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

Jan 29, 2015

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 no mistake: it will be hard without political leadership and political will.


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 calculations of 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.

Those pursuing reform need to go over the heads of the vested interests and find out what the community really wants, rather than paternalistically assuming that they know what’s best. In recent years the paternalistic assumption has been that the community prefers tax cuts to improved health services, even though evidence tends to point in the opposite direction.

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 important.

In order to lift the process beyond immediate concerns, those pursuing reforms can set out a basic set of principles, and, in a well-managed consultation process, can 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 $1.10 of $1.50 for the same or inferior services in private markets through PHI.

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.  A related principle should be one of solidarity or social inclusion. This means that all should have access to the same high-quality services, rather than a segregated system with special services for the poor or “indigent”, to use the derogatory American term. In Australia 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 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, and health ministers, state and federal, should have the same standing as treasurers.

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. 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.

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.

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 $7b plus per annum subsidy to PHI should be steadily phased out. If people wand 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. Public policies should recognize that commercial incentives which are about expanding markets and good public policy which is often about encouraging personal responsibility and reducing dependence on health services do not always align.

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 doctors perform in private practise. We hear about occasional mal practise but very little about general performance and competence.

The related issue of Commonwealth-state relations needs resolution. There are many possible paths to reform. One possibility for consideration 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.  See link to ‘The Blame Game in Health’ that I posted on 3 June last year

The role of institutions

Health reform is too important to be left to health departments particularly the Commonwealth Department of Health and Ageing 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. It gives all a forum to voice their concerns, to tease out likely unintended consequences of policy proposals, and to direct corporate interests to contribute to problem-solving and policy design rather than to defending their vested 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 more inclusive 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 basic 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 not the AMA or any 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.

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; how co-payments should be reformed; how to overcome the commonwealth state blame game; how the workforce 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 a 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, a 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 in the hands of the public or governments. That is the key issue. We need leadership, institutions and processes to focus on how we overcome this central issue.

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