Australia's next health system

Last year, the Productivity Commission’s research report, the Economic Implications of an Ageing Australia, made a significant contribution to the debate on the inter-relationship between health care spending, health reform and the ageing of Australia’s population.

The Productivity Commission’s report presented a clearer picture on the links between the ageing of the population and expenditure on health care than that in Peter Costello’s 2002-03 Intergenerational Report. It placed greater emphasis on the uncertainty of non-demographic factors and tells us that small variations in productivity will have large impacts on future projections.

The commission makes it very clear that more importance should be given to determining the ageing population’s real contribution to future health spending. This is crucial because it has implications for how future health spending is projected, and how to design the best responses to the policy challenges we face.

Letting it break - the Howard Government squanders the chance for reform

In 1998 and in 2003 the Howard Government squandered two major opportunities for health reform. Much of the shape of our health system and particularly the way in which our public hospitals work is dealt with in five-yearly agreements between the Federal and State Governments. But the Howard Government has failed to use either the 1998 Health Care Agreements or the 2003 Agreements to deliver reform.

The lost opportunity of 2003 was particularly egregious, coming after expectations had been raised and working parties in nine different areas had developed reform proposals.

But in the end, the Howard Government was interested only in ripping $1 billion out of the agreements, and then getting them out of the way.

Indeed, the current Minister for Health, Tony Abbott, denies the need for reform.

In a speech last August entitled The Trouble with Reform, the Minister famously gave the Treasurer heart palpitations when he stated that “the syllogism ‘health costs are rising, we can never afford to spend 15 per cent of GDP on health, therefore health must be reformed’ is just wrong - especially if the reform in question is more trouble than it’s worth”.

This absence of reform zeal is inexcusable in the face of the pressures our health system faces, but also inexcusable given the opportunity that the strong economy has given us for reform.

It is in the good times - time of high growth - that provision should be made for the future.

This is not just a squandering of opportunities but a level of gross negligence which wastes a once-in-a-generation opportunity to strengthen the key social contracts that are part of what it means to be Australian.

Turning the page - the next health care agreements

Minister Abbott has signalled that renegotiating public hospital funding arrangements with the states will be a focus of a fifth term Howard Government. These five-yearly agreements determine the funding and administrative arrangements for our public hospital system.

Regardless of which party is in Government in 2008, the negotiations over the next Health Care Agreements will represent one last, final chance to reform Australia’s health care system before it breaks.

The Health Minister has said that current arrangements are “inherently unsatisfactory”, and he has from time to time flirted with taking over the running of public hospitals.

But John Howard has repeatedly over-ruled Tony Abbott and most of the talk from the Howard Government is about what they cannot or will not do, rather than what they will do. There is certainly no mention of reform.

In contrast, a Beazley Labor Government would be a government of reform, prepared to build the health system we need for this century.

While the measure of a good health care system is the health of the population and the outcomes achieved when people pass through the system, it is also imperative that we operate on sound economic principles, and ensure that public dollars are invested wisely. The two are not incompatible.

These principles should be interdependent. Our health system needs reform to achieve sustainability, to remove financial barriers to care for those who face them, to address health inequalities, and to improve health outcomes for the whole population.

That is why the next Health Care Agreements are too important to be left undiscussed until after the next election.

A Beazley Labor Government would use the next Health Care Agreements as the first stage of health reform. But without imminent election pressure, a re-elected Howard Government will undoubtedly take the opportunity to reduce its funding support for public hospitals.

So what should the next Health Care Agreements look like?

The first step on the road to real reform is building better partnerships between the Commonwealth and the states. The states have been desperate for reform, and an incoming Beazley Labor Government could harness their passion for reform to build a better health system.

The states understand that the current health system produces a whole lot of irrational results simply because of cost shifting.

The Howard Government can under-fund aged care knowing state-administered public hospitals will pick up the load but this is bad for patients and more expensive for the system.

The Howard Government can under-invest in Medicare, and primary care generally, knowing public hospital emergency departments will end up helping patients who could and should have been helped outside the expensive hospital setting.

The Howard Government can also under-invest in health promotion because state-administered public hospitals end up carrying the lion's share of the treatment of those with preventable disease.

Second, the agreements must do more to integrate and utilise the private hospital sector.

We should be looking for ways to better integrate private hospital services into the provision of publicly-funded health care and the training of health professionals. My discussions with the private hospitals leave me in no doubt that they would welcome such an approach and that they will respond positively to these proposals when put to them.

The Commonwealth does not do nearly enough to ensure that private hospitals are effectively used as a national health resource. This is despite the growing role of private hospitals in the delivery of a range of services, and despite the fact the Commonwealth makes substantial contributions to the cost of these services through Medicare, the PBS and the private health insurance rebate.

This is also despite the states’ recognition that the private sector can extend the capacity of the public sector. Indeed there are already arrangements under which the states purchase needed beds and care. The states also work with the private health sector in other ways.

The public and private health systems are also linked through their shared workforce.

The next Health Care Agreements must recognise that all hospitals are in the health business. We will maximise the outcomes for our health system and all patients by working together.

Finally, the next Health Care Agreements should build the kind of co-operation between the Commonwealth and the states which will support a serious discussion, leading to consensus over time, about the future division of health responsibilities between the Commonwealth and the states and territories.

This is a consensus which will not be reached before the next election or before the next Health Care Agreements. But we need to start the discussion now.

Faced with the issues around the current commonwealth-state divide, I know that many players in health even advocate extending a national model to our hospital system.

I also know that those who support the Commonwealth ultimately taking over health would understand that building for that outcome will take years of better and closer co-operation between the states and the Commonwealth. Certainly more years than the term of just one inter-governmental agreement.

That’s why building better partnerships with the states and territories would be the first-term focus of a Beazley Labor Government.

However a Beazley Labor Government would also look to the long-term and be prepared to examine the need for big changes. That includes being prepared to genuinely discuss the arguments for and against a single funder for health care.

Because the real question for a major reform proposal is this: would the benefits outweigh the costs?

Sceptics make the point that better partnerships with the states could deliver many of the same practical benefits, without the significant transition costs. They also argue that whatever the barriers to getting full benefits from the better partnership approach, those same barriers apply to implementing a single funder.

Inherent in any re-allocation of funding responsibilities is a re-allocation of revenues, which would require real commitment to reform across all players, and would have to be subject to consideration of national expenditure priorities.

There would be no-one in the country who would want remote Canberra-based departmental bureaucrats trying to run our local hospitals. That would be a recipe for disaster and for the loss of community good will and support for local services.

And given the political and constitutional authority of state governments in the Australian health system, it’s clear that a move to a single funder would require a broad consensus in support of a specific model to succeed.

The one thing you can be sure of is that anyone who has already made up their mind about exactly what governments should do in this area just hasn’t thought through all the difficult issues.

It’s a complex area of national policy which we must be prepared to examine properly. So unlike the Howard Government, Federal Labor will not rule this option out without serious consideration. I certainly have an open mind on a single funder for health care.

That’s the discussion for which the next Health Care Agreements must set the scene.