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Road map for Australian health care reform - Part I

By Fred Hansen - posted Tuesday, 5 August 2008


Quality - problems with hospital care

In any industry the essence of a business’s identity lies in the value the business provides to its customers. So it should be in health care. Cost shifting, as happening currently, between health funds and providers does not deliver value. It is called negative or zero-sum competition reflecting traditional health care funding with caps on budgets. Across the board we need to replace zero-sum-competition with value-based competition for consumers or patients.

The national competition policy (NCP), introduced in 1995 by the Australian government, worked well in most industries, says Graeme Samuel, President of National Competition Council, only “the health sector has thus far largely avoided the effects of pro-competitive regulation”. Lack of competition translates into low motivation of health professionals and poor quality of services.

And Australia has got a real problem here. Medical errors in the health care system are estimated at between 3.2 and 5.4 per cent in the US, 9 per cent in Denmark, 10 to 11,7 per cent in the UK but a shocking 10.6 to 16.6 in Australia (Bedkober, B., IPA Review, March 2007).

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The figure of 10 per cent was just recently confirmed in a government report. According to Wilson (“Quality in Australian Health Care”, 1995) one in six hospital admissions generates an adverse event, half of which is preventable and six in every 1,000 admissions are ending in a preventable death from an adverse event including complications.

According to Rigby the cost of these are $483 million per annum. A later study by Runcimen (A Comparison of Iatrogenic Injury Studies in Australia and The USA II: Reviewer Behavior and Quality of Care) established a figure of 10 per cent adverse effects of all admissions to hospitals.

In the West it is now standard procedure for patients to investigate symptoms on the Internet, learning about diseases and treatments and tracking records of doctors and hospitals. Patients assess the latest clinical trials and experimental procedure. Positive competition based on quality will eventually ring the death bell for one-size-fits-all medicine and will leave the full service hospital obsolete. The new role of active consumers rather than passive patients is a result of stressing prevention and primary care in order to minimise hospital care.

But hospitals as well, like all health care providers, have to be re-organised and re-aligned along health care delivery value chains for every single medical condition. All data collection and team composition has to be arranged according to patient needs. The consumer or patient has to be at the organisational centre for any future health care delivery system. In the long run university hospitals may even change the structure of doctor-focused specialties (old faculties) and rearrange them in disease specific teams.

Pressure in Australian hospitals is rising due to the publication of comparative performance measures such as fatality rates (Hibbard J H et. al, Hospital Performance Reports). However much more information is needed and health care providers are to be fitted with state-of-the-art facilities for measurement and reporting of clinical patient outcomes. This should include mortality, infection rates, accidents, frequency of performed main procedures and adverse drug effects. This is the essential part of consumer-focused health care, which rests on choices and informed decisions.

Equity - transparency and public outcome reporting enables enhances quality of care

Markets always depend on and work best with full information and at present, in health care, the anomaly of very limited information persists. John Paterson, former head of Victorian Health Department, stated: “Improved information is a precursor to more market-oriented reform initiatives”.

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Often anticipated benefits from the IT revolution have not yet materialised in health care. Why is that? Bob Douglas, epidemiologist from Australian National University, observes problems concerning current stakeholder monopolies within the health system, “and those monopolies at present have an active interest in hiding information” (Health Policy Roundtable, March 2002; Productivity Commission Working Paper No. 1710).

Openness and transparency is crucial. Once established, electronic medical records could improve the management of chronic conditions which affect 25 per cent of Australians. If they would get computer assisted disease management, Professor Michael Georgeff of Monash University (Australian Center for Healthcare Research, research paper April 2007) estimates up to 50 per cent of hospitalisations and 40 per cent in emergency room visits in this group could be avoided - generating $1.5 billion in health care savings and $4 billion in productivity or workforce participation gains. The latter claim may be overstated given the latest disappointing data form the US Medicare trial, where nearly no savings where reported.

The fact is, however, at present access to the best doctors is erratic and left to the wealthy. Further, exposure to medical errors seems more of a problem for public than for private patients. In this two-tier system the majority of public patients end up on waiting lists and only private patients get access through their referring doctors to what they believe are the best performing hospitals or specialists. This information asymmetry between customers and providers is unique in the health care industry and needs to be addressed. If outcome reporting for all hospitals and other health care outlets became mandatory and was placed in the public domain, an enormous gain in transparency, accountability and fairness would ensue because consumers then have a way to find out where the best doctors are and would flock to them.

To be sure, the complexity of cases in private hospitals is 15 per cent lower compared to the 755 public hospitals. Funding of hospital care, private or public, is increasingly based on case-mix (661 Australian Refined Diagnose Related Groups) which has the benefit of extremely low transaction costs.

All hospitals nowadays are computerised to process data - diagnosis and procedure coding and bills. Professor S.J. Duckett of Melbourne University expects: “In the long term, it may be possible to adjust hospital payment rates on the basis of their outcomes: the extent to which they contribute to improving health status. However, the technology to do this does not currently exist” (The Australian Health Care System, 3rd edition, Oxford 2007).

