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PDF printable version of CEDA Speech, Adelaide (PDF 38 KB)

1 April 2010

• Byron Gregory, Health Partners (host)
• Hon John Hill MP, South Australian Health Minister
• Hamilton Calder, State Director CEDA
• Acknowledge meeting on the land of the Kaurna people

Introduction

Thank you for the opportunity to address a CEDA forum once again. The last time I had the opportunity was in Sydney last August when we were thick into the health reform consultation process, road testing the recommendations of the National Health and Hospitals Reform Commission. I’m glad to be back at CEDA again to talk about the Government’s plans for a National Health and Hospitals Network to deliver better health and hospitals for Australia’s future. I am particularly glad to be able to speak to CEDA during the year marking its 50th birthday.

I also should probably face the facts and acknowledge that today is actually my birthday. While I’m not going to reveal how many candles there are, I assure you I am not yet as old as CEDA! My daughter had her birthday last week and wanted a Barbie doll. I’ve got slightly more complicated tastes; for my birthday this year I want an agreement at COAG on a National Health and Hospitals Network.

As many of you will be aware, COAG will meet on the 19th April in Canberra. There’s only 18 sleeps to go. So today I want to talk to you about why we believe the plan we are taking to the States and Territories on the 19th April will deliver better health and hospitals for the Australian community into the future. I’m particularly keen to talk to you about some of the important microeconomic reforms which are central to our plans for reforming the Australian healthcare system.

The case for change

The benefits to the community from a strong health system are obvious. And the economic benefits of a strong health system will not be lost on this audience: a healthy population leads to better work performance and productivity, and better workforce participation more generally.

But despite our relative strengths, the Australian health system faces significant challenges for the future. The report of the National Health and Hospitals Reform Commission and the recently released Intergenerational Report make this abundantly clear.

Combined they tell us that:

• Costs are rising: the combined effect of the ageing population and rising demand for services is likely to see Commonwealth health spending grow fivefold over the next forty years, from $50 billion, to $250 billion. If current spending and revenue trends continue, the Treasury projects that health spending alone would absorb more than the entire revenue collected by all states by 2045–46 — and earlier in some states
• Chronic disease rate are growing: the cost of managing chronic diseases is likely to grow dramatically, including a 436% increase in spending on diabetes in the 30 years from 2002/03 to 2032/33.
• Our health system does not perform as well as it could: our hospitals are 20-25 per cent less efficient than they could be; up to five percent of public and private hospital stays involve an adverse event – that’s 382,000 such events in 2007/08

As the NHHRC described it, our health system is at a ‘tipping’ point.

Since 2007

Since we came to Government, we haven’t been standing still on health. Since we were elected in 2007:

• We’ve increased spending on hospitals by 50%
• We’ve made the biggest single investment in preventative health by an Australian Government, to the tune of $872 million
• We’ve increased GP training places, increased nursing university positions, and given nurse practitioners and midwives the right to access Medicare for the first time
• We’ve invested significantly in health and hospital infrastructure – to the tune of almost $4 billion, including providing funding for a new Health and Medical Research Institute in South Australia.
• We’re now seeing the benefit of these investments on the ground, including here in South Australia. For example:
• Today I was able to open the new Flinders Health Sciences building, a truly world class facility funded by our Government – giving Flinders the facilities to train more doctors – a multi-million dollar election commitment come to fruition.
• Other commitments made since the election are also starting to bear fruit. As part of our investments in expanding clinical training for health professionals, just today I announced $10 million to expand the number of medical, nursing and allied health students that can be trained here in South Australia. This includes funding for additional dental surgeries in the SA Dental services, and funding for upgrading teaching facilities in Murray Bridge and Mount Gambier.
• This comes on top of funding of almost half a million dollars to upgrade the Barmera and Kangaroo Island medical clinics for to add extra training capacity announced earlier this week.

One of the early acts of our Government was to commission the most comprehensive root and branch review of Australia’s health system in decades – the National Heath and Hospitals Reform Commission, chaired by Dr Christine Bennett.

