Healthcare not just a commodity

mark-taylor-thumbDr Michael Taylor (La Trobe), Email:
Dr Charles Livingstone (Monash), Email:

First published in National Times on March 26, 2010

The health policy debate between the Prime Minister and the Opposition Leader was an intriguing political exercise. It didn't, however, provide any particular insights into the detail of how our health care system should be reformed to meet the changing needs of the Australian population. Importantly, its participants failed to engage seriously with the question of how we're to do this in a financially sustainable way.

According to this style of debate, health is a simple commodity like any other, so that if we spend more, we will produce more. However, as the example of the US demonstrates, you can throw an extraordinary amount of money, both public and private, at health care and still not produce particularly good health outcomes. A good starting point should be to protect our system's current advantages – for most people, this means ready access to doctors, high standards of care and professionalism, and relatively modest costs by international standards. We then need to think about what we don't do so well at the moment, such as meeting the needs of those without private health insurance waiting for elective surgery, providing equal access to health care for people in all parts of the nation, and above all ensuring that chronic conditions, such as diabetes, are either prevented altogether or treated at the earliest opportunity so that people do not end up in hospital.

Currently, there is a lot of attention on the differing abilities of state and territory governments to provide health services. But what about differences in the health services that the Commonwealth already provides across the states and territories? Medicare is an exclusively Commonwealth-funded program, costing $14.3 billion in 2007-08. Our analysis of Medicare use within the states and territories in the past financial year tells us that even after adjusting for demographic differences between the states and territories, NSW is easily the greatest beneficiary of Medicare. If all Australians were to use Medicare at the same rate as NSW residents, the total bill would increase by $1.7 billion a year, to $16 billion. In sharp contrast, people in the Northern Territory receive per capita Medicare benefits at only a little more than half that level. Australia-wide use of "Victoria-style" Medicare would result in a total bill of $14.4 billion. If we all used Medicare like Tasmanians, the cost would fall to $12 billion. NSW has the most GPs per capita, yet South Australia — another relative Medicare underachiever — has a comparable number. Such differences between the states and territories have occurred under both sides; data from Tony Abbott's last year as health minister reveal a similar pattern.

Is it that NSW residents are significantly less healthy than the rest of Australia, particularly those in the Northern Territory or Tasmania? Unlikely. Aside from the problems with delivering services in states and territories with large regional populations, much of what is observed here is due to a system that, put simply, rewards "throughput". The more patients doctors see, the more Medicare will pay. There are few checks or controls on the provision or targeting of services in such a system, although recent audits of doctors by Medicare do appear to have influenced service patterns. The same problem arises from activity-based funding for hospitals. Under the Victorian casemix system, those that do more get paid more. This system also rewards specialisation, which can have adverse effects on small generalist hospitals – although the anxiety about that has been greatly overdone. A well-designed system can ensure that smaller hospitals are well rewarded for the work they do and get paid enough to sustain those services.

Up to a point, rewarding output is great, particularly in an environment where we don't seem to be getting enough done. But such systems lack arguably more important incentives for health care providers to use better health promotion and early intervention programs, or primary care management, to reduce the need for expensive hospital or medical services. Such incentives should operate to provide significant financial rewards for health service providers who can reduce the need for costly hospital services. This is especially critical for the care of chronic conditions, such as diabetes, where so many hospitalisations could be avoided if managed appropriately in a primary care setting by a doctor or a community health service. Achieving this probably means linking funding to more than simply output. It requires development of a system that values the health of the population, not simply how many medical or hospital services it consumes.

Creating a system for rewarding sheer throughput is relatively easy – we've already done that. Developing a consistent national health system, which emphasises health promotion, disease prevention, and early intervention as well as equal access to treatment on the basis of need is another task altogether. Medicare, an excellent system on many fronts, doesn't perform well on these specific criteria. Achieving such change and providing a system of incentives to prevent disease or manage it outside of hospital as much as possible will be the hard part of building an affordable 21st century health system.