For everyone who believes that simply spending more money is the answer to the health system’s woes, this new report should be essential reading.

It’s a review of the evidence about efficiency and health systems, released today as a National Health and Hospitals Reform Commission background paper.

Here, after a speed read, are some of the more interesting snippets:

• The Productivity Commission (2006) estimated there is potential for a 10 to 20 per cent increase in the health sector’s efficiency. If, for example, a five per cent improvement in productivity were achieved through productivity reforms, it could result in net savings of around $3 billion (2005-06 dollars) – $2 billion for states and territories and nearly $1 billion or the Commonwealth. Other studies conclude, however, that the Australian health system is one of the most efficient in the world.

• It does not seem to matter, from an efficiency perspective, what the balance is between public and private expenditure.  Evidence suggests that there is no one right way to structure a health care system to ensure optimal efficiency.

• Queensland gets a number of positive mentions for its health reforms including its public reporting of hospital performance. The NSW Independent Pricing and Regulatory Tribunal says Queensland Health’s new hospital performance reporting system is best practice in Australia, and that NSW should consider following suit. Qld also gets a mention for introducing the first pay-for-performance system to be used in publicly funded health care services in Australia.

• One of the few Australian studies looking at inappropriate hospitalisation and length of stay found that 19 per cent of older patients surveyed in all public hospitals at one point in time needed a different form of care from the one they were receiving in hospital. Three-quarters were thought to need a more appropriate form of care.

• The private health insurance industry is not as efficient as either public insurers or other types of private insurers.  According to Australian Institute of Health and Welfare data, in 2006-07, private health insurers spent approximately 10 per cent of total expenses on administration while the Commonwealth spent 2.8 per cent and the states 1.5 per cent of their total recurrent expenditure on administration. Meanwhile, Australian general insurers spend, on average, approximately 7.4 per cent of revenue on administration. Private health insurers, which are broadly comparable to general insurers (Productivity Commission, 1997), spend approximately nine per cent of revenue on administration.

The report also details the human impact of Commonwealth/State cost shifting: “patient care is often driven by funding rather than clinical best practice”.

It gives quite a powerful explanation (for such a dry document) for why waste matters:

“The efficiency of the health care system is important, not only because it is key to delivering an affordable and sustainable health system, but also because it can be an ethical issue in terms of equity and fairness.  If waste occurs – whether through duplication, poor processes, unnecessary high cost inputs, errors, too much administration, spending on treatments that were not needed or unlikely to improve outcome or could have been provided with an equivalent or better outcome in a lower cost way – it will adversely impact other people’s access to health care in a system with finite financial, capital and human resources.”

Other key points:

• Reducing preventable adverse events could potentially free up an estimated $1 billion per year (in 2003-04 dollars) in hospitals for other services;

• Almost 10 per cent of hospital stays are potentially preventable if timely and adequate non-hospital health care was provided

• Only cost-effective interventions should be funded and there should be a single mechanism that assesses the cost-effectiveness of medical interventions, including preventive, pharmaceutical, medical and prostheses.

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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