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Commission of Audit’s health hit list: experts respond

The Commission report recommends private health insurers take on a greater role in Australia’s health system. AAP Image/Lukas Coch

The National Commission of Audit has made 86 recommendations with a focus on the federal government’s 15 biggest and fastest-growing areas of spending. Health is near the top of the list, with the Commission recommending sweeping changes such as a slew of co-payments and a delayed roll-out of the NDIS.

This includes a $15 co-payment for all Medicare-funded services ($5 for concession card holders), a co-payment for visits to emergency departments where the patient could have seen a GP, and a rise in co-payments for pharmaceuticals.

It also recommends private health insurers play a greater role in Australia’s health system.


Stephen Duckett, Director of the Health Program at Grattan Institute

The Commission of Audit report is like a curate’s egg: good in parts. It is broad ranging, covering the whole of government. If adopted, its recommendations would reshape the federation. Its focus is on a sustainable budget, an essential goal.

There are two broad ways to rein in government spending: control costs or shift costs. The Commission recommends both. In terms of controlling costs, its recommendations on PBS spending are good, echoing previous Grattan recommendations. The Commission is right that an independent, expert body should negotiate drug prices and that a budget should limit spending.

The Commission also attacks the regulatory detritus that impedes competition and efficiency in the health sector, including in community pharmacy and private health insurance. It recommends rationalising the alphabet soup of agencies in the health portfolio. Streamlining these bodies is broadly sensible, as long as important issues are still tackled and independent advice remains.

The “cost shifting” recommendations are where the dangers are. Some are sensible: the income test for the Seniors’ Health card should incorporate all income, for example. Some are not. The most obvious example is the proposal to abolish bulk billing and introduce a government-mandated co-payment. This will have a big impact on poorer people and save little money relative to other policy options.

The recommendation to end Medicare’s universality is another backward step. The Commission says higher income earners should be forced into private health insurance and excluded from Medicare coverage. This is the start of a slippery slope to Medicare becoming a second-class scheme for the poor.

Fortunately, the government has already said it will pick and choose from these recommendations. It should choose recommendations about managing the system better, cutting anti-competitive regulation and targeting support to people who need it. It should focus on managing costs, not leaving consumers to foot the bill.

Pharmaceutical Benefits Scheme

Philip Clarke, Professor of Public Health at University of Melbourne

In terms of the Pharmaceutical Benefits Scheme (PBS), the National Commission of Audit’s report is quite radical. There are two good ideas and a very bad one.

On the very positive side, they recognise the potential for significantly cutting waste by reducing the high price of generic drugs in Australia and the inefficiencies in drug pricing generally. Their idea of an independent pricing authority is based on a similar body in New Zealand, and it moves away from ministerial decisions to this independent body.

This is quite a major change and the idea of capping the budget for pharmaceuticals and having this body redistribute funds would be a very significant policy shift. Such a move would provide stronger incentives to drive efficiencies, although it would ultimately depend on the skills of that agency to make hard-nosed decisions about what types of drugs to fund, de-list and to produce saving through price negotiations.

That’s quite different to the current process. The current system has a gatekeeper for a drug to get past, but once it’s on the PBS, there’s not much incentive to renegotiate prices or delist drugs that are no longer cost-effective.

The other positive that’s again radical from a political perspective, are the recommendations to deregulate pharmacy ownership and location rules. The current rules have meant that pharmacies numbers have stood still since the 1990 although we spend four times more on drugs and have 90 million more prescriptions. Reforms would dramatically increase competition in this sector.

The negative thing for the PBS is what they are recommending for increased co-payments. The report recommends all medicines, including concessional ones that are currently free, should attract a co-payment increase of up to $5. Here the policy reform is less well thought out. It doesn’t seem to me to create any price signals in terms of having different costs depending on the actual price of the drug.

And I worry about co-payments acting as a disincentive to take medications. There’s a lot of evidence from overseas that high prices for medicines are a major source of non-adherence or non-compliance to medication regimens.

The commissioners have really have thought about quite major sweeping reforms for the PBS rather than just tinkering. Clearly, I think you could build on what they’re recommending and redesign some of aspects. But overall, having a bold vision is more useful in this area than in many other aspects of health-care system.

Private health

Anthony Harris, Director of the Centre for Health Economics at Monash University

The Commission recommends reintroducing a private health insurance market for primary care and having a mandatory private insurance replacement for Medicare for the better off.

In other words, it recommends replacing Medicare with a competitive insurance market where premiums are set according to the individual risk and characteristics such as smoking or weight.

The aim appears to be to reduce government spending rather than the cost of the health system – as it is far from clear how these proposed reforms would do anything other than increase total expenditure on health.

What is missing in the Commission’s rationale is the recognition (widespread among economic analysts) that private health insurance markets are inherently inefficient, and that government provision of insurance is both cheaper and fairer. The Commission admits to some of this when it says:

where a third party, such as the government or an insurer, is paying for a service, moral hazard can lead providers and consumers to use more services than would otherwise be demanded.

This is part of the story. But so is private health insurers’ inability to charge a fair premium when risks are unknown and the same coverage is needed for everyone who is sick, irrespective of income.

Yet the commission comes to the conclusion that allowing health funds to expand their coverage to primary care settings will improve the health of Australians at lower cost than public funding of Medicare. No evidence is provided for this.

