Health Reform - Its possibilities and limitations
The Minister for Health and Ageing, Tony Abbott's, speech notes for the Queensland Press Club, Carlton Crest in Brisbane.
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26 August 2005
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Peter Beattie's loss of two safe seats in last weekend’s by-elections was public judgment on the state of the Queensland hospital system. Queensland voters are entitled to be angry and to blame the Beattie Government.
Since 1998, the ratio of public hospital beds to population and the ratio of hospital stays to population in Queensland have fallen from above to below the national average. Compared to other states, Queensland has fewer beds and fewer procedures, largely because Queensland's health spending per person is the lowest in the country - at just $440 a year, only three fifths that of Western Australia. The Commonwealth Grants Commission has just estimated that Queensland would need to spend an additional $640 million a year to bring public hospital spending to the average level of the other states - that's the extent to which the Beattie Government is short-changing health services every year, despite its GST windfall. As well, the Morris Royal Commission has just revealed that elective surgery waiting lists are a sham, officially: at 31,000 the lowest in the country - but with a further 108,000 people waiting just to go on the waiting list.
If Premier Beattie is to be believed, this is the federal Government's fault. In a June 28 press release, for instance, he claimed that Queensland was short of doctors because the federal Government had cut medical training places. This is simply untrue, as the Premier should have known. Far from being dudded, there are currently 416 HECS-funded first year medical under-graduate training places in Queensland (compared to just 312 places two years ago and 338 current places in Victoria). Queensland has four medical schools (including two that have opened this year) compared to just two in Victoria which has a significantly higher population. Although its doctor-to-population ratio is still below the national average, Queensland now has 12 per cent more full-time doctors than in 1996. Last week, Premier Beattie blamed the Queensland hospital crisis on the federal Government’s alleged failure to ensure enough bulk-billing GPs, conveniently ignoring the fact that Queensland bulk-billing rates have increased from 61 to 72 per cent since December 2003.
After failing to pin Queensland's health problems on the federal Government, Premier Beattie has now become an advocate for fundamental reform of the health system. Last week, he said that "national change"was necessary to solve problems in the Queensland health system and that the "verlap between the commonwealth and the states in health is one of the major obstacles to reform". "We do one of three things", he declared, echoing the Productivity Commission. "Either the states hand health totally to the commonwealth or the commonwealth hands health entirely to the states". The third option, he said, "is that we have a national COAG meeting where we iron out the issues of overlap and the areas of difficulties".
The Dr Death scandal has highlighted serious flaws in the Queensland hospital system such as woefully poor checking of foreign medical credentials, and inadequate procedures for reporting critical incidents. Worse than that, when problems became obvious, they were covered up - not dealt with - even to the extent of ferociously attacking the opposition MP who first raised the issue. For all its inadequacies, it's hard to see how Queensland health officials and the Queensland Government can plead defects in the system, particularly the overall national system, to escape personal culpability.
Still, if Premier Beattie is serious about health reform, he currently has a perfect opportunity to work for it. In June, the Prime Minister and Premiers established a health reform process under the auspices of the Council of Australian Governments. In the words of the COAG communique: "governments recognised that the health system can be improved by clarifying roles and responsibilities," which is officialese for sorting out who's in charge.
Of course, there are limits to what health reform can achieve. More cooperative arrangements won't end the blame game when the pressure's on. The federal Government is highly unlikely to allow the states to run Medicare and the PBS the way they run public hospitals. The states are unlikely to transfer enough GST along with health responsibilities on terms the federal Government will accept. Still, if Premier Beattie really believes that health reform is important and that one level of government should have overall responsibility for the system, this is what he should be putting to COAG.
Although the Productivity Commission is rightly concerned about the rising costs of health care (which, on current trends, will exceed 15 per cent of GDP by 2040), the aim of health reform should be a better health system as well as cost containment. Especially for an older population, health costs will be an investment in a more productive workforce. As a percentage of GDP, health spending has increased from under five per cent to over nine per cent since 1960. At the same time, life expectancy at birth has increased from 71 to 80 years. Healthy life expectancy has increased even further because cancer and heart disease no longer kill so many people in middle age. Since 1960, real health spending has increased from $730 to $3760 per person but the death rate per 100,000 people has declined by almost 10 per cent, and GDP per person has increased from $17,580 to $38,590. In all the OECD countries, health costs have grown at a faster rate than per capita wealth, while the only countries where health costs have fallen are economic basket cases.
