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Health (Care) reform

By Luke Slawomirski - posted Wednesday, 16 February 2011

The in-principle agreement struck between the Commonwealth and the States at COAG on Sunday is good. It is not great. While Australians have reason to be cautiously optimistic that health care reform is back on, it is also disappointing that it doesn’t go far enough.

More transparency

Firstly the positives. These revolve around the emphasis on transparency, accountability and efficiency. The key drivers will be

(a) introduction of Activity Based Funding (ABF) for hospital services - paying public providers an agreed fee per care episodes such as a knee replacement,


(b) the development of ‘efficient prices’ for episodes - a difficult, but not impossible task as some commentators have indicated

(c) a more transparent, pooled federal funding mechanism.

Health care is one of the most opaque industries around and reforming the ‘blank cheque’ block funding approach, at least for hospitals, has to be a good thing.


The creation of Local Hospital Networks (LHNs) also has the potential to translate into better, more efficient services. In metropolitan and semi-rural regions, hospitals will be able to establish partnerships with nearby peers, and consolidate and rationalise services. This can not only enable economies of scale but also improve quality and safety because increases in the volume of cases for procedures and treatments are often accompanied by improvements in quality and decreased complications.

Also encouraging are the provisions built in to ensure smaller, rural hospitals are not swept away by the utilitarian calculus and rationalisation of ABF.

Lack of integration

Now to the not so good parts. Setting aside the likely mess of establishing Medicare Locals and GP Super Clinics, a key problem is the non-integration of primary and tertiary care. The health care system could operate much more efficiently if there was more clinical and administrative coordination between primary providers such as GPs, pharmacist etc, and hospitals. LHNs would be much more effective if the network included at least some local primary care providers.


Much of this is a result of the funding split between the Commonwealth and state budget - and this is, unfortunately not rectified in this agreement, counter to a key recommendation of the National Health and Hospitals Reform Commission’s 2009 Report.

No prevention or promotion

It is all very hospital-centric, much to the disappointment of those who know that in the long run, the most value for money in health is in prevention and promotion. This makes all the talk of ‘efficiency’ ring a little hollow.

Implied in the agreement is the misconception that the principal driver of health, and preventer of ill-health, is health care. It is now accepted that this is not the case at all. Health care (especially tertiary care) is, at best, only a modest contributor while the dominant factors are structural and societal. Even in developed nations such as Australia, health and disease rates are predominantly influenced by things like education, literacy, income equality, social mobility and cultural factors.

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About the Author

Luke Slawomirski is a Health Economist and has worked as a clinician in Australia and overseas. The views expressed here are his own.

Creative Commons LicenseThis work is licensed under a Creative Commons License.

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