Allowing private insurance to cover primary care services will not only lead more services being used, but will inevitably result in a rise in medical fees. All the evidence suggests that a single national insurer is cheaper to administer and is better able to control costs.

The proposal runs counter to the basic principle of Medicare and similar public health care systems: that we want the poor to have the same high quality care and attention as the rich, paid for in fair way.

A private insurance system will inevitably be more expensive; even if it reduces out-of-pocket costs for care, it will result in more, not less, service use and expenditure. It might reduce government expenditure, but it will increase total expenditure on health as a proportion of GDP at a time when hysteria about that ratio seems to have reached fever pitch.

National Disability Insurance Scheme

Karen Soldatic, Lecturer in Social Policy at UNSW Australia

The three issues identified in the National Commission of Audit’s report about the National Disability Insurance Scheme (NDIS) – fiscal risk, technical issues affecting its rollout and changes to its advisory board – and two of these are not necessarily unexpected.

As the report states, this is major policy change. This is a completely new way of delivering services, particularly the NDIS’ focus on personalisation, where individuals can direct their supports to areas they feel is of most benefit to their own lives and relationships.

People with disabilities have been waiting for a long time for a fully resourced, responsive and enabling scheme. Talking about fiscal risk raises the question of how much longer they should have to wait.

The report also says there may be some technical issues about the NDIS’ rollout, and that they might delay it.

There’s no doubt that there will be some technical issues, given both its newness and the outcomes it is trying to achieve. There are always technical issues with any new large-scale policy directive.

The best way of managing, and learning, in such a new environment is to keep going and learn as we go, adapting, changing and amending those areas that we can identify as needing change.

This is why the NDIS has a number of trial launch sites just so system changes can be monitored and amended before the full rollout of the program.

A critical part of the learning comes from having a strong advisory body that is actively engaged in the development of the program, ensuring it maintains its intent of effective disability support, participation and social inclusion.

The report is suggesting this advisory body be consolidated with the existing board, but could that preclude having the voices of people with disability and their advocates driving the process? People with disabilities have waited long enough for something like the NDIS.

Preventive health

Rob Moodie, Professor of Public Health at the University of Melbourne

It was widely expected that the National Commission of Audit report would recommend the Australian National Preventative Health Agency (ANPHA) be axed but the report only talks about two aspects of its budget. It seems ANPHA is being sliced rather than axed.

The report recommends creating a new National Health and Medical Research Institute (NHMRI) that will combine the National Health and Medical Research Council, Cancer Australia and the research budget of the Australian National Preventive Health Agency.

It says the NHMRI should “align and fully embed health and medical research in the health system” to “improve patient outcomes and deliver efficiencies by improving the evidence base available to clinicians and patients”.

That’s all good and well but there’s no talk of any notion of prevention. What I’m concerned about is what might happen if they continue to dilute the role of prevention because it’s very hard in the existing set-up to be able to focus on it without a specific agency.

The police say they can’t police their way out of alcohol-related problems on the street. In the same way, our hospitals won’t be able to treat their way out of diabetes, obesity, and tobacco-related harm. But still we’re watching declining investment in prevention.

That’s the agency’s research budget, its data collection and reporting on health outcomes funding will be subsumed into the Health Productivity and Performance Commission (HPPC).

So this announcement accounts for the research part and the data collection part, but whatever else is left of ANPHA we don’t know. There’s no indication about what else might happen.

What concerns me is the diminishing importance of prevention. We all say prevention is better than cure, but it’s constantly reversed in terms of funding allocation and political priorities across all governments. And its successes are ignored.

Imagine how crowded our hospitals would be if we had 75% of men still smoking as we did in the 1950s. Imagine how crowded they would be if we had done nothing about road trauma in the last 50 years and we still had 4,000 or more people dying on our roads and ten times that number being seriously injured every year. Blindly cutting preventative health budgets just doesn’t make sense.

Health reform

Jim Hyde, Professor of Public Health Policy at Deakin University.

There is no evidence for the assumption in the National Commission of Audit’s report statement that making health more competitive and efficient will either lower costs or improve outcomes. In fact, there is evidence that too much competition drives down health outcomes. Increasing the supply of practitioners in Australia and elsewhere, for instance, has increased cost because of the professional strength of health associations.

Neither is there any evidence that regulation reduction will improve health. Imagine a regulation-free anti-smoking environment! The reason that the tobacco, alcohol and fast food industries are so opposed to regulation is that it holds them accountable for health outcomes and assists people make better choices about their health behaviours.

Public health in the areas of food safety, clean air and water and hazards are built on regulation and government intervention, not on a free market.

Let’s not even exercise the arguments about the inequity of co-payments in health. Co-payments do not lead to efficiency or effectiveness – words that don’t appear in the report – but to inequity and declining health outcomes. We know this from Australian and international research and it is completely irresponsible to ignore the evidence and recommend something that will lead to bad population health.

One of the biggest possible savings in health appears to have escaped the Commission’s notice. The report supports the ideological anti-free market mechanism of private health insurance that has done virtually nothing for health outcomes and has driven up health expenditure.

The costs of not investing in quality and safety, of not regulating some behaviours including some practitioner behaviours and of wilfully disregarding excellent evidence is completely outrageous and likely to be unacceptable to the community and electorally unpalatable.

It certainly won’t lead to reduced costs or government expenditure, and it certainly will not lead to better health outcomes.

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