John Menadue. Part 2. How we deliver healthcare is as important as the funding of healthcare. Medicare has degenerated into a payments system.

Feb 18, 2016

In Part 1 I focussed on the importance of improving the delivery of health care and not just funding.

In Part 2 I will focus on specific areas where costs should be reduced.


Part 2

Getting costs down

  • The government should abolish the subsidy for private health insurance which costs all up about $11 billion p.a. This welfare subsidy is one of the fastest growing areas of Commonwealth government health expenditure. We have never had high income welfare recipients on such a scale before .PHI is the Damocles sword hanging over our health system. PHI is the reason for the disastrous American health system. High levels of private health coverage in Australia are achieved not through the attractiveness of the products on offer but mainly through the carrot of the tax subsidy and through the stick of penalising the uninsured. The subsidy favours the wealthy, is inefficient, has underwritten rising specialist fees through gap insurance, has not taken the pressure off public hospitals and has weakened Medicare’s ability to control costs. PHI discriminates against country people where there are few private hospitals. The immediate abolition of this subsidy would do more to improve our health system than anything else. This is welfare big time- far more than the welfare we used to pay to the motor industry. The abolition of the $11 b. subsidy would more than fund a universal dental scheme. Alternatively, say $5 b. of the saving by abolishing the subsidy could be paid directly to private hospitals through an activity based funding arrangement. It is absurd that public funds should be churned through high cost private health insurance rather than being paid directly to hospitals. Before the Howard government, Commonwealth government funds were paid directly to private hospitals, but this was discontinued. Direct Commonwealth funding for both public and private hospitals would also substantially improve the integration of hospital care. But private hospitals would oppose this because they find it much easier to twist the arms of private health insurance companies. And some of the major hospital groups, particularly Ramsay, are generous donors to the Liberal Party.
  • We need a more productive workforce. Health is the largest and fastest growing sector in the Australian economy. Despite all the talk of improving productivity in Australia no-one has been game to take on the entrenched privileges in the health workforce.Where is the honesty and consistency here? The blue collar workforce is fair game but not doctors and lawyers. We need expanded roles across the board particularly for nurses, pharmacists, allied health workers and ambulance officers. The Productivity Commission in its February 2007 report estimated that a 5% improvement in the productivity of health services would deliver savings of about $3 billion p.a. This is a very conservative estimate. The health sector in Australia is rife with demarcations and restrictive work practices. eg 5 % of normal births in Australia are delivered by mid wives. In the Netherlands it is 70%, in the UK 50% and in NZ 95%. We have a few hundred nurse practitioners when there should be thousands. The work practices in most industries are light years ahead of the work practices in the health sector.
  • Fifteen years ago 45% of doctors were GP’s. It has fallen to about 35% yet we know that care is most equitably and efficiently delivered by GP’s. Specialists are reactive and we all know they have become very expensive thanks to gap insurance provided by private insurance companies.
  • We could save about $2 billion p.a. in drug costs if we paid drug suppliers the same prices that are paid in NZ. We also pay a high price for the protection of pharmacists through the 5000 limit on the number of community pharmacies and the restrictions on where new pharmacies can be located. Pharmacies cannot be established in supermarkets.
  • We need to raise productivity in our hospitals. The Productivity Commission suggests that the productivity gap in best practice in public hospitals ranges from 3% to 89%. In private hospitals the range is 22% to 37%. There are major governance problems in many hospitals with a dis- connect between management and clinical functions. Running hospitals is very difficult with clinicians coming and going from private practise like the cottage industries of old.
  • The Commonwealth/State fragmentation in healthcare results in blame-shifting, the evasion of responsibility and higher costs. If for example the Commonwealth Government or a joint Commonwealth/State body had responsibility for all health care funding in a state or region, there would be a clear incentive to focus on treatment in the community and in homes to ensure that the high cost hospitals are really a last resort. The National Health Performance Authority found that in 2013/14 over 600,000 hospital admissions for 22 conditions could have been avoided with timely interventions in the community, mainly by GP’s. But the problem in doing this is that the Commonwealth government funds general practice and state governments operate hospitals.
  • The real elephant in the room in health care cost reduction is avoidable mistakes, including deaths. They are euphemistically called “adverse events”. But Ministers, clinicians and managers do their best to avoid the issue. Based on earlier surveys in NSW and SA I estimated, very conservatively the cost of avoidable mistakes in our health sector at $5b pa (see my blog of June14, 2013). Despite a great deal of money and effort there is no sign of improvement. Insiders won’t solve the problem Good people are caught in a bad system.
  • Only last week, Medibank Private said that $800 m. p.a. could be saved if a reference pricing system with Australian and global benchmarks was introduced for prostheses such as for hip and knee replacements, plates and pacemakers. Medibank Private said that prices for identical products could be 45% lower in the public system compared with the private system. With differentials like that it is no surprise that private health insurance premiums have increased at three times the rate of inflation.

The quality of our health care is generally good but waste and inefficiency is deep and widespread.

We need to address waste and costs in a measured way. We should not panic, but we should get it done. Australian healthcare costs are 9-10% of GDP. This is not high by world standards. It is below the OECD average. A major reason why we have been able to do better than others is that we have Medicare as a public insurer. One lesson is clear all around the world. The countries that have high levels of private health insurance, like the US, have high costs.

A fundamental problem in the health sector is the way we deliver healthcare. But we keep focusing only on funding. We have a horse and buggy health delivery system that is unfit for the 21st Century. Medicare takes that horse and buggy delivery system as a given.

I have almost given up hope that the ALP will restore Medicare to what was intended, a single payer and a strong public insurer.

The vested interests don’t want change in the way we deliver health care. They must be delighted to see how gutless the ALP is.

More and more money will not necessarily improve the delivery of health care and neither should we expect it to. It will mainly entrench a lot of bad habits and the position of vested interests.


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