John Menadue. Health reform and cooperative federalism. Part 2

Apr 13, 2016

In part 1 of this series, I set out why I was attracted to the development of an option set out in a COAG paper on health reform which suggested the establishment of a commonwealth hospital benefit which would replace the PHI subsidy. 

Regional Purchasing Agencies to address the’ blame game’ in health.

In part 2, I examine another option in the federalism discussion paper which is for ‘The commonwealth and the states and territories to share responsibility for all health care through Regional Purchasing Agencies.’

The discussion paper outlines the proposal as follows:

Option 4: The Commonwealth and the States and Territories share responsibility for all health care through Regional Purchasing Agencies

The Commonwealth and the States and Territories would jointly establish regional purchasing agencies. These agencies would purchase a range of health services for individuals in their catchment, defined by a minimum service obligation including primary and specialist care, hospital (both public and private), and allied health services. Agencies could be accountable to the Commonwealth and the State and Territories, or just one level of government.

The Commonwealth and the States and Territories would pool funding to make payments to the purchasing agencies based on demographic and health characteristics of catchment populations and the mix of services covered by the minimum service obligation. Agencies would then be responsible for managing the purchase of health services from within this fixed budget.

Catchments for regional purchasing agencies could be based on existing structures, such as Primary Health Networks and Local Hospital Networks, or their equivalent State or Territory health service authorities.

High level health policy, including setting minimum standards of care and quality, and funding roles would be shared between the Commonwealth and the States and Territories. Regional purchasing agencies would be responsible for funding and commissioning primary care and the MBS would no longer operate in the same way—for example, it could be cashed out to help fund the regional purchasing agencies. The impact on other roles would need to be considered.

Various options could be considered for the establishment of regional purchasing agencies. They could be government or semi-autonomous government bodies, they could be managed by private organisations, selected through a competitive tender process, or there could be a mixture of different approaches. One option would be for the role of the Commonwealth to be limited to funding and setting minimum standards of care and quality, with the States and Territories taking responsibility for governance and system management.

The Commonwealth and the States and Territories would agree to jointly fund regional purchasing agencies from existing health funding.

This option would increase areas of shared responsibility between the Commonwealth and the States and Territories. It could seek to build on existing governance arrangements.

Responsibility for service delivery and the commissioning of services would lie with the purchasing agencies. This would allow for greater competition in the market for services.

This option would address system fragmentation and may also better respond to local circumstances. This is consistent with the principle of subsidiarity and should result in better services for patients, so long as adequate arrangements are in place to ensure provision of quality services in remote and disadvantaged regions.

Pooled funding arrangements would need to be established in a way that would reduce incentives for cost shifting between governments. This approach should also increase incentives for investment in prevention and early intervention. There would be an incentive to ensure services were provided cost-effectively within allocated funding to avoid unnecessary (and costly) hospitalisations.

This option would include many of the benefits of individualised care packages … It would need to be supported by well-designed and clearly defined roles to minimise the risk of blurred accountability and blame-shifting, resulting in service gaps.

This option involves large-scale reform. It would present particular challenges for rural and remote areas where there are fewer existing services. Consideration would need to be given to the size of purchasing agency regions, to ensure they cover a large enough population to manage risk, realise economies of scale, and ensure availability of suitably skilled staff. This could be an issue for smaller States and Territories.

Consideration would also need to be given to the role of private health insurers.

Once implemented, this option would be durable as the health system would contain incentives to provide people with the care they need in a cost-effective manner as agencies operate from a fixed budget. It would take some time to implement and would require a significant up-front investment, in addition to ongoing operational costs.

This option is a variation of a proposal I have been making for some time, that the commonwealth and the states establish a Joint Commonwealth State Health Commission in any state that would agree. In effect the Commission suggested would be a joint state wide purchasing agency. See link

This commission that I have proposed would pool all commonwealth and state health funds in that state, develop an agreed health plan in that state and purchase services from existing agencies, both public and private. The Regional Purchasing Agencies proposal in the draft federalism paper is a more modest approach, being regional and not state-wide, but it may be a more practical way to proceed. Perhaps establishing regional pilots would be a useful first step. A pilot project involving the whole of Tasmania would also be a useful first step given the small size of Tasmania.

To address the blame game and improve health efficiency and equity, it is necessary that there is effective coordination of all health services, particularly those delivered by hospitals and non-hospital agencies. The great inefficiency in our present health arrangements stems from the fact that the commonwealth government has responsibility for primary care but the states operate the hospitals. A Regional Purchasing Agency could be a very useful way to start resolving the blame game.

A major aim of a good health policy for Australia must be to keep people out of expensive hospitals. The division of responsibilities between the commonwealth and the states makes that very difficult.



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