John Dwyer. An increase in the GST or efficiency gains to fund our hospitals. Which would you prefer?

Jul 25, 2015

Premier Baird has announced that he will require a 15% GST to fund our public hospital system in the coming years. It is certainly true that with present policies, revenue won’t match the cost of the anticipated future demand for hospital care. Hospital admissions climb steadily each year (average increase 3%) and the additional patients tend to be sicker and older. Our current health system puts pressure on our State and Territory governments to constantly find more beds and provide new hospital stock. Without financial restructuring his government will not be able to provide us with the quality service we need and expect. The better targeted suggestion from Victoria that we increase the Medicare levy won’t provide the money needed. The current levy only covers about 50% of the cost of Medicare.

However financial restructuring can involve two, not necessarily mutually exclusive tactics. In the policy vacuum that has absorbed Australian politics like a black hole, the easy tactic is for government to ask Australians for more money. A far better approach would see us at last addressing the structural inefficiencies in our health system that would provide savings that at least for health care, would make this huge increase in a regressive tax unnecessary.

Premier Baird’s problem is that the structural levers that need to be pulled to improve the health of the nation and its budget are in Canberra. It’s the Federal government that funds the majority of our primary (GP) and community care and it’s the inability of both, as currently structured, to reduce the demand for hospital care that so frustrates State and Territory governments. Any review of the benefits or otherwise of our federal system will reveal that it has created rather than solved many problems for cost-effective, equitable delivery of health care.

Our taxpayer funded public health system spends more than 55 billion dollars a year on hospital care but only 19 billion dollars a year on primary care. However, wearing federal blinkers, the federal government looks at Medicare as if it was a stand-alone health system and State and Territory governments are forced to focus on hospital care. Health economics 101 and much reliable international evidence tells us that if we spend more money on a structurally reformed primary care system we would save far more than these reforms would cost by significantly reducing the demand for hospital services. This is the “win, win” path we should be taking, not an increase in the GST.

Premier Baird and his fellow Premiers are looking at escalating fiscal problems for hospital funding over the next ten years. What we need is to take a reform journey through that decade that would see us still spending about 10% of our GDP on health but having a healthier population requiring far fewer trips to hospital. At least eight OECD countries are well advanced on that journey and many have evidence of reductions in hospital admission rates of 20-35%.

Available evidence tells us that the most important change our health system needs would see us introduce a model of primary care known as “Integrated Primary Care”. This model places an emphasis on prevention of disease (only 2% of our current health budget is spent on prevention), early detection of changes that could develop into chronic conditions if not treated in time, in house “team management” of all the health needs of those who have an established illness and outreach services from the practice into the community to treat individuals who otherwise might need hospital care. Research reveals that more than 600,000 admissions to our public hospitals each year could have been avoided with an appropriate community intervention. Around the world the model is increasingly referred to as a “Medical Home”. One enrols in this entity wherein multidisciplinary teams of health professionals can provide the above services. International experience shows us that patients and health professionals enthusiastically embrace the model.

As our federation is reviewed and our health care costs are wrestled with, consider the following inefficiencies that should also be addressed before considering an increase in the GST. We have nine departments of health for 23 million people. Duplication costs us 2-3 billion dollars a year. We spend over 6 billion dollars a year subsidising private health insurance using the false argument that such spending will see private hospital care reducing the demand for public hospital services. It doesn’t. The money would be much better spent on improving primary care and reducing admission to both public and private hospitals. My profession is steadily tackling the very unprofessional expenditure of up to 10 billion dollars a year on low value or no value procedures and tests. Australians spend 3 billion dollars a year buying vitamins and “supplements”, not needed by the vast majority of us, as they are led to believe you can neutralise an unhealthy lifestyle with something out of a bottle.

Tackling these problems as we progress along our health reform journey will provide us with a health system for the future that is second to none, equitable and cost effective. Even if we could afford a massive increase in the GST it would be money poorly spent on a health system calling out for reform. Now where oh where is the political leadership to take us on this productive journey?


John Dwyer is Emeritus Professor of Medicine at UNSW.

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