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Explainer: what is health rationing?

We need a more rational debate about how and where we spend our finite health budget. Image from

HEALTH RATIONING – a series which examines Australia’s rising health costs and the tough decisions governments must make to rein them it.

Any mention of the “R” word in health care immediately brings to mind cuts to services and not being able to access care. It also conjures images of penny-pinching bureaucrats, managers and accountants who have nothing better to do but crack the fiscal whip.

Politicians publicly avoid the “R” word if they can; while doctors fight to retain the autonomy associated with doing “the best” for their patients regardless of the cost.

There’s no doubt the rationing debate needs to become more rational. Let’s start with the basics of health rationing.

1. Rationing happens all the time

With a finite budget, rationing in health care occurs every day. Every decision a doctor makes, such as whether to prescribe a drug, order a test, make a referral, undertake an operation, practice in a rural or urban area, is a rationing decision. Why? Because they are using scarce (often taxpayer-funded) resources that could, if used on someone else, lead to a greater improvement in health and well-being.

Other decision-makers such as politicians, bureaucrats and health-care managers who make broader decisions about which services are funded and which services are not funded also ration health care. This type of rationing is implicit: it’s done behind closed doors and tends to be based more on lobbying than good science and research evidence.

2. Government bodies ration health care

Explicit rationing involves deliberation and judgements about the cost-effectiveness of new pharmaceuticals, medical technologies and other health interventions.

For medicines, Australia’s Pharmaceutical Benefits Advisory Committee (PBAC) advises which drugs are cost-effective and therefore should be subsidised by government. If a decision is made not to fund a high-cost cancer drug from the Pharmaceutical Benefits Scheme, for instance, PBAC is effectively saying the resources that would be used to fund the drug could be better used - that is, provide more health improvements - for something else.

PBAC rations pharmaceuticals. Image from

These types of decisions do, of course, mean that some people lose out but others gain.

For medical interventions, the Medical Services Advisory Committee (MSAC) decides which treatments should be funded under Medicare. This includes new pathology and diagnostic tests, new surgical procedures, as well as reviewing old technologies.

Other countries also have these explicit rationing mechanisms, such as the National Institute of Health and Care Excellence (NICE) in the United Kingdom.

3. Rationing, if based on good evidence, can save lives

Doctors and decision makers rely on their considerable experience and training to make decisions about the most worthwhile and valuable interventions to provide. But in some circumstances, doctors’ knowledge can become out of date as evidence on the cost-effectiveness of new technologies and better ways of doing things become available.

Prescribing antibiotics for the common cold is now regarded as ineffective, for instance, yet some doctors still write these prescriptions. And it has taken many years for the rates of such prescribing to fall.

Rationing without information on the costs and benefits of health-care interventions can lead to waste, inefficiency and even loss of life.

So what’s the solution? It won’t be easy; improving the uptake of new evidence should include changes to funding and incentives, as part of a multi-faceted approach.

There are many procedures, drugs and treatments that are embedded in routine clinical but provide no or little benefit to patients. Image from

Rationing or choosing wisely?

The rhetoric about rationing is just as extreme in the United States as it is in Australia. But this is being tackled intelligently by the medical profession by using less emotive language, such as “choosing wisely”.

There is recognition that many health-care treatments are being provided that are of little value. This includes diagnostic technologies that lead to over-diagnosis – diagnoses for which there is no effective treatment or which have little impact on people’s lives. The benefits of new technologies are often overemphasised so they suck up valuable resources that could be used to save lives now.

PSA testing for prostate cancer is an example of a treatment that may do more harm than good.

There are also procedures, drugs and treatments that might be heavily promoted by drug companies which benefit financially, or might be embedded in routine clinical care, but for which evidence shows that there are no or little benefits to health status or well-being. These are the low hanging fruit of rationing – the “no brainers” - where stopping the provision of these treatments could potentially save tens of millions of dollars that can be used to save lives in other areas.

So there is some hope and optimism that re-framing the debate about rationing may lead to a more rational discussion on how to allocate health-care resources in better ways to save more lives. But to work, this debate needs to be led by the medical profession and supported by government. Decision-makers and doctors need to seriously consider how doing less is doing more.

This is the second 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 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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