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    Stephen Duckett

    Thanks William for engaging on this important issue. As you point out, we acknowledged the weaknesses of the NHCDC. I have never been a supporter of ‘cost modelling’, but the main weaknesses are at the ‘cost bucket’ level (e.g. operating theatre costs versus costs for medical staff), not at the aggregate level we use. By its nature, cost modelling reconciles to the general ledger so it is probably safe to assume that a hospital which is expensive on cost modelling data is expensive using any other basis.

    We were also conservative in assessing what is ‘avoidable cost’. We looked at the distribution of unexplained cost and accepted that for various reasons some level of unexplained cost is reasonable. Basically, we said that only above-average levels of unexplained costs (compared to the lowest-cost hospital in the state) were avoidable. This ‘buffer’, means that cost data don’t have to be accurate to the last cent. Even with some inaccuracy, they can identify the big differences that need to be addressed.

    Finally, I note your last two sentences: “But even then, improvement will need to involve bottom up process redesign at a hospital level. Funding cuts may focus the minds of those involved, but of themselves will not produce increased efficiency.”

    I strongly agree with this. My recommendations don’t tell hospitals what to do. Instead, they focus on setting the right incentives and providing the right information.

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