the AHCAs clause 6 principles that all eligible persons had equitable access to free public health and emergency services on the basis of clinical need within an appropriate period;
• if Health assessed whether the States and Territories were increasing their own source funding at the rate specified in the AHCAs; and
• if Health assessed whether the States and Territories were meeting the performance reporting requirements set out in the AHCAs.

Overall Audit Conclusion

The AHCAs place obligations on the States and Territories to provide free community access to public hospital services, increase their funding for public hospital services and provide performance information to Health. The Agreements are the result of negotiations between the Commonwealth, and State and Territory Health Ministers. While the AHCAs included performance indicators, they do not contain benchmarks against which Health could assess State and Territory performance in meeting their obligations. Notwithstanding, Health is responsible for advising the Minister on State and Territory performance, as the Minister must be satisfied that each has met these obligations in order to approve the full level of funding.

Against this background, Health has developed procedures for monitoring whether the States and Territories were complying with their obligations under the AHCAs. The States and Territories are obliged to adhere to the principles that all eligible persons have equitable access to free public health and emergency services on the basis of clinical need within an appropriate period. Health's assessment of this obligation is largely reliant on the outcomes of investigations by the relevant State or Territory of complaints made to the department or the Minister. This exception-based approach requires Health to exercise judgement as to whether cases, where there is some basis for complaint, are isolated or if they suggest evidence of systematic or ongoing non-compliance by a State or Territory with its obligations.

In assessing whether the States and Territories meet their obligations to increase their recurrent expenditure on public hospital services and report performance information, Health relies upon the States and Territories providing the required data in the correct format by the due date. Health had put in place processes which assisted the States and Territories to meet their obligations in these areas. However, there are some definitional issues that Health should clarify with the States and Territories in order to improve the level of assurance it has about each jurisdiction's contribution to public hospital funding.

Health addressed State and Territory compliance with each of the three areas of obligation in its advice to the Minister. In the first two years of the current AHCAs, Health advised the Minister that all States and Territories should be considered compliant, while recognising that some had satisfactorily addressed minor breaches of the principles on some occasions.

Overall Health has developed and implemented a suitable framework to administer the AHCAs. While there is scope for some improvement in the approach adopted, the department has taken into account the obligations of the States and Territories under the AHCAs in providing advice to the Health Minister.

Key Findings

Health's responsibilities under the AHCAs (Chapter 2)

Health administered the Australian Government's responsibilities under the AHCAs through funding the States and Territories, and conducting assessments and advising the Minister of the States' and Territories' compliance with their obligations under the AHCAs. It also published an annual report on the state of public hospitals based on the performance information provided by the States and Territories. Health's responsibility for developing policy for national program activities was outside the audit scope.

ANAO found that Health had developed procedures for defining, monitoring and analysing whether the States and Territories complied with their obligations under the AHCAs. Health's Compliance Monitoring and Assessment Framework set out procedures for monitoring whether the States and Territories provided the information Health required for its assessment. This document also defined the events or activities that constituted a potential breach of the AHCAs' principles that all eligible persons had equitable access to free public health and emergency services on the basis of clinical need within an appropriate period, and outlined the action Health would take if a breach was identified.

Health's Compliance with AHCA Business Rules further assisted its staff with compliance assessment. A Complaints Review Group within Health had responsibility for overseeing the AHCAs' compliance requirements, and Health had set up a compliance database for registering potential breaches.

Health had not provided its framework to the States and Territories and consequently some were uncertain about Health's compliance assessment procedures. ANAO recommends that Health supply more detailed guidance about its procedures and assessment principles to State and Territory Governments, so that they would be better informed of the Australian Government's requirements. While Health considered it inappropriate to provide its internal framework to the States and Territories, it indicated that it would develop, and provide, a principles document, which included a more detailed summary of its compliance processes.

State and Territory adherence to the clause 6 principles (Chapter 3)

Health generally assumed that the States and Territories were adhering to the AHCAs principles that all eligible persons had equitable access to free public health and emergency services on the basis of clinical need within an appropriate period. Health took action when specific complaints or allegations about public hospital services were made to the department or the Minister, or when it identified potential non-compliance from other sources. Health received only a very small number of such complaints and allegations each year considering the large numbers of people who used public hospital services. Health used these to identify potential breaches of the principles.

Health required sufficient evidence, and written permission from the complainant, before pursuing complaints and allegations. As a result, Health had referred around half of the complaints received during the first three years of the AHCAs to a State or Territory for investigation. In most of these cases, Health had accepted State and Territory assurances that the events referred were not breaches of the principles. In the few cases where a State or Territory advised that a practice or situation was found to be a minor breach, Health considered the matter resolved if action had been taken to address the issue.

The AHCAs require that the range of services available to public patients in each State and Territory should be no less than was available at 1 July 1998. Neither Health nor the States and Territories had compiled lists of the range of services available at 1 July 1998 to public patients free of charge within each jurisdiction. Health accepted States' and Territories' advice about when they had implemented particular services, with little, if any, supporting evidence.

Health advised that it could not investigate potential breaches of the AHCAs itself because its limited resources and lack of jurisdiction over public hospitals restricted the collection of evidence. Nor could it carry out investigations to affirm State and Territory advice that complaints referred were not breaches, mainly because of the difficulty of finding substantive evidence. However, during 2006, Health decided to improve its procedures for determining whether the States and Territories had investigated alleged breaches that Health referred to them. Health now consistently asked for more evidence of the investigations, including supporting data, and the steps taken to address any issues.