Since we received the report last year, the Prime Minister and I and our ministerial health team, including my Parliamentary Secretary, Adelaide’s own Mark Butler, have been road testing the Report’s recommendations – at 103 consultations in hospitals and health services around the country.

And it was all this work that culminated in the release four weeks ago of our plan for a National Health and Hospitals Network which will be funded nationally, and run locally.

The NHHN

Let me take a minute to briefly explain the architecture of our proposals. Under our plan:

• The Commonwealth will become the dominant funder of public hospitals – taking on responsibility for 60% of the cost of all services, as well as teaching, research and capital costs;
• We will take on full funding and policy responsibility for all GP and primary health care services;
• We will change the way hospitals are run – by devolving power to small Local Hospital Networks;
• We will change the way hospitals are funded – by paying Local Hospital Networks directly for each service they provide; and
• To fund these changes in responsibilities, we will dedicate around one-third of annual GST allocations to a National Hospitals Fund.

These are the most significant reforms to Australia’s health and hospitals system since the introduction of Medicare almost 30 years ago. They will change the way health services are delivered. They will remove much of the waste, duplication and inefficiency that plagues our health system currently.

Our proposals will also change the way healthcare is financed in Australia. Because health care costs are increasing so rapidly, on current projections State budgets will be completely consumed by health expenditure by 2045/46. Through the Commonwealth taking on a much greater share of growth costs into the future – around $15bn over the next ten years by our estimates – our changes will put the Australian health system onto a much more sustainable footing for the future.

Today I want to outline for you three of the main components of this reform that will work together in a mutually reinforcing system – to drive both real economic reform in a sector which represents 10% of the Australian economy, and deliver improvements in vital services for Australians.

Number one – Reforming how we pay for hospital services

Central to our reform proposals is the introduction of a new system of paying for hospital services: Activity Based Funding.

Currently, the Commonwealth provides its funding contribution for public hospitals to the states through a block grant, the size of which is determined every five years through the negotiation of the national Health Care Agreements. States and Territories then determine how much funding individual hospitals and health services receive.

Under the current national Health Care Agreement, the Commonwealth will contribute around $64 billion over 5 years to health and hospital services. It’s a lot of money – but the Commonwealth does not know with any certainty what services its funding contribution buys, and despite this significant investment, has few levers available to drive change and improvement in service delivery.

Under Activity-Based Funding, for the first time the Commonwealth will provide its funding contribution on the basis of the number of services which are actually delivered. No more scheduled block grants or blank cheques.

The Commonwealth’s share will be fixed at 60 per cent of the efficient cost of each hospital service.

Moving to activity-based funding was one of the most important recommendations for microeconomic reform in the health system contained in the National Health and Hospitals Reform Commission’s report. The importance of this funding model is in its capacity to improve the efficiency and transparency of public hospital funding:

• It improves transparency because under ABF, we’ll know exactly what our massive investment in hospital services is buying – how many services, where they are being delivered, and so on
• And it will improve efficiency because, by introducing price signals into the provision of hospital services service, providers will have an incentive to deliver services at (or under) an efficient price.
• Of course this must go hand in hand with the strong national clinical standards and guidelines, so efficiency doesn’t’ come at the price of the quality of care.
• This change is important because more efficient hospital services reduced waste in the system will free up valuable resources which can then be invested elsewhere in the system:
• The NHHRC estimated that the introduction of activity based funding could lead to savings in the system of between $500 million and $1.3 billion each year.
• This equates to between 1,350 to 3,150 hospital beds a year – at a minimum, the equivalent of adding the capacity of at least four hospitals the size of The Queen Elizabeth Hospital here in Adelaide.

As well as improving overall efficiency, activity based funding can improve system performance and quality of services provided to patients. For example, by explicitly linking funds allocated to services provided, it allows for easy identification of underperforming providers so that the cause of underperformance can be remedied, while lessons from high performance can be shared.

Number Two – an Independent Hospital Pricing Umpire

Central to the activity-based funding model we have proposed is the establishment of a new, independent hospital pricing umpire to determine the efficient price of hospital services. The pricing umpire will operate completely at arm’s length from Commonwealth and state governments, to determine the efficient price of hospital services.

