John Menadue. Health Policy Reform: Part 3 – Principles for reform

Policy Series

In Part 1 of this series I described the areas in our health sector that need reform. In Part 2 I spoke of the obstacles, particularly those imposed by vested interests in the health sector to protect their own interests by delaying or stopping reform. In this article, I will be suggesting ways in which we can overcome these obstacles to health reform. But make.

Don’t rush the process

The political process encourages parties seeking election or re-election to address problems with high political salience – waiting lists in public hospitals, needs among certain groups with chronic illness, and identified funding gaps. The political response is to develop specific proposals, usually involving carefully calculated budgetary costs.

Such a process, while providing short-term solutions to proximate problems, fails to address the structural problems identified in Part 1 – the fragmented nature of our health care arrangements, inequities, gaps in services, such as dental care, the allocation of resources towards high-cost hospital interventions at the expense of promotion, prevention and primary care, and the distortions associated with private health insurance.

It also privileges those vested interests outlined in Part 2, who can mobilize resources to block all but the most minor reforms.

System-wide reform takes time. And it takes open minds. Governments need to realize that even when they can set aside their own financial or professional interests, “insiders” find it hard to imagine any significant departures from existing arrangements. That was a major shortcoming of the Rudd Government’s Health and Hospital Reform Commission. Outside perspectives are essential.

In order to lift the process beyond immediate concerns, those pursuing reforms need to set out basic principles, and, in a well-managed consultation process, inform the community of options, and invite the community to discuss and agree or amend these principles. Such a path to reform contrasts with the quick-and-dirty proposals which emerge from processes such as the Abbott Government’s Commission of Audit. Rather, reform can draw on the tradition of white paper – green paper policy development and the reform process pursued by the Hawke-Keating Government. The Senate Committee system should also be utilised.

Guiding principles

As in any public policy the basic principle should be pursuit of efficiency and equity. Contrary to some simplistic notions, there is not necessarily a trade-off between these principles. An inefficient system is a high-cost system, and a high-cost system generally tilts the balance towards those who have most ability to pay. That is the basic failure of the United States system.

Economic considerations should extend beyond governments’ own fiscal costs. Rather they should take into account costs and benefits throughout the community. There is no benefit in saving people $1.00 in taxes through Medicare if the result is that they have to pay $1.25 for the same or inferior services in private markets through PHI.

In efficiency we fall well short as a result of the $10 b p.a. taxpayer subsidy to high cost PHI which makes it more difficult for Medicare to control costs; the perverse incentives in FFS which reward doctors when they treat sick people rather than keeping people healthy; a health workforce which is riddled with restrictive work practices and demarcations and an MBS and PBS which are not rigorously and regularly reviewed. Clinicians are broadly agreed that there are more than 150 services in the MBS which are of doubtful value. There is a rigorous process for getting drugs onto the PBS but little attention to getting some drugs off the PBS. We also need an independent pricing authority like in NZ to reduce the high price for generic drugs and the inefficiencies of drug pricing generally.

Equity should be concerned with ensuring that income, wealth or personal influence does not give individuals preference in treatment, displacing those with greater needs but lesser means. In equity, we fall short as a result of out of pocket expenses that are amongst the highest in the world; a $10 b. subsidy for PHI which goes mainly to higher income people who can then jump the hospital queue; the plight of people with mental health problems, indigenous people and country people. Dental /oral health care is excluded from Medicare.

A related principle should be one of solidarity or social inclusion. In social inclusion we are falling short by steadily moving towards a two-tier health system with Medicare becoming a safety net for the poor. We have a two-tier legal system with a safety net called the Legal Aid Service. But that service is not as good as the top tier private offering. Just as a two-tier legal system does not serve the poor adequately, neither will a two-tier health service .All should have access to the same high-quality services. We should resist most strongly the conservative notion that Medicare should be reduced to a safety net for the poor. The same high quality service should be available for all .While people with different means may make different payments, they should all be using the same services. The present “two tier” arrangements, where those with means are more likely to use subsidised private hospitals, violate this principle.

