Curing sick hospitals

After heading two health inquiries in New South Wales and South Australia, John Menadue speaks his mind about the short comings of the Australian health system. Menadue challenges the management of public hospitals, the dominance of doctors, short term political solutions, allocation of health funds and waiting lists of what he describes as a \u27highly dysfunctional system in need of far reaching reforms\u27

The patient journey: unravelling the maze

From the patient’s point of view, Australia’s health system should be seamless. It should be designed around patients\u27 needs, free of the legacies of historical divisions. Instead, the patient requires great skill in navigating the plethora of disconnected programs. The design of our health arrangements is structured around provider interests and funding sources. While governments have rhetorically abandoned input-based funding, in health care it still reigns supreme. Transforming our health system to focus on the patient would require structural and design changes at both commonwealth and state level. It doesn’t mean spending more money. Australia wastes a lot of money in health. We spend 10 per cent of the GDP per annum on health, double the amount spent in the 1960s. Part of the reason for the increasing costs faced by patients is that present inefficient health arrangements are coming to the end of their design life

The impact of health care on mortality: time trends in avoidable mortality in Australia 1968 - 2001

This working paper from the National Centre for Epidemiology & Population Health investigates the extent to which health care has contributed to the decline in mortality rates in Australia over recent decades by examining trends in avoidable mortality between 1968 and 2001. Avoidable mortality refers to deaths from certain conditions that are considered to be largely avoidable given timely and effective health care

Extending the role of pharmacists

In the national interest and in their professional interest, pharmacists must participate in the transformation of our health sector from a sickness to a wellness model, argues the author. The 5000 pharmacies on high street are a highly accessible and high profile resource, more so than GPs\u27 surgeries, he argues. Image: loungerie / Flick