This is a very significant health and economic reform for Australia. Even in those States where some form of activity-based funding already exists, such as Victoria, the activity-based price is still set by the Government. Charging an independent, arm’s length umpire with this task will bring an unprecedented level of transparency to the pricing of hospital services – and therefore the Government funding which flows for these services.

In setting the efficient price, the independent umpire will be charged with striking a balance between reasonable access, clinical safety, and efficiency. Price loadings will be established to recognise the particular circumstances and health care needs of people living in rural and remote Australia and Indigenous communities.

This independent pricing umpire will be established under Commonwealth statute. The Commonwealth will consult with the States and Territories over its terms of reference and related matters surrounding its establishment. Its role will be similar to that of the independent Reserve Bank in setting monetary policy.

The umpire’s ruling will be final – and the Commonwealth will pay its fixed 60% share of hospital services on this basis.

Just as governments don’t interfere in the interest rate decisions of the Reserve Bank, governments will not interfere with the decisions of the independent umpire on hospital prices. And just as the Reserve Bank has provided for the stability and robustness of Australian monetary policy for decades, I am confident that the work of the independent umpire will provide a similar level of stability and robustness for the financing of our health system.

The significance of this change should not be underestimated.

Gone will be the cycle of Commonwealth and state governments haggling and finger pointing over hospital funding every 5 years. Gone will be the days where the Commonwealth puts an indexation factor determining funding growth to the States on the table, which does not get revisited for another half decade – no matter the increase in costs or demand for services during that period.

Gone will be the days when the proportion of the Commonwealth’s contribution to public hospitals bears no relationship to health service demand or increasing cost.

And as a result of the Commonwealth’s commitment to funding a fixed share of whatever price the umpire sets, gone will be the blame game which has bedevilled our health system for far, far too long.

In making a commitment to fund a fixed share of the price of hospital services determined by an independent umpire, the Government is genuinely committing itself to share in funding the growing cost of hospital services in a way no Australian Government has had the foresight to do before.

Rather than just writing a cheque every 5 years and leaving the States to work out the rest, under our plan the Government will be shouldering the majority burden of the costs of running hospital services permanently.

Number three – paying Local Hospital Networks direct

As part of the changes to funding hospitals we propose, the Commonwealth will no longer pay its contribution to public hospital services to States and Territories, the Commonwealth will pay Local Hospital Networks direct.

Local Hospital Networks will be small groups of public hospitals, established under State statute, which will work together to deliver patient care, manage their budgets and answer for their performance.

Through our consultations we held across the country, it was very clear that clinicians and community members wanted to have more involvement in the decision making about their local health services. By paying these Networks direct for the services they deliver, our reforms will help deliver this.

Paying hospital networks direct for the services they provide will fundamentally improve transparency within the system – because the Commonwealth’s funding will flow to where services are actually delivered, rather than flowing to State Governments to distribute.

This arrangement will mean greater local flexibility to tailor services to local needs. It also allows funding to adjust to changes in the costs of and demand for services quickly and transparently – to account for changes in the mix of services as the population ages, or the introduction of a new medical device or technology.

As is the case for activity-based funding and the independent pricing umpire, Local Hospital Networks are an important health reform, but also an important micro-economic reform in and of themselves. They will provide for greater contestability in service delivery, greater transparency about funding and performance, and more flexibility for local managers and local clinicians to drive innovation, efficiency and enhancements for patients.

This is why we have talked about small groups of hospitals – we are not proposing to create a new layer of bureaucracy, but instead to create sizeable hospital networks which are accountable to governments, local clinicians and the Australian public for their performance.

It is fair to say that the proposal to pay Local Hospital Networks direct, bypassing States, is one aspect of our proposals which has proven to be rather contentious with the States and Territories.

But the Commonwealth Government is determined to ensure our funding goes to where services are actually being delivered. It is the Commonwealth’s price for taking responsibility for funding around $15 billion of growth in public hospital costs to 2020, and rebalancing financial responsibility in the federation.

Improving care for patients

The structural reforms I’ve outlined represent critical changes that are needed to get the foundations of our health system right to meet the health challenges of the future.