Within such a shared system, there should be scope for users to exercise autonomy and choice, so long as these do not impose costs on other users. Financial incentives on providers and users should not detract from the principles of personal responsibility.

Health care services need to be perceived as components of a set of policies promoting good health. In this regard, the community’s health should be seen as an asset worthy of attention in all government policies – taxation, urban design, trade agreements (patents), labour relations and wages policy, social security, environmental protection, sport etc. Public health should be of concern across all portfolios. Health ministers, state and federal, should have the same standing as Treasurers. Unfortunately we are more concerned about health services than health. An obvious example is our failure to address the enormous damage that alcohol, sweet drinks and junk food is inflicting on the health of Australians.

The government should consider alternatives to fee-for-service remuneration for primary care and other services. The New Zealand Government, for example, pays episodic care by doctors on a fee-for service basis but chronic care is paid on an annualized basis.

Health programs should have a user focus, rather than a provider focus. The user drawing on different services should not have to confront multiple institutions with their own funding arrangements, records and protocols of care. Policies should aim to integrate and not merely coordinate medical services, pharmaceutical care, hospital care and rehabilitation. Instead of a user focus, successive governments and DHA have failed to break the grip of providers. Our health service is structured to serve the convenience and interests of providers not users.

Such flexibility should be guided by the principle of subsidiarity. That is, services should be managed at the most feasible local level, provided such autonomy does not conflict with needs for central standards in important areas. We fall short in subsidiarity by neglecting primary and general practice care which is close to the patient. Instead we favour the clamour of the hospital sector.

Funding needs to be based on a judicious balance between individual (“out-of-pocket”) payments and pooled payments. While a lack of means should never present a barrier to those who need care, there is no reason why those with means should not make personal contributions. The balance between individual and collective funding is one which needs community consultation. There are arguments for a completely free, tax-funded system, and there are arguments for more individual payments where price signals play a role. But the choice needs to be put to the community in a way that explains the costs and the benefits of each method of payment. Most probably the community, presented with an informed choice, will opt for some balance.

One option to consider is the Nordic model whereby, subject to means tests, all people pay for their healthcare up to a certain amount before their universal system or Medicare in our case, kicks in. The Nordic health systems are effective in balancing individual responsibility wherever possible with patients with high needs and limited means. The very high and unfair costs of out of pocket expenses in Australia must be addressed.

For that proportion of costs the community chooses to share, this sharing should be through a single national insurer, with the capacity to use its purchasing power to keep costs under control, and guided by principles of ensuring access for those with limited means and covering all against high expenses. As with other high-cost and heavily-subsidised industries, such as clothing and footwear, the $10b plus per annum subsidy to PHI should be steadily phased out. If people want private health insurance that is their right but there is no reason for the taxpayer to provide a subsidy.

While the government should take responsibility for pooled funding, provision of health services should allow for both government and private involvement. In regulated markets private providers should be assured of reasonable returns on their investments (including their investment in human capital), but they should not be permitted to take advantage of any privileged position in the market.

All systems of remuneration, to private or public providers, should be subject to full accountability, and all services should be subject to the general principles of competition policy but without promoting competition where it serves no public purpose, such as a proliferation of look-alike high-cost private insurers. Accounting systems should expose all instances of cost-shifting – from Commonwealth to state governments, from governments to individuals, and from present outlays to future outlays. While there may be reasons for costs to be reallocated between different parties, such reallocations should be for reasons of equity or efficiency, and not for budgetary impression management.

All health care services should be subject to professional governance and accountability, with clear charters of responsibility but at arm’s length from executive government. We really don’t know much about how well doctors perform in private practise. We hear about occasional mal practise but very little about general performance and competence. We fall short because Medicare data which would show, for example, under and over servicing by local government areas, is not available. Such localised data would show areas of unfairness and sometimes abuse. Just as we are now developing a My School data base, we should develop the same for ‘My Hospital’ or ‘My GP Clinic’. Subject to some confidentiality issues, ‘open data’ should be publicly available on incomes and performance across the health sector.

