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Health funding under the microscope – but what should we pay for?

In the sixth part of our series Health Rationing, Mark Mackay examines the latest think tank blueprint to rein in Australia’s rising health costs. But he warns that before funding models are adjusted…

The health budget isn’t limitless: decisions have to be made about to how to allocate funding between competing choices. AAP/Dave Hunt

In the sixth part of our series Health Rationing, Mark Mackay examines the latest think tank blueprint to rein in Australia’s rising health costs. But he warns that before funding models are adjusted, governments must make some tough decisions about the type of health care they’re willing to pay for.


In recent weeks, the Committee for Economic Development Australia and the Grattan Institute released reports on Australia’s rising health costs and strategies to rein them in. Now the Centre for Independent Studies has released its own blueprint for health financing reform: Saving Medicare but not as we know it.

The report is part of the centre’s TARGET30 campaign, aimed at reducing the size of the government, while improving public services and reducing fiscal burdens on future generations.

To transform Australia’s financially unsustainable health system, the centre recommends cutting Medicare (Australia’s free and universal taxpayer-funded health care scheme) “down to size” by boosting the efficiency of public health services, better targeting public health spending and expanding the role played by private health-care financing.

Essentially, this means the individual becomes more responsible for meeting their own health costs and that hospitals are made more efficient.

The centre also recommends scrapping certain programs or aspects of Medicare in order to reduce wasteful expenditure. These include GP management plans, where doctors are paid to coordinate the care of patients with a chronic illness and the Better Access program, which pays for up to ten consultations with a psychologist.

Health savings accounts

One of the key recommendations in the report is the introduction of a dual funding system. Rather than relying on Medicare for seemingly free or low-cost services, people would use individual “health saving accounts” to pay for their own low-cost health care. For high-cost episodes of care, such as operations, government-issued vouchers would be available.

Health savings accounts are like superannuation accounts, but are used to pay for health-care services from adulthood to death. The system is currently used in the Netherlands, where half of the funds come from employers, 45% come from the insured person and 5% by the government.

But while the centre points to the experience of the Dutch as being a way forward, the system has only been in operation since 2006. It is therefore too early to determine how well costs are being contained and how well the system compares with other countries.

This is not to say that health savings accounts aren’t worthy of consideration. Rather, there’s a good deal more to discuss before the proposal can be accepted.

What should we pay for?

Australia, like many other OECD countries, is experiencing increasing cost pressures from its health-care delivery system. Money is not limitless and decisions have to be made about to how to allocate funding between competing choices that governments wish to fund.

The centre is right in saying it’s now time to act, otherwise we will be merely repeating mistakes of the past. But this involves first deciding what might be purchased and then deciding how those purchases should be funded.

The centre’s report has jumped to the funding decision first without considering whether we have decided to purchase the right thing. Altering the funding mechanism to purchase the wrong mix of health-care “products” is not a good decision. We want to purchase good health outcomes and not just health service activity.

Elderly people with kidney disease are increasingly treated with dialysis – but will it improve their quality of life? Image from shutterstock.com

Last week on The Conversation, intensive care specialist Peter Saul argued it was time to address the decisions we make about care options, particularly towards the end of life.

South Australian Minister for Health and Ageing made a similar call when addressing two public forums in Adelaide earlier this month: “It’s time for a mature debate about what the public wants and what they are willing to pay for in healthcare and other areas,” he said.

The minister identified that the expansion of services in recent years, such as the regular provision of dialysis for the elderly, has been costly and has occurred without regard to the quality of life impact. Notably, the single greatest reason for hospital admission during 2004-05 was for “care involving dialysis”, an indicator for chronic kidney disease, which accounted for nearly 12% of admissions.

Like Saul, the minister has suggested that, “the value of health spending needed to be re-cast in terms of the quality of survival rather than survival alone”.

While experts are highlighting the need to consider conversations around end-of-life options, the real challenge lies ahead for community leaders. Are they prepared to provide the leadership to see such changes come to fruition and not buckle under the weight of political or media pressure about hospital beds, waiting times and staffing numbers?

There’s no such thing as a free lunch. We will all pay for today’s bad decisions in the future – and it just so happens that the medical profession can now keep us alive longer to see the outcome of these decisions. It’s time to determine what health outcomes we need and want, and how we might then deliver and fund these in a sustainable way.

But what we’re lacking is someone to stand up and lead the engagement process. Who is prepared to deliver and implement the necessary changes to our health system? And will they be able to muster the politicians, media and the public along for the journey?

Given the different levels of government that have responsibility for delivering health-care services in Australia, achieving change will require champions to take up the challenges in each state and territory as well.

Economists alone cannot, nor should they be expected to, provide the solution to Australia’s health system’s problems. The centre’s TARGET30 report does, however, provide a talking point – and that’s where engagement begins.

