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My assignment today is very dangerous. I stand between 200 doctors and their lunch. Due to my otosclerosis, your complaints will be unheard.
Reform or nationalisation? Is that a choice? Do you sing or do you sail? Or do you sing as you sail?
I changed the question. Will the Labor Government engineer a larger role for public health financing and a smaller role for private health financing? My answer is "Yes, but not for long".
Health spending is rising inexorably, like a vice grip. One jaw is demand, driven by rapidly rising expectations and an ageing population. The other jaw is the supply effects from new health technologies. Cross-contamination occurs. New health technologies lift expectations.
The two Howard government Intergenerational reports assess new health technologies as the larger drive of demand, but the contribution from the ageing of the population is accelerating. The demographic outlook is very familiar so I'll race through it.
Our health financing system relies on intergenerational tax transfers. The demographic trends suggest that we won't be able to continue increasing those transfers. We may have to reduce them instead. That is more of a political problem than an economic one. Our politicians will be standing in the crossfire, trying to duck and weave between:
Spending is only one side of the coin. The resources boom has brought smiles to the usually gloomy faces of our tax collectors. States and Territories are rarely heard to grumble about the 9% average growth in GST revenues. The Federal Treasury has also done very nicely. In the 2003-04 Budget, the Treasury forecasted revenue to grow by 4.2% per annum on average in the period to 2006-07. The outcome was 7.4% per annum on average. An extra $82b of revenue in four years. Nearly $30b extra in 2006-07 alone. The Howard/Costello Government spent unstintingly as if the commodity boom would go on for all time. This year, the terms of trade improvement is estimated at a staggering 20%. That is enormous and it temporarily eases fiscal stress. The long term trend in commodity prices has been down but it is a roller coaster ride, boom to bust and back again. A commodity price slump would slow revenue growth, cause the $A to fall and rekindle inflation via higher import prices while doing little to solve our skill shortages. A Treasurer's nightmare.
The second intergenerational report was released in 2007, an election year. A lot of positive spin on that one. The report projected revenue stable as a share of GDP. Really hard to achieve. Holes all over the place. The excise on petrol is not indexed. Superannuation reforms allow people over 60 to channel the first $100,000 of income through super to get a 15% marginal tax rate. If the commodity boom falters, so too does revenue. It would be very unpopular to fill the holes with income tax bracket creep. We can expect the promised tax reform to recommend base-widening measures. High taxes on a narrow base distort and harm the economy.
We estimate the future gap between revenue and expenditure to be quite a lot bigger than IGR2 suggests. How we deal with that fiscal stress is a matter of choice. Higher taxes and/or spending cuts are painful but effective. But whacking it all on the national bankcard is more painful because it ensures much bigger tax increases and/or much bigger spending cuts down the track.
Australia is a wealthy country and it could have the best health system in the world - if it wanted it. It chooses not. This is the country that spends more on pet care than it does on GPs and more on gambling than it does on public hospitals. Australian household spending on alcohol and tobacco runs about level with household spending on health care. A person who smokes for a lifetime will spend as much as buying another house.
I expect fiscal stress will make it impossible, politically, for Australian governments to continue contributing around 70% of an ever-rising national health bill. Therefore, we should start now to make the changes that will help the private health financing sector step up to the plate. Before we go there, is there something else that can save us?
What about health prevention? And what about efficiency gains. I'm going to dismiss both summarily.
Cost effective health prevention is a no-brainer. Health prevention already contributes a great deal to health outcomes and there is unrealised potential. Immunization, public health measures like safe water, sanitation, food standards are examples of really cost effective measures. Some areas of health prevention are notoriously difficult. For now, the key health prevention challenges are around smoking (tobacco and dope) and excessive alcohol consumption. Success in those areas requires changing human behaviour and, more daunting, curbing the immense political influence of the tobacco and alcohol lobbies. Successful health prevention generates years of healthy life that would otherwise be lost. That's the reason for doing it and the way to assess it. Later on, the chances are that we'll die of something much more expensive. Health prevention does not solve fiscal stress. It can add to outlays in the short term and later on, when the savings might come, there will always be other health spending opportunities and needs such as rising obesity and the health effects of global warming.
The health system is constantly improving and constantly producing better health outcomes for the people. The driver for that is health, medical and pharma research, not just the things done in research institutes and laboratories but also what's done daily in hospitals with doctors and other health professionals carving out improvements in clinical care. The rate of return to the community from these investments is very high. While we see the odd blockbuster breakthrough, the many small improvements add up to a quantum leap forward. In health care, productivity gain often jumps platforms. Something done here affects the resource needs over there. Improvements in anaesthetics, surgical techniques, drug management, diagnostic techniques can all lift quality and help reduce hospital bed days or other costs. Again, the prime outcome is not cost reduction but, rather, quality gain.
Currently, Australia is pinning its hopes on Accountability and Performance Benchmarks, hereafter APBs, to drive efficiency gains within the AHCA framework.
There is ample evidence of poor management, such as the health department which gives hospitals their budgets for the year in May, one month before the end of the year, or the health department that insists on approving every hospital staff appointment, destroying the incentive of local managers and pointlessly adding administrative overheads. That said, the people who work in the system are remarkably canny in the way they can produce outcomes that are, for the most part excellent, despite whatever stupidity emanates from the Monty Python team in the front office.
Performance benchmarks are a very old idea. One ancient civilization had a very simple sanction-backed benchmark, and I'm sure you've all hear this before. If the patient survived well and good but if the patient died, the doctor was put to death. Nicola, no!
APBs are being developed all over the world. AIHW starting publishing reports in 1996. The National Health Performance Framework has been around for some seven years. There are thousands of detailed indicators now in use at the micro level, although nobody really knows what impact they have.