As its record shows, the Howard Government has never shirked fundamental reform, if it is necessary to solve serious problems. By the same token, conservative governments don't lightly make systemic changes. "If it ain't broke, don't fix it" and "if it is broke, fix it, don't throw it away" are good conservative instincts. Some highly publicised disasters notwithstanding, the Australian health system provides most people with very good treatment most of the time. To some extent at least, nearly all reforms end up illustrating the iron law of unintended consequences. The theoretical benefits of structural change need to be weighed against the real costs of the disruption which significant change always entails.
The NSW Health Department's periodic re-organisations - into smaller, then larger regions, then back again - are an illustration of how much easier it is to re-structure than to make a difference, hence the seduction of reform. Often, reform is the last resort of the health manager expected to do the impossible - such as abolish human error or keep doing more with less. Sometimes, the demand for reform, no matter how impractical, can be an adult's way to express rage at the way things are.
In 1989, New Zealand - that reform laboratory - established 14 area health boards. In 1993, these were replaced by four regional health authorities. In 1997, these were replaced by one health funding authority. In 2001, this was replaced by 21 district health boards. An academic, Robin Gauld, has drawn some lessons from this experience. First, politically-induced changes seem to occur just when the health sector is beginning to recover from a prior bout of restructuring. Second, organisational redesign is simple compared to laborious practical implementation. Third, change designed to solve some problems nearly always creates other, unanticipated problems. And fourth, successive reforms haven't resolved the age-old difficulties of delivering health care, because policy-makers focus on ideal structures not demonstrated problems.
There are no health reforms that will painlessly reconcile finite resources with potentially limitless demand. Market oriented reformers assume that price signals will solve all problems. Admirers of the UK National Health Service think that better planning and coordination are the universal remedy. There's much to be said for more price signals (even in health) as well as for good planning - but neither is a panacea, if only because what's a solution to economists can easily be a problem to consumers.
There are many reforms which could end up making bad situations worse. One of the most widely-mooted reforms - placing all existing federal and state health funds into regional pools administered by appointed officials - will extend the public hospital blame game to the entire health system. including demand-driven programmes with some price signals such as Medicare and the PBS. Unless other health programmes are cut to support public hospitals, overall health funding will have to increase. The extra money will have to come from one or other level of government, so the buck-passing will start again. Meanwhile, decisions about what to fund will be in the hands of unelected officials accountable to no one.
Public hospitals already operate under a form of pooled fund. Under the Australian Health Care Agreements, the commonwealth and the states pool their public hospital funding which is distributed in every state on the basis of head-office determined regional priorities. To a greater or lesser extent in every state the results have been the same: there is never enough money to provide everyone with free services more or less on demand; to promote efficiency, relatively more money is spent on administration and less on services - with plummeting morale among hospital doctors and nurses; and every problem which hits the headlines means a bunfight over whether state government maladministration or inadequate commonwealth funding is most to blame.
After each episode of the blame game, the cry goes up for federal and state politicians to work together rather than against each other. In times of genuine crisis, such as the mass resignation of hospital doctors over medical indemnity premiums, politicians can put philosophical differences and fiscal self-interest aside. The problem with institutionalised "cooperative arrangements" is the assumption that the different levels of government are only interested in serving patients rather than discrediting political opponents. When management has failed or resources are scarce, the temptation to blame the other level of government for being niggardly or ideologically-driven is almost impossible to resist. No one is without fault here. Despite the idealism which continues to motivate health professionals, wishful thinking about human nature or the political dynamic is not a good basis for health reform.
In health, the Howard Government has generally built on the strengths of the existing system through a process of "conservative incrementalism". The Government has rescued the private health insurance system, lifting coverage from 30 to 43 per cent of the population and taking pressure off public hospitals. The Government has introduced a new Medicare safety net, based on the actual fee charged, to protect people with high out-of-pocket costs that can't be covered by private insurance. The Government has boosted bulk-billing from 66 to almost 75 per cent of GP consultations; increased medical student numbers by 30 per cent; introduced much longer medical consultations for the chronically ill; and given allied health professionals access to Medicare for the first time. The Government has made medical indemnity insurance more affordable and boosted child immunisation rates from about 50 to over 90 per cent. Indigenous life expectancy is still 20 years below the community average but is at least moving up at much the same rate. In fixing problems rather than changing structures, the Government has consciously shunned the role of reformer, preferring instead to cultivate the role of the best friend Medicare's ever had.