This is the sixth part of our series Health Rationing. Stay tuned for more articles in the lead up to the May budget or click on the links below:

Part one: Tough choices: how to rein in Australia’s rising health bill
Part two: Explainer: what is health rationing?
Part three: A conversation that promises savings worth dying for
Part four: Phase out GP consultation fees for a better Medicare
Part five: Focus on prevention to control the growing health budget

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20 Comments sorted by

  1. Sue Ieraci

    Public hospital clinician

    Mark - I have no doubt that the issues you raise are valid, but there may be some misunderstanding about the renal dialysis figures.

    In general, patients who have their dialysis in the hospital dialysis unit (in-centre dialysis) rather than at home will undergo the paperwork exercise of hospital "admission" - although they are only there for their dialysis session. Since they would generally attend thrice weekly, this would grossly inflate the number of "hospital admissions" occurring for dialysis, although those patients are not really admitted to a hospital ward in the usual sense.

    I would caution readers to evaluate the bar graph in the link with this fact in mind. Otherwise, it appears that hospitals are full of dialysis patients, which is not the case.

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    1. Chris Saunders

      retired

      In reply to Sue Ieraci

      An excellent point Sue. Too many people are perhaps inadvertently misleading by making statements based on dubious statistics.

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  2. John Kelmar

    Small Business Consultant

    I have been advocating for decades that people should be paying for their own health care. I am glad others are starting to take notice, and move down the rational path.

    An immediate saving for Medicare would be to stop offering free services to foreigners (non-Australian citizens) and to people whose medical treatment are a direct result of their own actions (drugs, alcohol, jumping off balconies, breaking the road laws, starting fights etc).

    A further saving would be to eliminate surgery based on false promises of a better future being made by health professionals, who then fail to ensure that their promise is met. My mother was told at 87 that she needed heart bypass surgery and would live for another 5-8 years. The doctor lied. My mother spent the last 6 months of her life in hospital and nursing homes, and was $50,000 out of pocket for this experience.

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    1. Chris Saunders

      retired

      In reply to John Kelmar

      One of the greatest achievements in Australia is a universal health scheme. Assaults as well as practical attempts at revision will always be made upon it. For some its underlying ideology is anathema, and for others it is in their nature to make things more efficient in their own eyes. We have the benefit of well trained and experienced and dedicated Doctors treating sick people, money is a big issue, but there has always been a meeting of the ways. That some people will find alternative ways for governments to save our tax money and private firms to enter a possible lucrative field is also a given. It does not mean throwing out the baby with the bathwater. The system is not broken. That youth is foolhardy, nor a person bearing foreign nationality is not a reason to stop them having health treatment.
      Sorry to hear about your mother.

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    2. Sue Ieraci

      Public hospital clinician

      In reply to Chris Saunders

      Medicare is a bit like democracy - lots of flaws and limitations, but better than the alternatives.

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  3. ian cheong

    logged in via email @acm.org

    "We want to purchase good health outcomes and not just health service activity."

    Belief in that statement is where the whole debate takes a turn for the worse. What happens in the attempt to achieve "outcomes" is a whole load of bureaucracy, bureaucratic targets, pushing of guidelines, etc. All that activity is just as likely to increase costs as decrease costs. Central price fixing eliminates natural drivers for possible market efficiency over time.

    Consumers in the subsidised health market…

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    1. Chris Saunders

      retired

      In reply to ian cheong

      A bit off the point Ian, but where do you get free hearing aids? I know someone just spent twelve thousand for a pair, not a cheap trick.

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    2. ian cheong

      logged in via email @acm.org

      In reply to Chris Saunders

      government issue hearing aids for pensioners cost the government about $1000 a pair I think. an audiologist could tell you the real number.

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    3. Chris Saunders

      retired

      In reply to ian cheong

      A $1000 hearing aid? That's probably why it ended up in the drawer. They need to work.

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  4. Trevor Kerr

    ISTP

    Under the free market regime, we would not expect the makers of dialysis equipment to be interested in strategies to prevent chronic renal disease.

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    1. Sue Ieraci

      Public hospital clinician

      In reply to Trevor Kerr

      Trevor - do you really think that dialysis rates are driven by the equipment manufacturers?

      The main factors limiting the availability of dialysis are access to the health team that suports it, tolerance of the patient to (generally) thrice-weekly sessions, and availability of transplant organs.

      The is certainly corruption in the world, but there is no need to imagine it under every bed.