The PM has also made clear from the outset that we will have more to say on specific areas and needs within the health system in the lead up to COAG.

For example, two weeks ago we announced a $632 million package to train a record number of doctors:

• By 2014 the number of GP registrars in Australia will be doubled – from 600 to 1,200 positions. This will result in a total of 5,500 extra GPs practicing or in training by 2020.
• And we will more than double the current number of places in the Commonwealth’s Specialist Training Program from 360 to 900 by 2014.

Our estimates show that these combined investments will provide around five million extra patient services by 2013.

These major investments will meet projected shortfalls, and help reduce pressure on hospitals by improving access and availability of GP and specialist services – delivering 6,000 extra doctors over the coming decade.
And yesterday I was extremely pleased to be with the Prime Minister in Geelong to announce a $436 million to transform the way Australians with long term illness are treated, beginning with nearly one million Australians living with diabetes.

Under our plans announced yesterday, people with diabetes will have the option of signing up with a GP practice that will:

• Become responsible for managing their care needs, including by developing a personalised care plan;
• Help organise additional services – such as care from a dietician or physiotherapist
• Be paid, in part, on their performance in keeping patients healthy and out of hospital.

This is voluntary for the doctor and for the patient – but for the first time government funding will be able to be flexibly used by general practices to deliver the full range of services patients need. The Government expects that approximately 260,000 patients with diabetes will be voluntarily enrolled in a personalised care program by 2013-14.

Providing patients with complex conditions with the option of enrolling with a single primary care service was recommended by both the National Health and Hospitals Reform Commission and the draft National Primary Care Strategy. Consultation and feedback on this has been extensive, including with leading GPs here in Adelaide.

We understand how important it is to get care provided outside of hospitals right. Australia has one of the highest hospitalisation rates in the developed world: 9.3 per cent of all hospitalisations in 2007/08 were potentially preventable.

Part of the reason is that the current incentives in our system don’t encourage investment in primary health care. The shared responsibilities between the tiers of governments deliver no clear financial benefits for either government for investments in primary care.

It’s a problem that’s not new and one that has been raised many times.

That’s why our commitment to take on 100% of the funding responsibility for GP and primary care services is so important. And incidentally the flow on commitment for 100% of out patients services are delivered in the community.

Our decision to be responsible for both the majority of hospitals costs and all of primary care will mean it will be in the Commonwealth’s financial interest to invest in primary care so people stay healthy and out of hospital – which is what our announcement yesterday is all about.

Conclusion: from here to COAG

You’ll no doubt be hearing more from the Prime Minister and I over the next few weeks in the lead up to COAG on the 19th – as I keep working on making sure I get my birthday wish this year.

There will of course continue to be some rough and tumble with the states and the sector – which is exactly what you’d expect given the size and scope of the reforms we are proposing. On the whole the states and territories have been mostly constructive and very legitimately want to work with us on the details of the proposals.

States including South Australia and Premier Rann have been particularly supportive. I had several meetings in Adelaide with Premier Rann and many with Health Minister John Hill while developing this policy.

And as I’m sure Minister Hill would tell you, the funding reforms that we are putting forward are particularly vital for a state like South Australia, where the ageing population is on track to hit faster than in other states.

According to the Australian Bureau of Statistics, the South Australian population is projected to remain as the second oldest in the nation (after Tasmania) over the next 50 years. This will be at the same time that Australia’s proportion of the population aged over 65 is set to almost double (from 12.9% to 22.2% by 2050).

Hence South Australia’s ability to fund the massive growth will be put under pressure very quickly. So we are here to help!

We are 100% serious about action on our plan.

And we need to be - the community are crying out for us to be.

For the three quarters of a million people who work as doctors, nurses, allied health professionals are carers in the health system, for the millions of Australians who need to use a hospital every year – it doesn’t get any more serious than this.

They know it is great news that health is leading the agenda, that the public and the media is engaged, and above all that we are taking action to make a better system for the future.

I thank you for being personally engaged in this issue, and providing the opportunity to continue this debate at the start of a busy month.

Many thanks.