The related issue of Commonwealth-state relations-the blame game- needs resolution. One possibility is for health services to be administered by joint Commonwealth-state commissions in each state, with pooled Commonwealth and state funding. Tasmania with its small and comparatively aged population could provide the basis for a trial.  This issue is canvassed further in my article Making the Federation work better which was posted on 20 May 2015.

An efficient national and integrated electronic health system would also significantly contribute to a national health service. It would maintain an up to date health record for every person and make unnecessary so many repeat referrals and examinations. It would improve the quality of care and reduce costs. DHA has failed in this field as in so many others.

The role of institutions

Health reform is too important to be left to health departments particularly DHA and bodies with superficial mandates such as the recent Commission of Audit.

Fortunately the Commonwealth has bodies such as the Productivity Commission, an organisation with not only technical expertise to analyse policy proposals, but also with the capacity to sound out those with policy interests. Most important, it can bring an “outside” view to public policy, addressing questions and options that may be beyond the imagination of “insiders”.

While the Productivity Commission can bring forth practical recommendations, the questions in health reform are so basic; however, that they require a wider and continuing process before specific issues can be addressed. Questions such as how costs are shared, and how scarce resources should be allocated, particularly for high-cost interventions with minor benefits, involve moral considerations.

One possibility is to establish a Health Reform Commission composed of independent and professional people to inform and lead public discussion and advise on important health reform issues. Clinicians should be included, but none of the vested interests. The Law Reform Commission established by the Whitlam Government in 1975 is an example of how enquiries and consultations can be conducted with the community in order to make recommendations to government that are well-informed. The Law Reform Commission estimates that over 85% of its reports have been either substantially or partially implemented making it an effective and influential agent for reform. The Reserve Bank is another example of how a respected, professional and independent body can be a leader in public discussion of important issues. A major objective of a Health Reform Commission would be to outflank the vested interests and carry an informed discussion with the community, particularly of the key principles that should drive health care. Ahead of establishing such a commission in government it would be useful to establish an interim group of professional and independent people who can facilitate informed public discussion and provide advice.

A general remit to the HRC would be to encourage service cost discovery, price discovery and quality discovery, integrity (fraud and abuse) and fairness (access to care regardless of means or location)

In addition to these general responsibilities there could be specific referrals to the HRC or the interim body, e.g.

  • Ways to phase out PHI and introduce a dental/oral health scheme within Medicare.
  • How to establish ‘medical homes’ in primary care which include both private and public clinics that provide a range of services.
  • Remove perverse incentives for the remuneration of doctors.
  • Reshape the health workforce to the needs of the 21st

There are various ways to deal with public participation but the basic approach and method is that communities should be consulted to find what they want, and in successive rounds experts should analyse and report back on the costs and consequences of their proposals. For example, explaining that a completely free system would involve higher taxes and may involve greater waiting times.

One other model is the “citizen jury” – so named because the citizens to be consulted are selected on a random basis, and are informed by professional and independent experts. They could be asked to provide their advice back to government on such key issues as: to what extent do we want to share the costs of healthcare and how co-payments should be reformed. End of life issues could also be canvassed as well as many expensive interventions that have limited effectiveness. These citizens’ juries in health could be important vehicles for an informed national conversation on health, a conversation that we do not have at present.

I see parts 1,2and 3 on Health Policy Reform as outlined as, hopefully, the means to put the debate on health reform onto a more constructive and pragmatic path. Unless we get our processes working more effectively and particularly how to bypass vested interests, reform will continue to be very difficult. When we improve our processes we can be more confident of addressing the particular policy issues outlined in these three papers.

Unless we address the issue of power and how and who exercises that power in the health sector we will not achieve worthwhile reform. Power is in the hands of providers. It is not really in the hands of the community, patients or even governments. That is the key issue. We need leadership, institutions and processes to focus on how we overcome this central issue.

Ministers of Health may be in office but they are seldom in power.

John Menadue chaired the NSW Health Council 2000 and the SA Generational Health Review 2003.


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