Competitive funding for Victorian hospitals

The proposal to introduce competitive funding for Victorian hospitals is likely to have some unexpected and highly undesirable outcomes. The causal loop diagram below indicates the dynamics of this particular policy changeThe use of competitive funding will lead to funding  Hospitals with the lowest bids who  will only be able  support these low bids by severe cost-cutting. This cost-cutting will put pressure on the services that are provided and ultimately will lead to the hospital being unable to meet the targets. This will increase the government’s use of competitive funding to restrain costs.

There are some other consequences of this policy.

The reduced levels of funding will lead to hospitals cherry picking the surgical procedures with the highest return. This will lead in turn to a differential growth in the waiting lists with the less “profitable” procedures being given a lower priority.

As these waiting lists grow, public hospitals will move increasingly to providing elective surgery places for privately-insured patients. This shift in  resources to the privately funded sector will further reinforce the government’s  ability to shift the funding emphasis in the public hospitals.

The result will be privately funded patients will have more places available to them, public patients who have  “profitable” procedures will get preference and those public patients with complicated and “low profit” procedures will find themselves faced with increasingly long waiting lists.



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