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  5. Monika Merkes

    Honorary Associate, Australian Institute for Primary Care & Ageing at La Trobe University

    Does anyone still remember the Oregon experiment of health rationing? In the late 1980s, Oregon decided to cover more people under Medicaid. They did this by covering fewer services, with the aim of allocating Medicaid funds in a more systematic and utilitarian manner, benefiting the greatest number of recipients. After extensive cost-benefit analyses it was decided not to fund certain high-cost, low-benefit services/procedures, such as organ transplants.
    Then, the story of a boy with leukaemia captured the media: Coby Howard, who needed a bone marrow transplant, died because his parents couldn’t find the $100,000 to pay for the operation. Eventually, organ transplants were covered again under Medicaid, even more generously than before.

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    1. Chris Saunders

      retired

      In reply to Monika Merkes

      I'm not up with Oregon, but after Whitlam as PM introduced medicare, and lost out to Fraser in the following election, suddenly rather grandiose cash registers appeared on the public counters of emergency departments. (This was of course before the widespread use of computers.) I never saw them actually used. The concept, if I remember correctly, was co-payments. So as a user of health care one paid a levy, paid private insurance coverage and then paid at service delivery. Rather a complex and perhaps counterproductive number of concepts involved. The underlying idea appeared to be to break the back of medicare. Fortunately, as it turned out a bureaucratically impossible concept. This co-payment is a form of health rationing and is definitely thriving still amongst certain GPs and most specialists.

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    2. Sue Ieraci

      Public hospital clinician

      In reply to Monika Merkes

      Monika - isn't that the common scenario?

      Regulatory committees try to reign in the costs of high-cost drugs, but are defeated by a lobby group, shock-jock or tabloid newspaper.

      As I've said on other threads, the only way to reign in health care costs is to reduce expectations and risk aversion - strictly.

      Otherwise, costs continue to rise, but we find ways of juggling public expenditure to accommodate them. There might eventually be a limit, though.

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  6. Darron Wolf

    Analyst

    Mark, thank you for a though-provoking article.

    I support universal health care and consider it a right of citizenship and an obligation for the state to satisfy.

    That said, I oppose waste and inefficiency and especially of scarce (and getting scarcer) public funds.

    So, in addressing the lowest fruit in the orchard, perhaps the four most cost-effective and expeditious ways to control the health budget would be to:

    (1) Immediately cease public subsidies to all Complementary and Alternative…

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    1. Mark Mackay

      Senior Lecturer, Health Care Management, School of Medicine at Flinders University

      In reply to Darron Wolf

      Hi Darron (and also to the others who responded to the article)

      Firstly, thank you for helping to debate this topic - it's engagement, though clearly we need more of this!

      I think the comments show that there is passion around our health services, but that there are ideas which could be pursued and might serve to improve our health system and also the amount of resources we apply to particular endeavours.

      Darron - I note your comments in relation to evidence. Your proposal would also call…

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    2. Darron Wolf

      Analyst

      In reply to Mark Mackay

      Good morning, Mark.

      Thank you for your considered reply.

      Yes, you are correct and I do agree with you that the scientific principal and the demand for evidence need to be applied to health care with care and intelligence as solutions may emerge from the most unexpected places. Your examples are sound.

      Nonetheless, I do consider that there is much in the system of accepted health care modalities that should cease to receive public funding either directly or via rebates from the private health…

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  7. Mark Mackay

    Senior Lecturer, Health Care Management, School of Medicine at Flinders University

    Sue
    Thank you for highlighting how the management of dialysis patients occurs. Fortunately I was aware of this, but the word limit was tight and I couldn't expand on this. However, it's not necessarily the perception of space being occupied - rather the volume of patients and the cost of patients. This is what, I believe the SA Health Minister was referring to in relation to considering the need to think about how health services are provided and rationed.
    Mark

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    1. Sue Ieraci

      Public hospital clinician

      In reply to Mark Mackay

      Thanks, Mark - I understand that the word limitation is significant.

      I wanted other readers to understand that, because of its unusual classification, in-centre dialysis is represented in that graph as the largest component of hospital activity. That graph doesn't actually tell us anything about outside hospital activity (which is most of health care), nor the actual expenditure on dialysis per QALY gained as opposed to - say - ICU care at the end of life. I just wanted to clarify.

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  8. Chris Strudwick

    Human

    This is not a new observation but part of the problem is that health cover is treated as a single entity when it is actually comprises several different components. For instance, accident is different from aging; the misfortune of contracting a uncommon disease or developing an unusual condition requiring specialist treatment is different from common problems and ailments that most people are likely to experience in their lifetimes. Some of our problems are rarities, some are near certainties. Logically, these need different economic solutions and the NDIS scheme is an acknowledgement of this. There is probably scope for individual saving schemes for low-cost lifetime expenses, a national medicare-type scheme for access to more costly technologies and treatments (with a cap on what will be provided), and a true insurance scheme to cover serious but rare conditions and accidents requiring costly treatment.

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