If we want to set up Australian health care providers on a winning course we need to lower cost for collaboration between providers. With the advent of IT this is now possible. That is the new business model, it is not just an option, rather it is already an imperative. For hospitals it has become critical to do only what you do best, and to eliminate or minimise your backroom activity by teaming up with other health care providers and streamlining your operations. Hospitals need to develop a shared platform for benchmarking their performance. The next step could then be a form of collaboration where everybody carves out a niche or a procedure which it performs best and outsource other services to their neighbours.

Once full price and quality transparency of the heath care markets is established, the consumer-driven market reform will take off. Informed health care customers in many different areas will drive change. This will trigger the emergence of other innovative health delivery solutions like nurse led walk-in-clinics, new forms of medical tourism, online purchase of pharmaceuticals and other services. It will also hugely improve convenience for customers.

To sum it all up: this type of health care system is already working in different parts of the world - different elements of it being implemented in Switzerland, the Netherlands, Singapore, South Africa and the United States. One outstanding example is Bumrungrad Hospital in Bangkok, that treated 1.2 million customers from 190 countries in 2006. Their management is so supreme that Bill Gates just purchased their software in order to sell it to hospitals worldwide.

Competition between providers and health funds

Private hospitals are already embracing Kaizen or continuous improvement, one of the major Toyota quality management strategies. The future belongs to specialised hospitals and focused health care outlets. Both will initiate quality and price competition. Examples of this are the Cleveland Clinic in Ohio, the Austin-based Anderson Cancer Center, Boston’s Back Clinic or Toronto’s famous hernia-clinic. Value-driven competition will bring about excellence in catering for just one special medical condition. Remote control or tele-medicine and health-IT will help those new focused health care outlets to compete regionally, nationally and globally.

The best performing public hospitals should be allowed to earn independence as non-profit foundations. True competition means that the competent doctors are not rewarded (as at present) by higher fees (driving costs) but by more patients. This also offers gains in efficiency once doctors have to compete on price. Biotechnology is already driving medicine to new levels of personalised medical care offering more choices, based on the individual’s genetic outfit.

It is important to note, that future bespoke pharmaceuticals will be much more expensive than the previous one-size-fits-all drugs, like antibiotics, that served almost everyone in the population. Future drugs are designed for much smaller populations and that increases their cost.

The current disparate government programs are inflexible with regard to shared care and efficient use of resources. A key problem concerns product definition in health care. Health care should not be treated as a commodity but rather a value-adding service. Cannon and Tanner from the Cato Institute found that “every additional dollar spent on treating heart attacks yielded the equivalent of $7 worth of increased longevity and quality of life”. Frank R. Lichtenburg from Columbia Business School argues: “The inflation and quality-adjusted price of treating heart attacks declined at a rate of just over 1 per cent each year from 1983 to 1994. Other studies have found similar effects with prices for cataract surgery and depression” (Bedkober, IPA Review, March 2007).

Medical innovation, until recently only revolving around new drugs and medical devices, will in the future also revolve around the organisation of health care delivery. With surging workforce participation of women, looking after your health becomes squeezed very much among other chores and time is more precious that ever. Therefore rationing health care by waiting for doctors will become utterly unacceptable and convenience will command a greater premium. In addition, customers’ increasing role in tailoring their services and preferred products will influence perceived value. This fundamental shift in customer value has to be factored into health care delivery.

The required new skills mix might gradually transform the medical training system. This scenario of innovation reflects reforms due to the people’s economy, reflecting the shift from capital to people as the staple of economy growth.

In order to increase the productivity of knowledge workers, Peter Drucker stresses, we need to grant them autonomy and see them as an assets rather than costs. The fee-for-service remuneration of doctors has to be phased out because it drives health care inflation through maximising symptomatic treatment in repetitive episodes. Its place will be taken by service packages or bundled medical procedures, labeled in the USA as “boutique medicine”. It simply boils down to just one bill for the whole care cycle or a long term care contract which will insure commitment of health professionals to deliver value for money.

This forms a strong incentive for replacing short-term fixes or episodic treatments in health care delivery with long-term commitment over the full care cycle.

This may create focused medical outlets with dedicated multi professional teams. We have learned from the Toyota total quality management the best way to improve quality is to accumulate experience through endless repetition. This requires doctors, like artist and athletes, to perform the same procedures hundreds of times per year. In the same manner better accountability based on transparency of prizes and quality gives incentives for surgeries and hospitals to specialise and often focus on just one medical condition like asthma, diabetes, heart failure and so on.

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About the Author

Dr Fred Hansen is a science writer having published mostly in Germany and the UK. He came to Melbourne a year ago and has published some articles in the IPA Review. He also has a regular blog at the Adam Smith Institute in London. Dr Hansen was a green MP in the state parliament of Hamburg in Germany in the mid-1990s and chaired the science select committee there.

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