Ideas@TheCentre

Bottom up and entrepreneurial, not top down bureaucratic health reform

It is good to see that the need for productivity improvements in the health sector is starting to receive policy and media attention.

Discovering cost-effective ways to deliver health care is essential to address the financial burdens that rising health costs associated with the ageing of the population are set to place on government budgets.

Unfortunately, many are wedded to the idea that the best way to achieve efficiencies is for the government to develop ‘new models of care.’

The well-rehearsed theory – which featured heavily in the rationale for GP Super Clinics and in the report of the National Health and Hospitals Reform Commission – is that the chronically ill should be kept well and out of expensive acute hospital beds.

This can allegedly be achieved through the provision of coordinated primary care delivered by GPs, nurses, and allied health professionals, in the belief that chronic conditions can be ‘best managed in the community…to prevent complications arising’ that necessitate hospital admissions.

But as this paper details, the evidence that coordinated care has reduced use of hospitals (particularly by elderly chronic disease patients) is ‘weak at best.’

This finding was supported by a 2012 report by the United States Congressional Budget Office that examined 34 coordinated care demonstration programs run by the US Government, which found, on average, little or no effect on hospitalisation.

There are a range of reasons why even ‘promising pilot programs’ are not successfully replicated when translated into larger population-based interventions. An excellent list (drawn in part from the work of Megan McCardle) is in John Goodman’s recent book on market-based health policy.

The reason most pertinent to health reform is that coordinated care programs are examples of ‘top down’ reform. They involve health bureaucrats and central planners in charge of the funding purse strings mandating what frontline health providers do and how they do it.

This is the antithesis of the process by which efficiency is increased in the rest of the economy. In other sectors, independent providers, driven by competitive incentives and market-disciplines, discover innovative ways to deliver higher quality goods and services at lower cost, which they can market to their customers.

This begs the obvious question – how do we unleash the entrepreneurial spirit in health?

Contestability – creating real buyers and sellers of health services – is the key. Creating a contestable health system is one of the main arguments for transforming Medicare into an insurance voucher system along the lines of the Medicare Select proposal.

If all Australians were free to choose with whom they insured their health, health funds would aim to contain costs and attract members by providing access to the best quality care at the most efficient price.

The competitive pressures would encourage health entrepreneurs to enter the market and find better, more cost-effective ways to treat chronic illness in order to win service contracts from health funds.

Reforming health from the bottom up, not the top down, is the only way to achieve more efficient outcomes. The theory that assisting chronic patients to avoid having to go to hospital will only become a reality if the right market incentives are put in place in the health sector.

Jeremy Sammut is a Research Fellow at The Centre for Independent Studies.