Health analysed some of the annual performance data supplied by the States and Territories which it used when preparing its advice to the Minister and in preparing its annual report on the state of public hospitals at the end of the year. However, it did not regularly analyse the performance data supplied by the States and Territories each quarter to assist its monitoring or assessment of compliance. Health advised that the States and Territories recorded and reported emergency department and elective surgery waiting time data in different ways, which caused some problems with its consistency and accuracy. Health also considered that it had no specific data which enabled it to readily measure access to services based on geographic location to determine whether such access was equitable.

ANAO recommends that Health work with the States and Territories to improve the consistency and accuracy of data on waiting times, and regularly analyse the quarterly data they provide as part of their performance reporting to assist it to confirm adherence to the principles.

In its assessment of whether the States and Territories were adhering to the principles, and in its advice to the Minister, Health largely relied on exception reporting of the outcome of the State and Territory investigations into the small number of complaints made to the department or to the Minister. Health exercised judgement in determining whether potential breaches were isolated cases, rather than evidence of systemic or ongoing non-compliance. Subsequently, Health advised the Minister that all States and Territories should be considered compliant, while recognising that some had satisfactorily addressed minor breaches of the principles on some occasions.

While recognising that the nature and terms of Agreements are properly matters for Ministers to decide, ANAO considers that Health could explore options and provide advice to its Minister on opportunities to improve the administration of the AHCAs. For example, the development of benchmarks would assist Health and the States and Territories in confirming adherence to the principles. In this regard, Health advised that it had recently received a final report from its consultancy into future options for performance reporting and, during the next six months, it will be liaising with the States and Territories regarding proposed new indicators for equity (and other new measures) with a view to establishing enhanced performance reporting under future agreements.

State and Territory recurrent expenditure growth rate (Chapter 4)

ANAO found that Health had procedures in place to monitor whether the States and Territories provided their recurrent expenditure on public hospital services data on time. Health encouraged the States and Territories to report their expenditure on a timely basis, and followed up outstanding returns. Health used a model that accurately determined State and Territory expenditure requirements, and calculated actual growth rates based on reported recurrent expenditure.

While the AHCAs did not specify which components of recurrent expenditure on public hospital services should be included for determining growth rates, Health had agreed definitions with each State and Territory in 2003. ANAO notes that these definitions varied between jurisdictions, making comparisons of expenditure data across States and Territories of limited utility for national reporting and analysis. Subsequently, Health had worked collaboratively with the States and Territories to develop a clear definition of State and Territory recurrent expenditure on ‘AHCA-related services' which will apply under agreements from 2008. Health considered that this new methodology will provide it with greater capacity to make reliable comparisons of expenditure across jurisdictions and over time.

In 2003–04 and 2004–05, Health recorded that all the States and Territories supplied their recurrent expenditure data, and the supporting statements providing independent verifications of that data by auditors appointed by the States and Territories, by the due date. Health advised the Minister that all the States and Territories had sufficiently exceeded the required rate of growth in their own expenditure in each of the first two years of the current AHCAs to ensure compliance with their funding obligations.

However, Health had not agreed with the States and Territories on the procedures to be used by auditors in preparing these statements, while the nature and extent of work done differed between jurisdictions. Health did not examine the statements to identify the scope of the audits or whether the auditors had qualified their opinions. This meant that Health could not be confident that the States and Territories were in compliance with their financial and reporting requirements. Health advised that it had undertaken in good faith to accept signed verifications from auditors and considered that compliance was satisfied if the reports were provided on time.

ANAO recommends that Heath clarify the level and nature of assurance it requires from the auditors' statements, and take action to reach agreement with the States and Territories on a consistent approach which provides that assurance. Health should also review statements supplied by State and Territory auditors to identify the impact of any limitations or adverse findings on its assessment of compliance with the financial reporting obligations.

State and Territory performance reporting (Chapter 5)

Health had procedures in place to assess whether the States and Territories were complying with the performance reporting obligations of the AHCAs. Health also provided advice to the States and Territories on how to comply with their obligations, and developed procedures to encourage them to report on a timely basis and in the required format.

In 2003–04 and 2004–05, Health assessed all the States and Territories as being compliant with this obligation since they supplied the required performance information in the desired format by the due date. Health provided sufficient information to the Minister to enable a determination of State and Territory compliance with their performance reporting obligations.

The AHCAs did not specifically require Health to assess data quality in determining compliance, and Health advised the States and Territories that data quality would not form part of the assessment. Nevertheless, ANAO notes that Health carried out limited checks on data quality in its initial assessment of compliance. Health also analysed the performance information submitted by the States and Territories in publishing its annual report The State of Our Public Hospitals.

ANAO notes that, along with the data provided to Health, the States and Territories had to provide somewhat different sets of performance information to other Australian Government agencies. ANAO considers that there would be benefit in Health ensuring that its requirements for State and Territory public hospital data were more closely coordinated with these other agencies.

Recommendations

ANAO has made three recommendations to assist Health improve its assessment of the State and Territory Governments' compliance with their obligations in its administration of the AHCAs. Health has agreed to all recommendations.

Health's Response

The Department welcomes the audit findings. As noted in the audit report, some of the suggestions made, such as development of benchmarks, are policy matters and the Department will continue to administer the Australian Health Care Agreements within the policy framework set by the Government when the Agreements were signed. With regard to the assessment processes, the Department will provide the States and Territories with a high level principles document outlining the Department's assessment processes and expectations in its assessment of compliance. Agreements have already been reached with the States and Territories to improve consistency in reporting on the waiting times data and public hospital recurrent expenditure and there will continue to be an ongoing dialogue in this regard.