Why do we need them? We seek to run our public hospitals under a command economy model. Moscow 1953. Resources are ever scarce, wants and needs are extensive. Resource allocation decisions are made by bureaucrats with the impossible task of trying to work out who will miss out. Heavy reliance is place on non-price rationing.
Driving the 1953 model Moscow is night driving with no headlights, no street lights and no moon. Forwards progress is crash by crash. APBs could be navigation lights to help inform resource allocation decisions.
APBs are proxy measures for the outcomes we are seeking: high quality, safety, low cost, equity, etc. They carry quite distinct risks.
First, tunnel vision. If health authorities are held financially and/or politically accountable against APB outcomes, they will focus on achieving APB targets rather than true health outcomes. The greater the disconnect between true health outcomes and APBs, the greater the potential harm from tunnel vision. If there is large disconnect, the pursuit of improvements in performance as measured by the benchmarks may have no bearing on improved health or even set us back. Even if individual indicators work in their specific area, the particular set chosen can skew resource allocation. The risk is that resource allocation will be shifted to those areas being measured by APBs to the detriment of health outcomes being delivered in areas that not being measured.
Second, suboptimisation. If APBs do not align with local objectives, health authorities may pursue local objectives at the expense of the targets set by the APBs. This is because health authorities may feel that more rewards will flow from pursuing local strategies that have a greater expected benefit. For example, demonstrating reduced waiting times to a marginal electorate may be perceived as more beneficial than demonstrating efficiency improvements within an AHCA.
Third, myopia. The use of APBs provides an incentive for health authorities to pursue short term objectives that are immediately measurable at the expense of long term goals. The majority of APBs advocated by the Commission are curative services that are measured by short term processes, rather than preventative services that are measured by long term outcomes. Cost effective health prevention measures may not be pursued because they cannot produce the outcomes in the APB timeframe.
Fourth, gaming the system. This can occur if health authorities strategically manipulate their performance over time in order to maximise their total revenue, or minimise financial penalties, associated with AHCAs. Health system performance is constantly improving. If the benchmarks are not ratcheted up, they become too easy to meet. But the expectation of the ratchet effect creates an incentive for health authorities to minimise an increase performance to dampen expectations of future gains.
Fifth, misrepresentation or "cooking to books". Health authorities may selectively use data, or change data, to represent the health care system in a better light to avoid penalties or in a worse light as a defence against the ratchet effect. For a period, the State of Victoria "cooked the books" on hospital waiting times data. If an operation was cancelled, the patient was re-listed as joining the waiting list for the first time. In the UK, a benchmark of access to a GP within 48 hours meant that health services ceased taking appointments if there was no appointment available within 48 hours. New Zealand redefined elective surgery waiting times as the time between seeing the consultant to the time of surgery. The waiting time for elective surgery was shortened to months with the new definition and administrators were able to hide the average 2-year waiting time to see a consultant. NSW CityRail improved its performance as measured by the percentage of times running on time by redefining late.
Sixth, "benign reform" of the indicators themselves. This is to redefine the measures to make performance look better, to make the benchmarks easier to achieve or to mask underlying deterioration by breaking comparability with previous measure in use.
Seventh, ossification. Ossification may occur if health authorities become set in a rigid framework imposed by APBs. This can inhibit innovation, reduce their ability to mitigate threats or address newly emerging areas of health need, and can lead to missed opportunities.
I venture that there has to be a lot more effort put into APBs before we can have confidence in them. COAG should defer attaching financial penalties to non-performance until the benchmarks themselves are seen to perform well.
Is it time to think outside the square? If the public insurance system cannot carry the extra burden, the private system will also struggle. We need to start rethinking insurance and rethinking how we can make the private health financing system more robust so it can carry a larger share of the load.
One solution for fiscal stress is grand theft. Confiscate the house and superannuation assets of the baby boomers to pay for their health care. Australians don't like death taxes. This one is pre-death taxes. Politically challenging. Given the unprecedented wealth of the baby boomers, I think it is inevitable that they will be required to contribute more to the cost of their health care. They won't like it, but nor will they want less health care or lesser quality health care.
It will be easier to change people's expectations about how they are going to have to contribute if we put in place mechanism to help them save for the inevitable.
So let's have a little bit of fun. A straw poll. Put up your hand if, in the last 10 years, you have renovated your kitchen, bathroom or roof, or if you bought a renovated dwelling. You can put your hand down if all that cost you less than $25,000. Thank you. It is odds on that a kitchen will need renovation after 30 or 40 years and it is very easy now to spend $25,000. People manage those costs without a taxpayer-funded KitchenCare scheme. New hips are equally predictable and cost about the same as a new kitchen. Should we start telling people than a new hip is an expense they can anticipate, save for and pay for? Likewise cataracts? And what about the first 6 GP consultations per patient every year? The orthopods, the ophthals and the GPs have asked to invite you to the public flogging which they will be conducting at Constitutional Dock, after lunch.
Well it is quite obvious that I overstated by case deliberately to regain your attention after all that turgid stuff on APBs.
My argument comes down to something like this:
These dangerous heresies do not rely on some heroic assumption that patients can be trusted to make informed decisions whilst spending their own money, an assumption that many social engineers and some health practitioners would be very quick to reject. We would have to create an environment for informed decisions with better patient education and both positive and negative incentives. Prohibition doesn't work so why not microchip all the smokers with their tax file numbers and hit them with a 10% Medicare levy surcharge.
I end with a question for you all. Big brother riding his 1953 model Moscow or the little brothers with their health savings accounts. Please consider.
Thank you.
* The above is a typed transcript of a presentation by Roger Kilham, Health Economist and consultant to the AMA to the AMA National Conference 31/5/08. The views expressed in this paper are his views and not the views of any other organisation.
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