|
|
ADF Archive Files : For Browse View Click Here
From: The Question of Collocation
Australian Doctors Fund Collocation Meeting
Sydney - 20 May 1998
Roger Kilham - Access Economics Pty Ltd
The collocation of public and private hospitals is an old idea that has had a remake. For many years, Sydney's St Vincent's Hospital has had both public and private units. Canberra's Calvary Hospital has a single building with the private hospital occupying the top floor and the public hospital the rest. In these and other long-standing examples the common denominator is that there is just one hospital owner/operator.
In recent times, we have seen three main changes.
At first glance, the separate ownership and management would seem to put quite a few obstacles in the way of collocation ever happening and, once it has happened, further obstacles to it ever being made to work successfully. Why so? The collocation of public and private hospitals involves much more than the dictionary meaning of being placed together. There is a purpose in the placement - to extract better use of resources whether they be costly capital or skilled labour. Accordingly, when collocated hospitals have quite separate ownership and management, the entities have to forge a successful partnership if collocation is to achieve those objectives. The placement of public and private hospitals side by side does not achieve the objectives. It opens opportunities that may not be present or may be more limited when the hospitals are physically separate.
What has caused the collocation epidemic?
The short answer is the economic and financial pressures that have been applied to the hospital sector. Both the public and private sectors have been subject to these economic pressures, some common to both systems and others unique to each.
The public hospital system has been subject to quite intense pressure to produce more with less. Behind these pressures is a clash of objectives:
In the few short years from 1991-92 to 1995-96, public acute hospitals have amply reflected these pressures in their outcomes:
During the term of the current public hospital cost sharing agreements, the States have felt increasing financial discomfit because the escalation formulae compensate them for price increases and population growth but not for the per capita growth in separations. Although the ALOS has fallen, reducing total bed days, there is no corresponding fall in costs as the average bed day is more intense. In short, the States have encountered a net financial risk from the rapid growth in per capita separations in the context of agreements which impose upon them the principals of Medicare and disallow any role for demand management through the pricing of services. The States are hardly paragons of virtue here, but their share of the cost of public hospitals has risen in the latter years of the current agreements.
Turning to the anecdotal evidence, public hospital workers complain of intense workload pressures and low morale. Sheltered workshops within the public hospital system are fewer and farther between. Medical practitioners are seeing many manifestations of the pressures.
Economic and financial pressures have also been brought to bear on the private hospital sector, although somewhat later in the piece. For some years the PHI funds were able to persuade their declining membership to switch from basic cover to the top tables. This had several consequences:
With PHI coverage still declining, the private hospital growth phase appears to be over for the present.
Labor's propaganda indicated that the Lawrence reforms were intended to impose the US "big ugly buyer" model whereby the private health funds would have significantly increased clout and would be in a position to force providers - hospitals and doctors - to lower their prices. It did not matter to Dr Lawrence whether this were achieved through a spur to greater efficiency, lower returns to producers, a reduction in the quality of services to patients or any combination of the three. Dr Lawrence had no intention of reversing the cost-shifting on the private funds.
There are, of course, other more Machiavellian interpretations of the Lawrence reforms given that Dr Lawrence made little secret of her distaste for anything private and her strong preference for the public health system. It is surprising that the Coalition Government has allowed Dr Wooldridge to pursue them, apparently without question. The Lawrence reforms have proven to be rather more corrosive than we were all asked to believe. While Lawrence saw contracting as a means of hammering the doctors down, groups like HCOA see contracting as a means of increasing their market share and positioning themselves to survive whatever turmoil lies ahead.
A very real issue for the private hospitals is sovereign risk. Private health insurance coverage is continuing to decline. Hidden away in the recent budget, we find that the estimated cost of the rebate has been slashed to about $300 million per annum, barely half the original estimate.
A further rescue package for private health insurance is expected to be announced in the Coalition's election platform. However, cost shifting against the private health funds since the start of Medicare has been quite extraordinary, building to $1.3 billion per annum before the offset of $300 million in the PHI rebate. It is not yet clear whether the Federal Coalition Government is willing to put enough back to stabilise coverage. If new action is not taken, PHI funds are perhaps ten years or maybe as little as five years away from virtual irrelevance. This creates uncertainty in the funding streams for private hospitals, so operators must have the occasional tremble in their hands when signing off on costly new investments.
The economic interpretation of collocation is that it is one of ways of responding to the economic and financial pressures. What outcomes are hoped for?
