A research led by Kathy Eagar from the University of Wollongong suggests that small hospitals, most especially in the rural areas and regional Australia, that have fewer beds and irregular workloads would close if they will be funded on the basis of efficient cost of the service that they provide.

The health reform plan released by the Prime Minister this month focuses on Activity-based funding which is intended to prevent cost blowouts. This is planned to be presented to the Council of Australian Governments for approval next month.

According to Professor Eagar in her internal paper for NSW Health, 209 small hospitals or 27.4 percent of the total cannot survive under a pure fee per service system due to a number of reasons:

-          Major costs are fixed even if they don't have patients.

-          They cannot achieve the economies of scales of large hospitals.

-          Fly-in, fly-out staffs needs to be recruited.

-          Town would die without the local hospitals.

Her study has suggested some changes in the activity-based funding in order to support small hospitals such as:

-          retain block funding

-          establish a variable efficient price

-          or fund them on their capacity to carry out an agreed level of activity

Professor Eagar has said yesterday that small hospitals with irregular amount of workloads can't survive a standard payment that assumes you can pay the same for a patient treated in Sydney compared to those who were treated in a bush.