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Towards A More Positive Future For Australian Public Hospitals

Stephen Milgate. Executive Director Australian Doctors' Fund.
6 September 2005

NB: This is a summary document

• Full Document: aust_hospitals.doc (600 kbytes)

Executive Summary

1. Australian tax-payers contribute $18 billion per annum to our Public Hospital system . This equates to approximately $900 for every person in Australia in 2004 or $1,700 for every person without private health insurance or $350,000 for every public hospital bed p.a or $4,535.94 per public hospital separation . Nevertheless the failure of our public hospital system to cope with the demands placed upon it is a major issue in all states and territories of Australia,
2. The Royal Hobart Hospital is indicative of the decline of a once great public institution. The hospital board has been replaced by a state government bureaucracy whose prime purpose is to ration hospital care. Consequently, operating theatre time is regularly rationed and cancelled, elective surgery is regularly cancelled at the last minute aggravating patients and staff, the absolute number of hospital beds has declined over the last 10 years, (albeit official bed numbers and unofficial bed numbers rarely agree), staff overtime is limited or prohibited. In summary, productive capacity is continually disrupted lowering morale and increasing the frustration of those who attempt to work in such a system.
3. Why, when we are spending $18 billion per annum on our public hospital system does it continually fall short of community expectations? The answer is a combination of factors.

Firstly, we have created a government charitable hospital service that claims to offer unlimited health care on demand as a right to every citizen regardless of circumstances. Increases in funding do not relieve the pressure on the system. As it improves, it attracts greater demand.

As former NSW Premier, Bob Carr publicly stated, "as fast as we hurled money at the hospitals, there was a further abandonment of private health cover and a further rise in demands on the public system" .

Secondly, funding our public hospital system does not come through the front door with each patient (voluntary funding). The majority of revenue comes from compulsory taxes through the back door in the form of annual budgets designed to meet political objectives.

Dr Max Gammon observed of the British National Health System "In that 8 year period [1965-1973] hospital staffs in total increased in number by 28%, administrative and clerical help by 51% but output as measured by the average number of hospital beds occupied daily actually went down by 11%)" Dr Gammon hastened to point out this was not because of any lack of patients to occupy beds. At all times, there was a waiting list for hospital beds of around 600,000 people.

US economist, Milton Friedman concluded that Gammon's Law was also at work in the US health care system. He found that "from 1946-1996 the number of beds per thousand population fell by more than 60%, the fraction of beds occupied by more than 20%. In sharp contrast input skyrocketed. Hospital personnel per occupied bed multiplied 9-fold and costs per patient day adjusted for inflation, an astounding 40-fold…. Gammon's Law, not medical miracles was clearly at work"

Our public hospital system is caught in a double whammy. Any improvements in productivity will be swamped by increasing demand while government funding generates Gammon's Law.

Hence, in order to dampen demand we have deliberately set out to manage the public hospital system near to crisis. We ration care and treatment because there is no price mechanism to regulate supply and demand. At worst, we set our public hospitals up to fail; at best we severely limit their ability to succeed (if by success we mean having a hospital bed and an operating theatre for those whose clinical condition requires it). Into this process we expect our doctors and nurses to deliver 1st class medical treatment, nursing care and world's best training of the next generation of doctors and nurses.

Unless and until we confront painful realities we will continue to suffer, as the Soviet Union once did, all of the blights of the command and control public hospital (economy) system.

Should we summon the political courage to fund our public hospital system by directly funding its patients so that public hospitals can provide care and not ration it, we will start to see our once great public hospitals rise again. Australian public hospitals will then enjoy a more positive future.

Stephen Milgate
Executive Director
Australian Doctors' Fund
6 September 2005

Conclusion 1

$18 billion for a population of 20 million people is a significant investment in a public hospital system considering that around 42% of the Australian population also carries private health fund membership.

Conclusion 2

Cost shifting has become an artform in most Australian public hospitals. Public outpatients in some hospitals have been "privatised" to allow for transfer of costs to the Commonwealth. Other schemes including the Twister have created an intermediate class of public patient partly contributing to some costs on a user pays basis.

Conclusion 3

The public hospital blame game is a political strategy designed to relieve public anxiety over perceived shortcomings in the public hospital system. Both Commonwealth and state politicians are well practiced in the art of blame shifting. Fundamental truths about the inability of public hospitals to ever meet expectations of unlimited health care on demand for all Australians at no direct cost are rarely acknowledged. Spin (official lies) and political posturing is used as a substitute for confronting reality. A cynical public understands the game being played and looks on with increasing skepticism.

Conclusion 4

The revival of private health insurance has provided relief for the public hospital system. Private hospital admission rates have grown at a faster rate than public hospital admission rates.

Conclusion 5

The concept of public hospitals has moved from charitable organisations to government owned and controlled hospitals. Centralisation of control and funding has followed these changes to what is now a command and control model.