As we wait for the Commission of Audit  to bring down a set of recommendations justifying the Abbott government’s aspirations for spending cuts, it is interesting to reflect on the fate of its predecessor’s recommendations in the health area.

Back in 1996, the first edition of the commission delivered 11 recommendations relating to health. As only two-thirds of one recommendation has been implemented, the current commission may find it tempting to recycle some of the earlier work.

In the intervening years, only one of the 1996 recommendations has been partially implemented (introduce aged care reforms including user charges and entry contributions, individual based subsidies, and budget holding). So of those that are left, what might the commission recommend? What should it recommend? What might be recommended and implemented?

There are clearly some low-hanging fruit:

  • Contestability for pharmaceutical supply and diagnostic services should be recommended, but the forces of reaction embodied by the Pharmacy Guild and the diagnostic industry group may well prevent the recommendation, and will almost surely block implementation. This is a pity — if the government is serious about improving efficiency in the health sector, allowing Woolworths and Coles to run pharmacies will do more than most other measures.
  • Removing regulatory duplication is a no-brainer, even if the regulatory overlap in many cases is nugatory.
  • Pricing blood products should be recommended, at least for public sector users. While there are ethical concerns about deriving profits from blood donated voluntarily, this should not prevent governments from allocating out to public hospitals their share of the $1 billion cost of the blood and blood products supplied through the NBA.

After these the degree of difficulty increases.

The co-payment kite has been flown, and despite having attracted fire from numerous directions the government has not yet pulled it down. I imagine the commission will recommend containing growth in the Medicare Benefits Schedule and the Pharmaceutical Benefits Scheme — including through co-payments and the use of price signals for GP services — but it will be interesting to see the government’s reaction. If it decides to pursue options in these areas, it will be even more interesting to see how the post-July 1 Senate deals with the necessary legislation or regulations.

And then we get to the “redesign the health system” recommendations: renegotiate Commonwealth/state agreements to transfer responsibility for delivery of health and health-related services to the states and, in particular, devolve responsibility for aged care, health promotion and illness prevention, and health support services.

There is no doubt that if we were designing a health system for Australia from scratch, it would be vastly different to what we have today. The system we have has evolved having regard to our social and political history, and the particular version of federation that has emerged over the last century. So we find ourselves stuck in an Irish joke: if we want to get to Connemara we shouldn’t start from here. Only we are here, and there is nowhere else to start from.

Will the 2013 edition of the commission seek to revisit the federal allocation of health responsibilities and resources? Given the very recent Council of Australian Governments agreement on these issues, I doubt the commission will suggest reopening the matter. And even if it did, state governments are basically satisfied with the status quo, especially now that aged care has been solely assigned to the Commonwealth. Why would they agree to take on additional responsibilities in the absence of a rock-solid guarantee of additional resources?

So if responsibilities are going to continue to be divided, will the commission wish to suggest development of “bilateral arrangements incorporating global funding, which reduce duplication, overlap and incentives to shift costs” and share financial risk between the Commonwealth, states and service providers?

The desirability of such agreements has not diminished since 1996, but the problem at the end of the day is that agreements require consent from both parties. While it would be possible to design a funding mechanism around a global budget that would result in reduced Commonwealth funding for a state if it shifted costs to Commonwealth programs, no state would ever agree to such a mechanism.

Peter Fray

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