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Health outcomes should be rewarded rather than the amount of activity

By Russell Schneider - posted Monday, 24 May 2004

Health policy in Australia has traditionally been the outcome of ideological battles between what that great health administrator Sidney Sax described as a “strife of interests.” Indeed, as many have pointed out, health policy is not really “health” policy at all, but financing policy. As often as not at the federal, state and local level, discussions about health are about financial resource allocation, with Treasurers, Finance Ministers and the office accountant all having far more influence about the type of health system we enjoy - or endure - than clinicians or, of course, patients.

To some extent this is inevitable, because no society will ever be able to supply all the health care resources that providers believe desirable or patients believe essential. The simple fact is that each of us wants access to the best health care possible - so long as someone else pays for it.

In dealing with this dilemma Australia, and many other countries, have tended to focus on the ideology of payment with publicly (ie, tax) funded systems such as the United Kingdom being regarded as superior at cost containment (via capping and rationing) while those relying on largely private financial resources (e.g., the USA) suffer the problem of allowing unlimited choice only for those who can afford to pay.


The reality is somewhere in the middle (and we should remember that even in the USA more than 50 per cent of health expenditure comes from government via Medicare and Medicaid programs). But in the tug-of-war debate about health “financing” we have all lost the plot. In an ideal health-care system we would worry far less about how it is paid for and much more about what we get for our money … and the likelihood is, in fact, we may get more for less.

Before looking at a new system we need to identify at least some of the faults with our current one. There are two fundamental ones that drive costs without necessarily improving results: the first is the tendency (often encouraged by the media) to direct attention and resources towards high-technology devices and institutions rather than primary care; the second is the fact that virtually throughout our health-care system (and in many others) we pay for activity, not outcome. Health care is one of the few areas left where society pays on a piecework basis: the more you do, the more you’re paid. This can lead payers to an obsession with driving down the costs to the individual, and a determination on the part of providers to maintain or increase income by simply providing more services; sausage-machine medicine.

So in our ideal health-care system the first step must be to regard high-tech hospitals as necessary evils (some people will always, of course, be so unfortunate as to require the devotion of enormous resources to keep them alive or improve their quality of life) but shift the emphasis to primary health-care provision. And the second must be to change payment systems so that rewards are provided for achieving outcomes rather than providing ever-more treatments.

The third is to ensure the system harnesses the benefits of competition in an effective and constructive manner. Competition is not a good in itself: it is only a good if it achieves continuous improvement in areas that benefit society as a whole. To do that all of society must be involved.

The fourth (and in that order) is to determine the role of government, and in the funding and delivery of health care governments have to be regarded with suspicion. Funding based purely on taxes will never achieve overall socially desirable results because such funding is inevitably subject to conflicting demands between portoflios and therefore never reliable. It is also heavily subject to political influence, often based on abuse of emotionalism. So we see hospitals placed in certain areas not to meet a health care need but to ensure marginal constituencies are protected. Or artificial priorities set for political purposes — eg, guaranteeing that no patient should have to wait more than two years for an operation (and ensuring, as occurred in the UK under the NHS several years ago, a system in which hernias were given a higher priority than cancer treatments). That is definitely NOT the way to run a proper health system.

Governments (or more accurately, the purely publicly funded sector) have a very broad-ranging duty to ensure society is protected, as much as possible, from the ravages of illness. This means ensuring population-based health care via the provision of clean water, uncontaminated food, the existence of facilities capable of dealing with sudden epidemics, or other emergencies, victims of traumatic accidents and immunisation of the population.


Governments do not have to DO these things themselves, nor pay for them. However there are some areas where it may be better to pool all of a society’s resources via taxation to provide water supplies, set rules for pure food and clean air, and provide hospital facilities that ensure treatments that might be financially out of the reach of many are not denied to them. They can also develop financing arrangements that ensure that people are not denied access to the care they want and need because of their income.

But the development of an effective system needs much more than that. Fundamentally, it needs to be based on an incentive structure that rewards the provision of the most clinically appropriate care for every individual: the right treatment at the right time, in the right setting and by the right provider, and at the right cost — all aimed at achieving the right outcome. And it needs an understanding by all payers and providers to look not at individual treatments but whole-of-life care. Thus, a treatment that may appear costly in itself may, if provided in a timely fashion, be far less expensive than postponing or denying it.

While the medical (and perhaps nursing and allied health professions) may feel satisfied with today’s structures, these structures are far from patient-friendly or resource-efficient. Referrals to specialists, for example, may not always be based on knowledge of comparative clinical performance but on a range of other factors. Often, providers play “pass the parcel” with patients, referring them from an overworked bulk-billing GP surgery (which, to be economic, relies on the seven-minute consultation) to a radiology or pathology lab, then to a specialist, then to a higher-tech, more expensive hospital setting. Perverse financial incentives (including indemnity questions) have encouraged this behavior as much, if not more, than genuine patient need.

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About the Author

Russell Schneider GAICD was CEO of the Australian Health Insurance Association from 1983 to 2006. Before that he was Canberra Bureau Chief and Political Correspondent for The Australian. He was a director of a major health insurer from 2006 until 2017.

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