Pearls and Irritations

Part 1 of these articles will focus on the inefficient way we deliver health care, the many perverse incentives and the power of vested interests to resist reform in health care delivery.

Part 2 will focus more particularly on examples of waste and inefficiency in health care delivery

Part 1

We have been told many times that our health system is unsustainable.

To justify its case for an increase in the GST, the government was telling us that an increase was necessary because of rising costs in health and education. Now the GST is apparently off the table as Malcolm Turnbull retreats on yet another issue.

Some premiers and commentators suggested that an increase in the Medicare levy was best because it was fairer than an increase in the GST. And we will hear a lot more from the premiers about health because the Abbott Government said it would cut $ 80 b from grants to the states for education and health over the next decade commencing in 2017

But what is being avoided in all this confusion about budget repair and health costs is that there is no real discussion about the waste, inefficiency and low productivity in our health sector. We continue to focus on the funding of our health sector, but refuse to debate how the delivery of care – its cost and safety – can be improved. Medicare is overwhelmingly discussed in terms of funding only. It should also be about how those funds are spent to improve the delivery of health services. Basically Medicare funds an existing system of health care delivery. That needs to change.

There are three main reasons for our failure to address the delivery problems in health care.

The first is the power of the vested interests. These vested interests fight doggedly and selfishly to maintain their privileged position in health delivery. The principle vested interests in health are the AMA, the Pharmacy Guild of Australia, Medicines Australia and the private health insurance sector. In an earlier blog I said that the Health Ministers may be in office, but they are seldom in power. The vested interests –the providers- are really in power.

A second reason for the failure to focus on delivery of health services is that politicians are afraid of the vested interests – doctors, pharmacists, pharmaceutical manufacturers and suppliers, and the private health insurance sector.

The third reason is the failure of economists and other commentators to consider efficiency in the delivery of health services. These economists talk continuously about the need for appropriate incentives, but in the health sector many of the incentives are quite perverse – such as fee for service.

As Ross Gittins put it in a recent SMH article, ‘Like so many of the interest groups, econocrats are obsessed with funding education and health rather than ensuring both systems are working in ways that have found a good trade-off between fairness and efficiency, and effectiveness.’ … See link to article.

These economists that we hear and see so often in the media are mainly employed by the banks. They have little or no knowledge or interest in health economics. They tie themselves in knots over the need for IR reform and improvements in productivity in the workforce generally. But over the years I have never heard any of them address the appalling work practices and demarcations in our health sector which really go back to the 19^th Century. Yet our health and welfare sectors employ 13% of our workforce, the largest sector by far. It is also the fastest growing. At its worst, our waterfront never had the appalling work practices and demarcations that still persist across our whole health sector. Clinicians justify our archaic work practices on the grounds of safety when it is really territory they are defending.

Economists are yet to grasp that health consumers have little power over prices or quality of care. Power is with the providers-doctors, pharmacists, drug distributors and private hospitals. That is why a strong public insurer is essential to counter the power of providers. If there is not a strong public insurer we will follow the disastrous path of the US that has the most expensive and unfair health system in the world. But our economists who say they believe in markets will not recognise the failure of the health ‘market’.

On 4 Corners several months back, Norman Swann suggested that waste in health expenditures could be as high as 30% of our total health expenditures. I think that estimate may be on the high side, but it is clear that there are excessive costs. – see link to article ‘Four Corners: No wonder we’re wasting money in health care – we got the incentives wrong’ by Jennifer Doggett, Ian McAuley and John Menadue.

In a paper in July 2007 I estimated that there was at least $10 billion in possible savings and productivity improvements in health. That represented about 10% of our total health costs in that year. I think it would be nearer 20 % or $ 30 b per annum. I have spoken and written extensively on this matter.

The lack of accountability in health

Despite the rapid increases in costs and escalating demand in the healthcare industry, there is no accountability in any meaningful way for what the health industry delivers. Doctors are accountable for malpractice but not for their overall performance particularly in general practise. Accountability is patchy in many private hospitals. Taxpayers have a legitimate reason to ask – ‘Are we getting value for money particularly when we pay 80 % of doctor’s incomes.’ In a survey several years ago by the Health Council of Canada, 97% of over 1,800 senior respondents said that healthcare providers should be required by law to reach certain service benchmarks in such areas as patient outcomes , the use of preventive strategies like screening and waiting times. There is the same lack of accountability in Australia.

The Council also asked the group ‘Do you believe healthcare in Canada will improve if the government spends more money on healthcare?’ 58% said ‘no’.

Managing the demand for health services

The demand for health services is increasing rapidly across all age groups and not just among the old. We are over-diagnosed and over-treated. In 1984-85, medical services per head were 7.1 per annum. In 2007-08 they were 13.1 per annum – about double. The trend continues.

• We must accept that we cannot have all that we want in health and that governments, in consultation with the community, have to set priorities. Can we afford continuing existing levels of funding for IVF and end-of-life treatments at the expense of funding for mental health and indigenous health?
• We need to rationalise our co-payments to make them efficient and equitable. We all should take more responsibility for the way we use health services, particularly as we are now much wealthier than we were 30 years ago when Medicare was introduced. A universal health scheme does not have to be free. But it must be fair and efficient. But co-payments are a dog’s breakfast! We pay about 18% of health costs out of our own pockets, but there is very little rhyme or reason in how this is done.
• The best way to curb the long-term growth in health spending is through prevention in such areas as alcohol, smoking, junk food and obesity. Our sporting, alcohol and junk food sectors are in a joint enterprise to promote poor health. But the first action of the Abbott Government in its first budget was to abolish the Australian National Preventive Health Agency which was focussing on lifestyle risk factors.
• We need to change the perverse incentives, such as fee-for-service, which is associated with bulk-billing. Clinicians are rewarded by the number of transactions rather than health outcomes. It promotes what is called ‘turn style medicine’ FFS is particularly inappropriate for chronic care, mental health and services with high fixed costs and low variable costs, such as imaging. The government should move away from fee for service and set budgets for general practitioners when they prescribe drugs, order pathology tests or imaging services. We need more doctors on salaries and capitation payments for caring for patients-not on a service by service basis. Hopefully, the Medicare review will grasp this nettle.
• We need to tackle the wide variations in the incidence of clinical practice across the country, e.g. caesarean sections and cataracts. In the Australian Atlas of Health Care Variations the Australian Commission on Safety and Quality in Health Care found ‘substantial variations in health care use in areas such as antibiotic prescribing, surgical, mental health and diagnostic services’ Medicare should be much more proactive in exposing and limiting very expensive and inexplicable variations in clinical practice. .It also needs to publish the enormous variations in doctors fees and particularly the fees of specialists. Better public data for greater transparency is essential.

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