Opinion & Commentary
Bandage won’t stop a haemorrhage: the government’s health shake-up
After three years of debate and numerous reports on health reform we’re no closer to solving the problems that impede the operation of Australian public hospitals.
The key problem is the way state governments have run and funded hospitals for the past two decades. Large amounts of taxpayers’ health dollars have been wasted to pay for the system’s bloated centralised bureaucracies, while hospital budgets have been tightly capped to ration services. The result is extensive bed cuts and ever-longer queues for elective and emergency treatment, while the tyranny of fixed budgets has blunted incentives to boost productivity.
The Rudd government promised to address these issues when its blueprint for fundamental health reform was released earlier this year. We were told public hospitals would be funded nationally and run locally. The state health departments would be bypassed and local hospitals would be paid to perform, with funding delivered directly to the frontlines on a per-patient basis.
The final National Health and Hospitals Network plan doesn’t deliver on the promises of less bureaucracy, genuine activity-based funding and responsive local service delivery, despite what the government’s taxpayer-funded television ads claim. The key structural impediments – resource misallocation and the chronic mismatch between funding and demand – haven’t been resolved.
Under the deal reached by the Prime Minister and the premiers, the commonwealth will fund 60% of the efficient cost of each public hospital service, with the price determined by the Independent Hospital Pricing Authority. The states (excluding Western Australia) will pay the remaining 40%, including any difference between the efficient and actual cost of hospital services. Federal and state funding will be pooled and new Funding Authorities will distribute the money to Local Hospital Networks in a ‘financially transparent’ fashion.
In theory, setting a fair federal price is meant to encourage poor-performing states to streamline the bureaucracy, rather than continue to bear the extra cost of inefficient practices.
But the new arrangements won’t prove effective. At the premiers’ insistence, hospitals won’t be directly remunerated for services rendered and the state bureaucracies will remain in overall control of funding and service levels. The amount of funding to flow to a Local Hospitals Network will be determined by the terms of the service agreements struck with ‘system managers’ – state health departments – who will determine the range and number of services each network provides.
The bureaucrats will cover the difference between the actual and efficient – sans bureaucracy – price of hospital services by using the service agreements to enforce artificial limits of care. Budget caps and rationing will continue regardless of the effect on patient care. Much time, money and political capital have been expended to achieve this unsatisfactory outcome. A legitimate fear is that we may have reached the stage Britain’s National Health Service did in the 1970s: the era of perpetual reorganisation when one failed government plan is replaced by another flawed initiative. The priority now is to take stock and identify the systemic issues that must be addressed in the future.
First, state governments are clearly a serious obstacle to structural reform. For how long will state leaders allow their political fortunes to be compromised by retaining the failed bureaucracies that bleed the health budget dry?
Second, by becoming the majority funder, the commonwealth has assumed greater political responsibility for the high-cost and under-performing public system. Yet the effectiveness of the federal government’s financial levers will be limited by relying on the states to improve services on the ground.
This could lead the federal government to demand hands-on control, with a full federal funding and operational takeover on the horizon. Would this be an improvement? Not if federal policy-makers are convinced the commonwealth, too, must create region-based bureaucracies to limit budgets and restrict access to care.
This raises the third and most important issue, one that’s received cursory attention in the health reform debate so far.
All free and universal taxpayer-funded health systems must ration services. But since 1984 we have been rationing subsidised health care irrationally.
The federal government spends too much to meet the least serious health needs of the community. The Medical Benefits Scheme is uncapped, costs $15 billion a year and invites over-use and over-servicing. Revisiting the question of compulsory co-payments and means-testing for bulk-billed GP services must be on the agenda of serious health reformers. Greater self-reliance for minor medical expenses would allow the resources saved on the MBS to be reallocated to fulfil unmet need for hospital services. Means-testing of public elective care should also be reinstituted to enable the poorest and sickest patients to receive timely care in public hospitals.
No government is ever likely to tie hospital funding directly to patients while Medicare remains in its present configuration. But if policy-makers were prepared to bite the bullet on the myth of free medicine as it has been badly practised for the past 25 years, promises about fundamental reform and a demand-driven hospital system might just be worth more than the paper they are written on.
Dr Jeremy Sammut is a Research Fellow at The Centre for Independent Studies.