This is real corporate welfare

John Menadue and Ian McAuley look at how government handouts to the private health insurance industry put subsidies to the auto industry in the shade • THE DEBATE about inequity and the need for means testing of private health insurance (PHI) addresses only part of a major problem. Government subsidised PHI is corporate welfare writ large. PHI pushes up health costs and undermines Medicare. Subsidising the PHI industry is rooted in ideological beliefs rather than any rational analysis. Yet Tony Abbott says that ‘private health insurance is in our DNA… it is an article of faith,’ rather than providing any justification for supporting it. The record of PHI around the world should raise alarm bells. Wherever there is extensive PHI, costs rise without compensating benefits and with the United States at the top of the list of waste and inequity. Obama’s healthcare plan will fail because it will continue to be dependent on the PHI industry which cannot and will not control costs. With health care in the United States costing 17 per cent of GDP, Americans are getting an inferior service at double the cost of countries with good health services such as the Nordics, Britain and New Zealand. The Economist put it succinctly: ‘The biggest factor behind the cost conundrum is that insurers lack market power. Health care providers hold all the cards.’ Our experience is no different. The $5 billion corporate subsidy to PHI via government-subsidised premiums is one of the worst pieces of public policy it is possible to imagine. The PHI industry relies on lobbying and political pressure rather than debate or logic to defend its interests. If people want to buy a Mercedes Benz or private health insurance, that is their right, but why should the community subsidise them to jump to the top of the queue, undermine the public universal system and push up costs. The Australian auto industry receives a$6 billion subsidy over four years. The health insurance intermediaries get $5 billion each year in government support in Australia. (The$5 billion includes the 4 billion subsidy, takes into account the persistent under-valuation of the cost of the subsidy and the cost to revenue of the taxation rebate.) If public hospitals were better funded and there were better programs to provide health services outside hospitals, the case for private health insurance would decline dramatically. People take private health insurance mainly because they want peace of mind as they are not confident that public hospitals could meet their future needs. PHI, through gap insurance, has facilitated the biggest increase in Australian specialist doctors’ fees in a quarter of a century. Specialists have been exploiting gap insurance under PHI to secure large increases in remuneration. It is hard to find a better illustration of how PHI fuels increases in costs. The Medicare schedule is becoming increasingly irrelevant as a result of PHI. PHI companies are not healthcare providers. They are part of the financial world along with Merrill Lynch, Citibank, AIG Insurance, Bear Stearns and Lehmann Bros. We should have learned from the ideological excesses of financial intermediaries over the last few years. We see how they waste taxpayers’ money with advertisements on TV by BUPA during the cricket. Just as the financial press and commentators were missing in action in the lead-up to the global financial crisis, so they are missing in action on the role of PHI in this country and particularly in the United States. They confuse ideology with facts. They have a blind spot about the virtues of markets, despite evidence of failure in health ‘markets’ around the world. There is an ideological view that somehow markets will provide a better solution than Medicare. This view is not based on evidence. In healthcare habit is very strong. We prefer the provider we know. Our provider sets prices, not the market. We buy health insurance primarily for peace of mind and very often not for rational reasons. We have very imperfect knowledge about prices and the quality of services that providers offer. Because many of our health decisions are economically irrational, the benefits of markets and competition are grossly exaggerated. The failures of PHI are stark. PHI: • favours the wealthy in the big cities. The 2009-10 ABS household expenditure survey found that households in the top 20 per cent income range spend almost four times as much on PHI as households in the lowest 20 per cent income range. Most people join PHI to obtain private hospital coverage. With 74 per cent of private hospitals in the large cities, the PHI subsidy disadvantages country people. • increases usage of health services. As the Productivity Commission put it ‘increased levels of PHI have been associated with a marked increase in the number of services performed and reimbursements of their services’. (PC Report on Medical Technology, 2005 p.26) Doctors treat and prescribe too much. • favours financial intermediaries whose administrative costs, including profit margin (16 per cent), are about three times that of Medicare (5.7 per cent). No wonder these intermediaries have to keep pushing up their premiums every year at 2 per cent or 3 per cent ahead of the inflation rate. • has a disincentive in the provision of public goods like prevention. Money spent by a private insurance firm on public health issues will provide ‘free-rider’ benefits to competing health insurance firms. • has not taken pressure off public hospitals and has allowed private hospitals to attract highly professional staff away from public hospitals, often at four to five times the rate of remuneration. • has opened up new areas of demand – for example, increased and excessive rates of joint replacements. • takes us down the dangerous path of subsidised private insurance with widespread economic consequences. The subsidy from General Motors to its employees\u27 health scheme has contributed to General Motors’ bankruptcy. • is a dishonest and inefficient way of promoting ‘choice’. The funding and delivery of healthcare are quite different issues. The Royal Automobile Club doesn’t need to enter into the crash repair business to ensure consumer choice. We don’t need subsidies to private insurance firms to promote private health delivery.  Private hospitals in Australia would be up to 2 billion a year better off if part of the subsidy was paid directly to them and not via high cost financial intermediaries. The money for Australian veterans for example is from a single Government payer, the Department of Veterans Affairs. The money follows veterans wherever they choose to get treatment, either in a private or public hospital. Two thirds of veterans choose a private hospital. There are some areas where private hospitals perform better than public hospitals, eg elective surgery. A single payer can promote choice in health delivery. It was a mistake several years ago for Medicare to withdraw subsidies to private hospitals. They should be restored as a means to promote cooperation, rather than competition between public and private hospitals. It would be much better than churning its money through high cost PHI. • focuses on our fears about the future. Advertising is directed to creating uncertainty eg run-for-cover advertising by the Howard Government. A great deal of what we all pay in insurance is not logical. We continue to throw good money after bad money in our PHI premiums. A 1998 ABS Health Insurance Survey revealed that ‘security, protection and peace of mind’ are twice as important as choice of doctor in decisions to hold private health insurance. • weakens Medicare’s capacity to control cost and quality. In 2003, the OECD published a case study on PHI in Australia. It reported ‘[private] funds do not exercise control over the quantity, quality and appropriateness of care provided… Private funds have not effectively engaged in cost control. PHI appears to have led to an overall increase in health utilisation.’ By contrast, the Commonwealth, as the single buyer of pharmaceuticals under the PBS has been remarkably successful in containing costs. If people want PHI that is their right, but why should the community give financial intermediaries such large amounts of corporate welfare that results in inequity and high costs. Rising costs of healthcare will make health services unsustainable without cost controls. Government protected and subsidised PHI is already weakening Medicare’s ability to control costs. If this continues, Medicare’s future will be at stake. PHI takes us inevitably down the slippery slope of high cost and inequitable healthcare like the United States. The criticisms of PHI should not be taken as acceptance of the passive funding role that Medicare has assumed. It is not a Health Insurance Commission as its name suggests and was intended. It should offer different policies for people depending on age and family circumstances with a default policy for all. The Pharmaceutical Benefits Advisory Committee is effective in ensuring value for money for taxpayers and patients in the delivery of pharmaceutical benefits. Medicare should do the same for Medical services. There are enormous and inexplicable variations in the delivery of medical services, e.g. cataracts, joint replacements and caesarean sections. But reform of Medicare is the subject for another day. • John Menadue AO is a board director of the Centre for Policy Development. Ian McAuley is an Adjunct Lecturer in Public Sector Finance at the University of Canberra and a Fellow of the Centre for Policy Development. They are the authors of a recent CPD report, Private Health Insurance: High in Cost and Low in Equity. Photo: iStockphot

A new approach: breaking the stalemate on refugees and asylum seekers

This report comprehensively critiques Australia’s refugee and asylum policies and finds they are inhumane, ineffective and expensive. It argues that Australia needs a circuit-breaker in our treatment of people seeking asylum from war and persecution. On the 10th anniversary of the Tampa, Australia’s asylum and refugee policies are still sadly characterised by human tragedy, political opportunism, policy failure and great cost. The authors of the report draw on their extensive policy experience to inject facts into a highly-politicised debate and put forward policies that ensure we treat people seeking asylum with fairness, assess their claims rigorously but with compassion, and develop policies that are in the interests of all Australians. The report outlines 13 recommendations which all aim to ensure that Australia: Adheres to all international conventions which we have voluntarily signed Quickly and correctly identifies those who are refugees and grants them protection consistent with UNHCR policies and guidelines Protects Australians from any health or security concerns Discourages dangerous journeys, but treats fairly those who have made those journeys Affords all people in Australia their human rights, as well as access to the legal systems which deliver them, and Rapidly returns home in safety and dignity those who are found not to be in need of Australia’s protection

Refugees: human rights and ethical obligations

There are more than 5,700 asylum seekers and refugees in immigration detention centres across Australia. More than two thirds have been in detention for at least six months, and 97 people have been held for more than two years. Is it ethical to detain individuals who have fled from persecution and war? How long is too long? What role do we as a country play in protecting their human rights? And how does our treatment of refugees stack up against other developed nations