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Why shouldn't communities be allowed to opt out of Medicare?

By Vern Hughes - posted Monday, 3 May 2004


Take the management of the top ten chronic conditions that consume so much of federal, state and private health budgets: heart disease, stroke, lung cancer, colorectal cancer, depression, diabetes, asthma, renal disease, arthritis and osteoporosis. Who has a financial incentive to curtail the risk factors in these conditions and curtail hospital usage? Answer: no-one. Australia now has higher hospitalisation rates for these conditions than the UK, Canada, USA or New Zealand.

Management of these conditions is currently dispersed among a plethora of programs and providers. Paul Gross of the Institute for Health Economics and Technology Assessment has proposed pooling funds from four sources (MBS, PBS, public hospital subsidies, and Home and Community Care payments) to make capitation-based payments with appropriate risk adjustments to agents of these patients to manage these conditions. The agents may be a GP, a community health centre, or indeed a health fund who would receive an up-front annual payment to co-ordinate the care required, to manage and reduce health risks, and minimise hospital admissions.

This approach is infinitely preferable to continually pouring more tax dollars into public hospitals irrespective of health outcomes. The German Parliament, not usually known as a paragon of free-market zeal, introduced a similar scheme in 2002 for the management of four selected conditions.

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A consumer-empowerment strategy in health reform requires three mechanisms currently absent from the Australian scene: an intermediate structure between patient and doctor (consumer intermediaries), and two new markets — one to create competition among consumer intermediaries for the allegiance of consumers and one to create competition among providers in supplying services to intermediaries acting as agents for consumers.

There need be no prescribed structural form for consumer intermediaries: the function may be performed by a not-for-profit friendly society, a for-profit financial agent, a community health centre, a health fund or a trade union — in short, any entity with a capacity to aggregate member enrolments, manage their financial entitlements and enter into contractual arrangements on their behalf, and manage member relationships to the mutual satisfaction of the intermediary and member. Intermediaries would be permitted to contract with providers and practitioners in developing price and service quality benefits for their members and would be free to develop packages of care, innovations in information management, home-care supports, and ancillary benefits for their pool of consumers. Consumers would be free to select the intermediary of their choice (and to collectively form one if they wish) and to transfer from one to another.

Instituting a role for such intermediaries remains the first and critical task of would-be health reformers. The good news is that this can be done without radical public policy change. It does, however, require entrepreneurial initiative from below to drive health reform from above. This is a critical point of departure from the way in which health policy reform has been conceived in Australia for the past half century, and it provides the crucial exit strategy out of the current policy impasse.

David Green, whose work on Australian friendly societies in 1984 remains of seminal importance in understanding the present health care stalemate, has called these civil society initiatives "private action plans" — initiatives that can be undertaken in the present without prior public policy change but which have the effect of creating conditions and capacities that encourage further public policy innovation. In health care, the development of functioning consumer intermediaries that win the confidence of consumers is fundamental to public policy change: without them, consumers are likely to view abstract proposals for reform as threats rather than opportunities.

Consumers should be permitted to have their Medicare contribution and their share of Pharmaceutical Benefit Scheme (PBS) expenditure paid directly to the intermediary of their choice. Consumers who register in this way with intermediaries should also be able to receive a cashed-out share of commonwealth and state expenditure on public hospitals payable to their intermediary. These financial entitlements would be adjusted for health risk according to age and health status, so that consumers with a higher health risk profile attract a higher payment. In the case of SKHS, this would mean it would receive a capitation-based proportion of total Medicare and PBS expenditure for each of its enrolled members, adjusted for their health risk profile, payable as an annual up-front payment to the co-operative.

Consumers who are eligible for Home and Community Care (HACC) and selected mental health and disability services should also be permitted to have these entitlements cashed-out and paid directly to the intermediary of their choice.

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In turn, the intermediary would be required to meet the full cost of all medical services, public hospital services, and PBS pharmaceuticals for its enrolled consumers. The intermediary would be permitted to levy its own membership fees, co-payments and/or insurance tables as it sees fit to supplement its receipt of Medicare and PBS income. Since one third of all Australian health expenditure is paid directly by consumers or their insurers, it could be assumed that an intermediary’s pool of patients would contribute about a third of the total cost of health care for that patient pool.

Since intermediaries would receive risk-rated Medicare payments, higher risk members would attract a higher Medicare payment. This would offset, at least to some extent, the impact of risk selection within a less regulated health insurance market. Intermediaries that adopt insurance tables that discourage higher-risk members would lose the Medicare payment that follows these members.

A more flexible regulatory framework is essential to enable individually-tailored health maintenance strategies. Conventional health insurers lack the capacity to manage the health risks of their members to prevent crises and restrict hospitalisation rates. Intermediaries, on the other hand, would be in the business of employing resources and strategies to manage risk. They would have a financial incentive to keep their members well and out of hospital. The introduction of behaviour and outcome-related rebates, bonuses and penalties as incentives for members to manage their own health risks would be critical. It should be permissible, for instance, for intermediary tables to differentiate between smokers and non-smokers.

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About the Author

Vern Hughes is Secretary of the National Federation of Parents Families and Carers and Director of the Centre for Civil Society and has been Australia's leading advocate for civil society over a 20-year period. He has been a writer, practitioner and networker in social enterprise, church, community, disability and co-operative movements. He is a former Executive Officer of South Kingsville Health Services Co-operative (Australia's only community-owned primary health care centre), a former Director of Hotham Mission in the Uniting Church, the founder of the Social Entrepreneurs Network, and a former Director of the Co-operative Federation of Victoria. He is also a writer and columnist on civil society, social policy and political reform issues.

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