Australia has one of the best health care systems in the world, but productivity challenges and rising demand are putting our public hospitals under pressure. Global experience suggests several responses that will help local health service managers continue to deliver world class care.
Public hospitals are critical to our world class health care system
Australia’s health care system was ranked #1 in the world by the Commonwealth Fund in
Public hospitals are facing a dual crisis
Despite the success of Australia’s health care system, our public hospitals are facing a dual crisis of both declining productivity and increasing demand. This is driving up total system costs while state and territory governments are under increasing fiscal pressure.
Hospital productivity is declining as costs per patient rise
Productivity has been significantly impacted by rising costs due to labour shortages and supply chain disruptions following COVID-19, and then by inflationary pressures on salaries and
Looking ahead, there is set to be another significant increase in the price per unit of delivering hospital care in 2025-26, with the National Efficient Price (NEP) – the standard funding amount per NWAU – increasing by 12% to $7,258, following a 7% rise in
Hospitals are taking on more than their fair share of rising demand
While costs have been growing, Australia's total NWAU has increased by 3.1% per year since 2016-17. This is significantly faster than underlying population growth, reflecting in part the impact of constraints in the primary, specialist, mental health and aged care systems. These constraints are driving more people to hospitals when they could be served by, for example, GPs and specialists. Over the same period, GP visits have only grown at 1.8% per year and declined by approximately 1% per year since the peak in 2020-21. Specialist appointments have shown limited growth and variability, declining slightly at less than 1% per year compared to 2016-17 levels. The lack of growth in primary and community specialist care is a contributing factor to the burden that preventable and non-acute cases place on the public hospital system. For example, in 2021-22, potentially avoidable hospital admissions accounted for 8% of total bed days (2.6 million bed days) – an increase of 3% from 2020-21.
Challenges in the Residential Aged Care (RAC) sector are also contributing to hospital congestion. Since 2016-17, the number of people in RAC facilities has grown by just 1% per year. While home care packages are growing much faster, these are not always suitable for people awaiting hospital discharge. This shortage of RAC places delays the transition of elderly patients from hospitals into aged care, prolonging hospital stays and exacerbating bed block. The scale of this issue is significant – in 2020-21 alone, over 286,000 patient days were occupied by patients waiting for RAC placements.
Relieving the pressure
Health service managers have done well to control costs in this challenging environment so far, but 8% growth in expenditure each year isn’t sustainable for most states and territories. While ongoing reform in primary and aged care is essential to a long-term solution, public hospital system managers also need to unlock savings while continuing to deliver high quality care to a growing number of patients. To support these efforts, we now look at four ways in which health care systems are driving step changes in cost-effectiveness and operational efficiency.
Take a state-wide, AI-powered approach to procurement
Purchased supplies typically comprise ~20% of the total cost base of the public hospital system and these costs have risen at 9% each year for last six years. While local health services are already focused on negotiating better deals, AI can now help whole systems unlock significant savings.
Comparing prices and purchasing patterns across hospitals used to require significant investments in standardising data and integrating enterprise resource planning systems. With AI, it is now possible to bring together data from different systems and unstructured data sets to build powerful spend cubes that reveal price variation and purchasing behaviour. This can support health care systems to realise immediate savings by addressing inconsistencies It can also drive longer term savings by standardising their clinical requirements and combining their purchasing power, enabling more competitive bulk agreements that optimise costs and supplier performance without sacrificing quality. AI can also rapidly accelerate the tendering process, speeding the production of tender documents and the analysis of proposals. This allows systems to re-tender more categories at once, capturing greater savings through increased pressure on suppliers.
This approach has the potential to unlock savings of 10-15% of the addressable cost base. A $3 billion regional US not-for-profit hospital system rapidly stabilised its finances after post-COVID losses exceeding $1 million per day. It streamlined procurement by rationalising SKUs, negotiating contract renewals, introducing smart consumption and identifying and maximising synergies between hospitals – resulting in $35 million in run rate savings.
Rapidly scale digitally enabled home hospital models
Many health care systems are reducing their reliance on inpatient care – one of the highest-cost components of health care – with home hospital services. However, these services are mostly localised, sub-scale and highly manual in their delivery and operation. To drive real savings, health systems must adopt highly scalable, digitally enabled home hospital models that can be rapidly rolled out at a state-wide or national level. These models can potentially deliver cost savings of up to 30–50% per bed day and significantly lower future capital costs by reducing the need for more traditional hospital beds.
