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Who gets a piece of the pie? Spending the health budget fairly

In the eighth part of our series Health Rationing, Philip Clarke and Nicholas Graves suggest ways to make the health-care system more efficient and affordable. Who would want be the health minister? If…

Health-services research can help work out how best to share the health-funding pie. Wout/Flickr

In the eighth part of our series Health Rationing, Philip Clarke and Nicholas Graves suggest ways to make the health-care system more efficient and affordable.


Who would want be the health minister? If anyone is considering the job, they should watch the recent episode of ABC TV’s Q&A when Commonwealth Minister for Health Tanya Plibersek and the Shadow Minister Peter Dutton faced questions from key stakeholder groups.

With one or two exceptions, almost all questions were the same: my issue is X, so when will the government spend millions and, in some cases, billions of extra dollars to address my problem?

Governments have responded to this type of lobbying in the good times by spending more money, but we now live in much more difficult times. Scarcity of resources is biting hard, and the government expects budget deficits over the next few years.

The correct answer for the health minister to questions from stakeholders would now be that we need to allocate the funds we have more efficiently, so we can find the money for new projects. When we fund these projects we need to ensure they represent value for money.

Economists think about efficiency in two complementary ways. Allocative efficiency is where we are “doing the right things” and choosing the best mix of services to provide. Technical efficiency is “doing things right” and producing the best mix of services at the lowest possible cost. Both are required for the health-care system to be efficient overall.

There’s no better example of technical inefficiency in our health-care system than the way we set prices for generic drugs on the Pharmaceutical Benefits Scheme (PBS). Australians are paying some of the highest prices in the world for generic medications because of poor policy decisions as detailed in a recent report by the independent think tank Committee for Economic Development of Australia (CEDA). If we could improve our purchasing of generic drugs, more than a billion dollars extra a year could be released for other uses.

Australia prides itself on being one of the first countries to try to improve allocative efficiency by explicitly using economic evaluation when listing new drugs on the PBS. But the use of these methods is more the exception than the rule when making health-care decisions.

For instance, there’s no systematic attempt to evaluate hospital-based interventions to determine the ones that are the most cost-effective.

So where do we go from here? It is worth looking at the recently released McKeon Strategic Review of Health and Medical Research, which concerned itself with making stronger connections between research evidence and the delivery of health-care services. The report flags building capacity among health economists and health-services researchers in Australia as crucial for improving health services.

A systematic program of health-services research is one way of separating vested interests from those of the whole community. Having academics undertake most this research is critical because unlike consultants, academics must test the evidence for any proposed policy changes through peer review and can come up with new solutions that go against the prevailing wisdom.

If our goal is to connect health economics and health-services research with clinicians and decision-makers, then existing ways of working are likely to be insufficient. The main approach identified in the review is to expand National Health and Medical Research Council (NHMRC) funding in this area, and the creation of an institute of health-services research.

But we have been here before. Over the years, the NHMRC has introduced various initiatives, including several rounds of funding specifically for health economics and health-services research. Such funding generally goes to only a few groups and they have a maximum of five years' funding to develop a research agenda.

We think an entirely different mode of funding is required and we could learn much from the National Institute of Health Research (NIHR) in England.

The main role of NIHR is to commission policy-relevant research through boards that involve academics, policy makers and those involved in service delivery. This ensures the questions researchers are addressing are relevant to current decisions.

And having commissioning boards means there’s a separation between those commissioning work and those undertaking it. This makes the funding of health services-research in England flexible, transparent and competitive.

Another crucial feature of the English system is the framework for dissemination. While all researchers are encouraged to publish their commissioned research in peer-reviewed journals, the final report is published in its own Health Technology Assessment journal. This ensures the findings of all past research can be found in one place. It also helps avoid duplication and makes it very easy for a policy maker to find relevant research on any topic.

We don’t want to sound like another lobby group asking for more money, so we suggest the funding for the expansion of health-services research should come largely from existing resources, such as the $40 to $50 million a year the commonwealth department of health currently spends on consultants. Setting up the right processes rather than the level of funding is likely to produce more bang for your health-services research buck.

An effective Australian health-services research institute would help future health ministers provide better answers to the kinds of questions they will face on shows like Q&A.


This is the eighth part of our series Health Rationing. 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
Part six: Health funding under the microscope – but what should we pay for?
Part seven: Comparing apples, pears and hips: health rationing at workr