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Creating a better health system: lessons from the United States

The US is the international outlier on returns on investments in health care. Andy Dean Photography/Shutterstock

Australia has a relatively strong health system by international standards, but it needs a makeover. To generate fresh ideas, The Conversation is profiling five international health systems that have important lessons – good and bad – to pull Australia out of its health reform black hole.

For decades Australians have seen health care in the United States as the archetypal example of how not to do it. So it’s ironic we now find ourselves looking with admiration at major, holistic reform efforts under the Affordable Care Act (otherwise known as Obamacare) even as the Abbott government seems hell bent on adopting the very approaches the US has abandoned.

Clearly there are lessons to draw from this situation. Among developed countries, the US is the outlier in terms of returns on its investment in health care – no other country spends more as a percentage of gross domestic product (GDP) or per head of population for a mediocre return as measured by infant mortality, life expectancy and disability-adjusted life years.

Life expectancy and health expenditure of selected countries, latest year (2011-2013) Grattan Institute/OECD

America’s health care is funded and delivered through a variety of mechanisms. These range from the epitome of socialised medicine (Veterans’ Affairs), to the commercial market where health funds have been allowed to set their own rates and determine who they will cover and the extent of that coverage, using rulings based on profit margins rather than patients’ needs.

A growing number (more than 40%) of Americans have health cover funded by the federal government through Medicare (health insurance for those aged over 65) and Medicaid (health insurance for the poor, jointly funded with the states).

A major reason for the high cost of health care in the US is the failure of the competitive marketplace. As many economists have pointed out, private health insurance is a high-cost mechanism for achieving what taxes and national insurers do much more efficiently and equitably.

Health cover for over-65s is funded through Medicare. Paul Vasarhelyi/Shutterstock

In the US, multiple players in a supposedly competitive marketplace have conspicuously failed to deliver affordable access to services, an appropriate price for these services and superior quality. Significant redundancies and inefficiencies arise from the complexity of health care administration and there is evidence of an inverse relationship between administrative complexity and quality of care.

There are also huge variations in costs for services, not just nationally but even within the same hospital, depending on who is paying and who is negotiating. This leads to mind-boggling situations where a simple blood test can cost over US$10,000 and hospitals charge anywhere between US$1,529 and US$186,955 for an uncomplicated appendectomy.

The Dartmouth Atlas of Health Care has documented significant variation in health care spending and quality across geographic regions in the US for similar patients.

US author and surgeon Atul Gawande described this situation with great clarity in a New Yorker article where he outlined how high-cost care was associated with fewer preventive services, less primary care, poorer survival and functional ability, and reduced satisfaction with care. In 2009, as he worked to deliver his landmark health reforms, US president Barack Obama said everyone should read this article.

In Australia, the Australian Institute of Health and Welfare has reported that the management of common health conditions varies considerably depending on where people live. Australian researchers have highlighted how the over-utilisation of less-than-effective clinical practices results in inefficient, unsustainable resource allocation and have drawn up a list of 150 such practices. But there has been no national action to implement this.

Obamacare is acting to tackle these issues. Under the law there are provisions to limit out-of-pocket costs and restrain the marketing and administrative costs of health funds which are now required to return 85 cents in benefits for every dollar collected.

Obamacare is acting to tackle issues such as out-of-pocket costs. Yoon S. Byun/POO

Reference pricing, bundled payment mechanisms, strong reporting requirements and widespread transparency of both public and private data collections are helping to drive down prices, reward quality, and increase public awareness of inappropriate variations. And it’s working: growth in both health insurance and in overall health care costs is slowing.

In contrast, the Australian government has shown no appetite for the hard policy work of health reform, taking a sledgehammer approach with co-payments that evidence shows will drive adverse outcomes.

The Abbott government has also signalled its intentions to push well-to-do Australians into a greater reliance on private health insurance, leaving Medicare as an increasingly ragged safety net for the poor. We are headed inexorably down a path that will see current health disparities widen, even as the evidence from the US shows the impact this will have on national productivity and prosperity.

The most egregious back-step by the Australian government is in the area of prevention, despite international recognition that the only way to make a sustainable impact on health outcomes and health-care costs is through major investments in prevention and public health. The 2014-15 budget has seen the dismantling of the Australian National Preventive Health Agency and the scrapping of the National Partnership Agreement on Preventive Health, ripping A$377 million from programs that were addressing alcohol, tobacco and obesity.

In contrast, Obamacare is making substantial investments in this area. The law ensures that there are no co-payments or deductibles for preventive services, boosts the public health workforce, establishes a $15 billion Prevention and Public Health Fund, and – most innovatively – establishes the National Prevention Council to make health and well-being a whole-of-government responsibility. The federal government is leading in these efforts with financial incentives to encourage communities and the private sector to get engaged.

The US is making inroads tackling obesity. pio3/Shutterstock

The success of this concerted approach is demonstrated by data showing that slowly but surely the US is making inroads in tackling the obesity epidemic, while obesity rates in Australia continue to climb. The consequence is that Australian health care costs will continue to grow along with Australians’ waistlines. Also, US data highlights how investments in workplace wellness reduce sick leave, workers’ compensation and medical costs.

Australia has a health care system that, despite its problems, delivers excellent value for taxpayers. But it is in need of serious reforms – based on evidence not ideology – to reduce fragmentation, address inequalities, and provide the services we need for the health problems of the 21st century.

We hover unnervingly on the verge of the Americanisation of our health care system. We know where that will lead, and we know how difficult it will be to pull back from that scenario if it eventuates.

This is the second article in our International Health Systems series. Click on the links below for other instalments:

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