How to reform the health system so it makes life better for consumers

As one of 265 invited participants in last week's Health Care Summit in Canberra, I was hoping for some long overdue debate about health reform free from partisan political point-scoring.

I was disappointed. Political partisanship reigned supreme. The familiar ideological barrows on the left side of politics were out in force. In a bizarre twist, the Summit concluded with a commitment to join North Korea, Cuba, and Canada as the only societies to outlaw private insurance. The Summit then parted company even with Canada in outlawing consumer choice. East Germany 1960, here we come.

Health reform is arguably the most difficult area of policy and institutional reform. Vested interests amongst providers and professional groups loom everywhere to thwart the reformer, jurisdictional demarcations run through every program and discussion, and there is no effective consumer voice in the debate.

Having embraced market-oriented economic reform in the 1980s, Labor has lurched back into the Soviet bloc when it comes to health care. The Commonwealth finds reform too difficult, and the states just want more money tipped into their public hospitals.

Why do we find this too hard? After all, Australians were once innovators in health care. In the 19th century, most of our medical care was organised through consumer-governed associations. Friendly societies contracted with medical providers for capitation-based payments for medical services and ran dispensaries employing salaried pharmacists. Around the country we established and financed bush and community hospitals by voluntary public subscription.

Can we become innovators again? To be sure, the complexity of health financing and delivery works against informed public discussion - it is much easier for politicians, the press gallery and voters to focus on a simple catchcry like "bulk-billing" rather than focussing on the systemic nature of the crisis.

Yet systemic reform is critical. The population over 65 years consumes the bulk of our health resources, and as this segment of the population increases, the cost of care will rise dramatically over the next 20 years. Without structural reform our current 8.9 per cent of GDP will hit 15 per cent.

Cost management is one driver, but the key reason we need reform is to enhance and empower the consumer, that long neglected stakeholder in the health system. In short, we need a health system that works for the consumer and her or his good health, rather than for the benefit of the various industry players.

In a nutshell:

1. The system is highly fragmented, with little continuity of care across program, service and practitioner types, and with few incentives for the industry to become consumer-focussed.

2. There is little or no financial incentive for practitioners and providers to keep people healthy and out of surgeries or hospitals. On the contrary, most of the financial incentives favour repeat business.

3. Consumers have little market-based power in the organisation and pricing of services. There are insufficient means for consumers to substitute one care regime for another better and more price-effective regime.

4. Consumers have no access to information systems around which the complexity of the system is structured and disconnected provider interests entrenched.

5. Private insurance is divorced from any active role in the management and delivery of health care. This means private insurance cannot contain costs without public subsidy. Private insurance is therefore unsustainable.

Medicare has successfully provided universal health care access for all Australians, but it now needs renovation if it is to give us patient-centred integrated care. There is no question of Medicare being removed - the question is how to introduce some form of managed competition to empower the consumer and curtail fragmentation.

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 has a higher hospitalisation rate for these conditions than the UK, Canada, USA or New Zealand.

Management of these conditions is currently dispersed amongst 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.

In this kind of managed care, consumers must be free to choose their agent, and to switch from one to another based on performance. In turn, the agents would receive a bonus payment based on patient satisfaction and health and functional outcomes.

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.

This is one approach to creating the two new markets we need to renovate Medicare:

• competition among budget-holders as agents of consumers who compete for the allegiance of patients in acting on their behalf; and
• competition amongst providers and practitioners to supply services to consumers through these agents or budget-holders.

We can manage competition well enough in the AFL to give us an even finals series. Why can't we manage competition in health care to give us better health?