The National Health and Hospitals Reform Commission report is due for release any day now. Unfortunately, if its earlier work and the preliminary reports are any guide, I don’t expect that it will address the key challenges in health care.

Here are five critical issues that are unlikely to be addressed by the report although they should be.

1. The Commonwealth should hold a referendum to establish its pre-eminent position in health

Cooperative federalism, the preferred approach of Prime Minister Rudd, is unlikely to yield the changes needed in health. Without political will, the Commonwealth/State impasse in health will not be resolved. Unfortunately, along with their Ministers, State health bureaucracies are major opponents of Commonwealth/State health reform. Their jobs would be at stake.

A less attractive alternative to a referendum, but perhaps more politically feasible, is to establish a Joint Commonwealth State Health Commission in any state that agrees. In such an arrangement, Commonwealth and State health funds would be pooled, there would be agreed governance of the Commission and a joint plan developed for the delivery of health services in that State.

The Commonwealth Government also needs to develop some clarity about what it wants to do in health. It has no over-arching values to guide its health programs, like universality, social solidarity, equity and personal responsibility. It lacks guiding principles like a single payer, efficiency and choice. The Government’s health strategy is a well-kept secret.

2. The $5 billion corporate subsidy to Private Health Insurance (PHI) should be progressively reduced and the money used to directly fund both public and private hospital patients

This subsidy is one of the worst pieces of public policy it is possible to imagine. It is a cancerous growth. This is not a health program. It is corporate welfare. The subsidy favours the wealthy, who can jump to the front of the hospital queue. Yet it is apparently regarded as good Labor policy – a government which has a Minister for Social Inclusion! It 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 for their services’ .

It has not taken pressure off public hospitals, and in fact has allowed private hospitals to attract highly professional staff away from public hospitals. It weakens Medicare’s capacity to control costs and quality. In 2003, the OECD published a case study on PHI in Australia. They reported ‘(private) funds do not exercise control over the quantity, quality and appropriateness of care provided… private funds have not effectively engaged in costs control. PHI appears to have led to an overall increase in health utilisation.

3. Reduce reliance on fee for service A critical factor contributing to the burgeoning demand for health care is perverse incentives that cause excessive servicing.

Our health dollars are skewed towards the treatment of sickness (over 90%) rather than keeping people well (less than 10%). With the skewing of medical effort, fee for service (FFS), together with subsidised PHI provides an obvious incentive for some clinicians to over-service. Doctors are paid by the quantity or number of their services rather than their quality. The worried well are easy prey. If a clinician can see more patients and can perform more procedures, that clinician will be paid more. The temptation is real.

It partly explains why Medicare services have almost doubled in 13 years, why caesarean section rates have increased from 18% of births in 1991 to 30% in 2005 and why joint replacements have almost doubled in 10 years. In some instances, for example in acute care, FFS may be appropriate, but it is much less appropriate in charging for the long-term treatment of chronically ill patients. It also encourages revolving door behaviour. The remuneration mix needs major overhaul. Minister Roxon is badly advised when she says “the doctors’ FFS system would remain central to Medicare”.

4. The Productivity Commission should be charged with driving health reform

It is better-equipped than the NHHRC to bring the economic rigour and “outside view” (free of conflicts of interest) that we need to address the big issues, particularly curbing over-use and getting better value for money. The Department of Health and Ageing shows far too little concern for efficiency and value for money.

5. Medicare should publish variations in practice

Erratic and inexplicable variations exist in clinical practice without obvious health advantages. Birth by caesarean section is probably the best-reported example of variations in clinical practice with some areas and hospitals quite notorious for interventions well above statewide averages. Private hospitals in Australia are more likely to have caesarean births, 40% compared with 27% in public hospitals.

There are also variations between the States in the incidence of both hip and knee replacement procedures. In the 10 years to 2004/05, these procedures increased by 77% in SA, 83% in NSW, 99% in WA, 125% in Queensland and 190% in ACT/NT. There is no evidence of an ageing effect in these figures; if there were such an effect we would expect SA to be higher.

Medicare is reluctant to publish and analyse these major variations in clinical practice. They should be published to provide transparency and highlight opportunities for review and possible remedial action against clinicians whose patterns of service are clearly well outside the norm. Large savings are feasible. It would also identify areas of under-servicing.

John Menadue AO was formerly Secretary of the Department of Prime Minister and Cabinet, Ambassador to Japan and CEO of Qantas. He conducted reviews of the NSW and SA health services. This is an edited extract from his submission to the Senate Community Affairs Inquiry into the Fairer Private Health Insurance Incentives Bill 2009 and two related bills, available here.

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Peter Fray
Editor-in-chief of Crikey
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