Reform is only worth pursuing if the long term benefits clearly outweigh the short-term costs. There's no doubt that having two levels of government involved in the provision of health care means that many decisions are made on the basis of who pays rather than what's best. It costs more to keep nursing home patients in public hospitals, but it happens because the cost burden falls disproportionately on the states. It costs less to treat public hospital in-patients as Medicare-funded out-patients, but it’s resisted because the cost burden falls on the federal Government. Public hospital in-patients are encouraged to go private, not because it will change their treatment, but because costs will shift from the state to private health funds and the federal Government.
Giving one level of government responsibility for the whole system should mean that patients receive the most cost-effective treatment rather than the treatment that another level of government might pay for. Removing one level of government will certainly reduce the scope for buck-passing and blame shifting which bedevils every health policy discussion. The savings are unlikely to alleviate health's perennial resource allocation problem but at least it will be easier to know who should spend more.
All the federal Government's current health responsibilities have evolved in response to the perceived inadequacies of the state systems. The PBS originated in the unwillingness of the states to provide the then-wonder drug penicillin. Medicare originated in the states’ reluctance to provide medical services to people without health insurance. Aged care subsidies originated in the states’ declining to provide more places in state-run nursing homes. The federal Government first subsidised public hospitals to ensure that every state gave free treatment to public patients. There is not the slightest chance that voters will want to turn back the clock by giving the states sole responsibility for health.
In a democracy, responsibility inevitably gravitates to the highest level of government to which voters have regular access. Premiers can avoid an issue by referring it to the Prime Minister but prime ministers can’t credibly wash their hands of any serious problem, hence the inexorable encroachment of federal Government onto the traditional responsibilities of the states. The Howard Government expects to be held responsible for its parts of the health system, but any hope that the states will be held responsible for theirs is likely to be disappointed.
The key challenge - which the Prime Minister has identified and which is currently before the Council of Australian Governments - is better integration of federal and state-run health programmes to provide more seamless service delivery for patients. As its contribution to the COAG process, the Government is considering further improvement to those parts of the health system which are federal responsibilities. Practice nurses could be given a bigger role. Doctors could be encouraged to promote wellness in addition to treating sickness. The Government is also considering how to ensure that patients assessed as nursing home eligible do not remain in acute beds in public hospitals.
As Nick Minchin stressed to the National Press Club this week, the federal Government has no intention of arbitrarily seeking to take over public hospitals. The federal Government has no constitutional power to take charge of the state public hospital systems and anything much short of an unconditional surrender by the states would mean responsibility without power along the lines of the current health care agreements. The last thing the COAG process should produce is more programmes which federal Governments fund but state governments run. On the other hand, philosophical federalists could not reasonably object if a state asked the federal Government to assume full responsibility for health services (as the Victorian Government did for workplace relations in 1996).
Senator Minchin rightly chided the states for their inability to run public hospitals efficiently and told them to "consider outsourcing the management and operation of their hospitals to the private sector". If the states had shown more initiative and innovation, there would be little clamour for the federal Government to become more involved in public hospitals. Even now, Premier Beattie seems as much engaged in giving gratuitous advice to the federal Government as correcting the failures of the Queensland health system.
Under the current health care agreements, federal public hospital funding is more or less a blank cheque to the states. Sanctions against the states for failing to deliver are essentially unenforceable, because they would mean federal funding cuts to services already under pressure. For the federal Government, the big question is whether the next agreements, starting in August 2008, should ask more of the states.
Under National Competition Policy, for instance, some federal payments to the states were made conditional on outsourcing functions such as rubbish collection and road maintenance. Options for the next set of health care agreements could include making public hospital management contestable (so that smaller country hospitals could be locally managed) or funding systems for the work they do. The Government could even dispense with an agreement with each state and directly fund hospitals or perhaps even patients. Certainly, no one should bank on the federal Government's long-term preparedness to hand over $8 billion a year for the states to mismanage. If it's federal taxpayers' money, it should be spent in accordance with the federal Government's priorities.
For the states, the big question is the extent to which they would accept detailed directions from the federal Government about the operation of the public hospital system. Based on last week's statement, Premier Beattie's instinct is to "run it or lose it". Still, his sudden demand, at a rushed press conference this morning, that the federal Government take responsibility for the entire health system - by Christmas, no less - smacks of desperation and policy on the run. It’s hard to avoid the conclusion that he’s more interested in escaping from a mess of his own making than in serious health reform. I again invite him to pursue this worthy goal through the COAG process established precisely for this purpose.