Digitally enabled home hospital models combine modern distribution and collection logistics, patient and career support services, scale in device purchasing and management, advanced software for remote patient monitoring, AI-based triage tools, and real-time clinical oversight to safely manage patients at home. Rather than simply shifting care locations, these solutions enable clinicians to prioritise care effectively, with early intervention driven by timely alerts and clear insights. Automated data collection and simplified patient onboarding reduce the administrative workload on clinical teams, while integration into existing referral pathways allows direct, safe admissions from community practices and emergency departments. As a result, hospitals can avoid unnecessary admissions and reduce length of stay.
Despite already having a home-based care model, the UK NHS recognised it needed a more scalable, cost-effective solution to manage patient care outside traditional hospital settings. Through partnerships with scale operators such as Doccla, the NHS has significantly expanded its digitally enabled and lowered the operating cost of its home-care model. By integrating referral pathways, optimising patient logistics, and using systems like Doccla’s real-time patient monitoring and escalation processes, the NHS significantly reduced admissions by shifting 10% of acute capacity to virtual wards and delivered a threefold return on investment in certain NHS
Support frontline engagement in productivity improvement
Public hospital staff work hard, but hospitals are large, siloed organisations with complex and variable patient flows. In this context, despite their best efforts, bottlenecks and inefficiencies often arise. Most health care workers are highly motivated to address these challenges without the need for heavy-handed, top-down targets or KPIs. Instead, what clinicians need is meaningful, real-time dashboards that highlight gaps to productivity benchmarks and workflow insights. Clinicians already have access to large volumes of data, but the value lies in concise, insightful comparisons. Alongside these dashboards, it is equally important to establish team behaviours such as short, regular huddles to review insights; identify best practices, emerging issues and unnecessary clinical variation; coordinate action and review impact. By effectively combining insightful data with these collaborative behaviours, hospitals can reduce labour costs by 5%.
The Santeon Hospital Group in the Netherlands equipped its frontline managers with real-time dashboards and performance benchmarks to drive efficiency and improve outcomes. Alongside this data, it created collaborative learning environments where clinicians could share best practices, refine care processes and drive continuous improvement. As a result, Santeon reduced unnecessary inpatient stays by 50%, breast cancer reoperations by 25% and lumpectomy reoperations by
Build a digital front-end to manage demand more effectively
When patients have fragmented access to care, they often seek treatment in high-cost emergency departments when lower-cost and lower-acuity alternatives are available. Other patients with more acute needs often have to negotiate multiple steps to get to the high-level care they need, adding cost and delaying care. By integrating emergency, urgent and outpatient care access through a unified digital front-end, health systems can resolve issues first time at the lowest appropriate care level, increasing efficiency and reducing spend in targeted clinical streams by 10-20%.
A digital front-end integrates emergency, urgent and outpatient care into a single streamlined platform, directing patients to the most appropriate level of care at their first point of contact. AI-powered assistants handle symptom assessment, reducing unnecessary call centre volume and freeing up clinical staff. While automated appointment scheduling, referrals and check-in processes reduce administrative workload while ensuring patients receive timely and cost-effective care.
US not-for-profit, Intermountain Health needed a more seamless, digital-first approach to direct patients to the most appropriate care level so it launched the "Digital Front Door". The front-end transformed patient navigation and demand management by consolidating telehealth programs into a virtual hospital, introducing an app for appointment scheduling, access to medical records and virtual consultations; and automating administrative workflows. The digital front-end helped Intermountain Health reduce costs per visit by 87%, reduce patient check-in times by 25%, save 30 minutes per day per medical assistant, reduce call centre volume by 30%, increase co-payment collections by 300% and achieve 96% patient
Australia’s public hospitals face a significant productivity challenge. To meet increasing demand while minimising fiscal pressure, they need to find ways to significantly improve productivity. While there is no single solution to this challenge, global experience suggests a range of opportunities that are all best addressed at a whole-of-system level. Health service managers are already working hard to manage costs; now, state and territory health departments need to drive savings across their entire state health systems by taking advantage of new tools and technologies.
