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In his otherwise unimpressive response to the review of competition policy by Ian Harper’s panel, Scott Morrison gave some hope on Tuesday that the government could yet be genuinely interested in pursuing the kind of economic reform that — unlike tax reform — will yield genuinely significant efficiency gains across the economy.

The Treasurer made a point of noting that the health and social services sector now employed 13% of Australians and was growing twice as fast as the rest of the economy, providing a particular contrast with traditional big employers like manufacturing. This was a “transformation taking place in our economy”, Morrison said.

Governments have been acutely aware of the size of the health and social services sector for years, though primarily via the impact on their budgets. But it became the biggest employer of Australians several years ago and has continued to grow rapidly ever since, and with an ageing population it will only grow faster. This doubles the policy challenge in the sector: not merely do governments need to get maximum return for their spending, they need to ensure the health workforce is deployed as efficiently as possible given our changing workforce demographic and falling participation rates in the future.

And beyond any other sector of the economy, it touches most directly on all of us individually, as health and care consumers, as parents, as carers.

The Harper Review devotes a chapter to the application of competition policy in human services, which some have interpreted as a call for outsourcing and privatisation at all costs. In fact it’s a highly nuanced examination of what role user choice and contestability can play in the delivery of a wide variety of health, education, care and criminal justice services, the extent to which it already does, and the lessons from that experience (for example, how Western Australia has developed, over two decades, Australia’s best disability care system).

Indeed the chapter, in a sense, is written in a post-outsourcing mindset — it notes that government service delivery across all government functions has evolved from direct delivery by governments to private providers via outsourcing and privatisation and now, at least in the human services space, to an increasing focus on user choice and control and more joined-up and coherent service offerings (e.g. the increasing emphasis in chronic disease management on providing a more seamless treatment program for a condition that might require a number of different specialities).

In fact, one of the key caveats the review offers is that traditional outsourcing by tender process is likely to lead to an emphasis on lowest-cost delivery, which may be counterproductive. “As in Australia, tendering decisions in the UK have historically focused on cost and value for money, which may come at the expense of care and relationships.”

Nonetheless, with governments ever more focused on efficiencies in service delivery, surging health budgets and the National Disability Insurance Scheme rolling out in coming years, there will be massive opportunities for big service providers (think Serco and the like) to secure large contracts.

The two key elements Harper and co focused on were user choice and commissioning of services. On user choice, they suggested a set of principles:

  • Users are best placed to choose the services they need and how they are designed;
  • Choice can only be effective with access to quality services, including in remote and regional areas;
  • Users need good information to make effective choices, or effective independent intermediaries to help them make them;
  • Some users will not be able to exercise choice and need a good default;
  • Barriers to choice like high switching costs need to be removed; and
  • Disadvantaged groups will need additional support to exercise choice effectively.

On commissioning processes, the panel suggests:

  • Commissioning that addresses individual and community needs and recognises the importance of non-profit and community providers in a diverse market of suppliers;
  • Services must be contestable (with low barriers to entry, while maintaining safety standards) and providers must face credible threats of being dumped for poor performance;
  • Outcomes-based benchmarks, not management based on processes or inputs; and
  • Encourage performance above specific targets.

As the report and the government’s response notes, different governments are at different stages in the evolution of human services delivery in different fields. And outsourcing of health and human services has not always provided happy outcomes. Just this year, Serco was fined and lost its contract to provide sterilisation services at Perth’s Fiona Stanley Hospital after human tissue was found on instruments; sterilisation services were moved in-house. The federal government has also had to recover tens of millions of dollars from providers amid claims that Job Services Australia is being rorted on a massive scale.

The review uses the term “stewardship” to describe the government’s ongoing human services role — in funding, regulating and in many cases providing services (functions that should be carefully separated, it says). The term suggests that the kind of evasion of responsibility that outsourcing has facilitated elsewhere in government can’t be allowed in human services. This also reflects the political reality that voters won’t accept governments blaming providers when health and aged care services fail. As stewards, governments retain overall responsibility for service delivery, regardless of whether a company, a non-profit or a community organisation has provided it.

Given the importance of this area to the economy, what’s the government’s response? The Productivity Commission will be tasked with “a review into human services, which will include research on past or ongoing reforms in different jurisdictions that incorporate principles of choice, competition and contestability. The review will also identify human services sectors or sub‐sectors for more detailed analysis.” The government also wants to work with the states and territories to identify “innovative ways to deliver human services and promote economic growth”.

The PC review is a good start — even though there are more than enough reviews associated with this report already. Remember the National Disability Insurance Scheme grew out of the PC’s review of the issue (and Bill Shorten’s championing of disability issues) — PC backing for reforms is an important step in garnering traction and support for otherwise-difficult reforms. The federal government also has the challenge that it’s the states and territories that are on the front line of human services, so it can only guide and encourage, unless it’s prepared to take the lead, NDIS or Gonski-style.

When Paul Keating embarked on the first round of national competition policy — with little or no support from the Coalition — in the early 1990s, it took years and several battles with recalcitrant state governments to get the frameworks across a number of areas set in place. The states and territories this time around might be keener to participate, but it will be a similarly long-term process — if the Turnbull government has any of Keating’s doggedness. But the sheer size of the human services area means even small improvements are likely to be important economically.

Peter Fray

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