This last point is increasingly important to the private hospitals as they diversify into the high technology areas and seek to provide an ever widening range of procedures. They must be able to attract and hold the medical workforce. If collocation helps support the incomes of medical practitioners and increases their convenience, an important bolt is shot home.
Will all these outcomes be realised in each collocation situation? I suspect not, for mistakes along the way are inevitable. There is the potential for enough benefits for private and public operators to continue to explore all opportunities for new collocations. The road test will be the behaviour of the larger private hospital groups. If the HCOA increases the proportion of their facilities in collocated sites, we will be entitled to assume that net benefits are being achieved.
It is important, I think, not to be too wide-eyed about the likely benefits. Nor should we assume that collocation equals loving co-operation. Not all the participants will have entirely pure objectives at all times. Some will see collocation as providing scope of cost shifting and/or profit creaming. Not every entity will be a pleasure to deal with. It would be naive to imagine that collocation could be free of the rough and tumble of the commercial world. The public interest requires some wins over the commercial interests - there ought to be financial transparency in the relations between collocated hospitals and measures to prevent sweetheart deals. What we do not need, however, are the meaningless symbolic victories like that separate entrance in Western Australia.
The private hospital sector, in particular, faces some rather difficult challenges in the period ahead if the PHI decline continues and the private hospital market contracts.
Perhaps the most far reaching challenge will be the application of national competition policy to the private hospitals. Let us take that in conjunction with the simmering issue of equivalence - the notion that private patients in public hospitals should be subject to full cost recovery instead of the current $200 plus per day.
If Professor Fels wins the day, the market protection offered by State Government licensing of private hospital beds would disappear. New private entrants would be free to enter the market. In addition, instead of closing wards, public hospitals would be free to sell off any excess capacity in direct competition for the private patients. This is particularly worrying for the private hospital operators as the public hospitals may pursue marginal pricing strategies. The PHI funds will be hungry for any savings they can get, so downwards price pressure is highly likely. Small independent operators will find this a more difficult market than the one they contest today. We might expect to see failures, closures and takeovers by the larger corporate players.
From where the private hospitals stand now, that all looks rather threatening.
Whatever you may think of the outcomes from collocation, it is important I believe that we see it as the outcome of those economic and financial pressures on the public and private hospitals. It is too late to speculate whether and how those pressures might have been avoided. They were not avoided. Governments are not stepping back from their desire to have hospital services produced more cheaply.
I am now going to ask you to approach the issue of collocation from a different perspective. The structure of health financing has a lasting impact on the way that services are delivered. Public hospitals once offered all sorts of outpatient clinics. Medicare put a comprehensive financing structure in place which enabled the provision of quite a few services to shift from hospital to community settings. With varying speed of response, the States started winding back some of those outpatient services. It was inevitable that the shift would occur at some time because often the community setting is the more efficient option.
Under the current structure, everything runs in quite distinct tram rails. We have private hospitals and public hospitals, private patients and public patients. The financing system is a mixed system:
There are no immutable laws specifying which services should be funded which way. On the contrary, it is probably no more than a set of historical accidents that the dividing lines are where they are. In many areas of activity, Governments are beginning the rethink service provision. Once public housing was built, owned and operated by the public sector. The Housing Commissions were at times notorious for their mismanagement of the housing stock. New approaches include paying a subsidy and allowing the beneficiary to rent in the private market.
It is possible that in the future, some of those tramlines in health financing will be ripped up. My comments here are speculative rather than prescriptive:
There are some powerful economic arguments in favour of a single market for hospital services. Indeed, the current public/private structure looks like a penalty we have imposed above all the other inherent costs of separation from world markets, large internal distances, sparse population, a slightly mad and often dysfunctional Federal system of Government, and so forth.
I would not expect private hospital operators to welcome the concept of the single market in hospital services. But they might find that there are more opportunities created than lost.
You are probably all itching to remind me that the record got stuck 15 years ago with Medicare. I would be the first to agree that the current Federal Government has shown very little appetite for tackling health reforms which might risk the ire of the electorate. The current "muddle through" approach has worked for 15 years and that there is scope to muddle through for some years to come before the pressures for fundamental reform become irresistible. We should have had more incremental reform within Medicare, but the political will is weak. Inaction breeds the eventual crisis and when it comes, we might find that the new architects start with a clean sheet of paper. We might well find that collocation simply ceases to be an issue at all.
1 When this occurs it is a win for everybody. For patients, access is enhanced. For funders, costs are lowered. Medical practitioners win a larger share of health spending.
|
Australian Doctors Fund |