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Australia needs integrated health care

By Vern Hughes - posted Tuesday, 22 October 2002

Health care reform in Australia has reached an impasse. The public sector, medical bodies and private insurers face each other in a glorious stand-off. Medicare retains popular support but is structurally incapable of containing demand for health services or restricting expenditure growth even though its available resources are limited.

Private insurers are unable to curb health treatment costs, and remain unable to attract significant new members. Doctors' organisations lament the high-turnover treadmill of general practice, and the long waiting lists at public hospitals, but fiercely resist the introduction of contracted arrangements with insurers or alternatives to fee-for-service payments in primary care.

The key to health care reform now lies in the development of structural mechanisms which can assign to consumers the capacity and the incentive to contain health costs and to integrate service delivery systems. The following is a strategic approach to health care reform based on the development of these structural mechanisms in the present so as to create the conditions for favourable public policy change. Without the creation of these conditions, the present stalemate will continue.


Integrated Health Care is a partnership between two friendly societies which provide health insurance and an alliance of community and membership-based organisations who have a short-term interest in purchasing health insurance for their members, and a long term interest in health care reform.

As a driver of health care reform, Integrated Health Care will aim to give its enrolled aggregate of health consumers both a capacity and an incentive to contain health costs and to integrate service delivery systems.

Rationale for reform

Neither Medicare, insurers or doctors currently have the capacity and the incentive to contain health costs and integrate service delivery.

Medicare provides medical benefits for highly compartmentalised interventions with no structural ability to integrate primary care or to curtail over-servicing. It provides hospital benefits but its only means of containing costs is rationing of services (exercised indirectly by state governments). It provides no means for the substitution of lower cost regimes of care for higher cost regimes.

Health insurers reimburse medical, para-medical and hospital expenses but have no capacity to contain the unit costs of these expenses or to co-ordinate or integrate service delivery. There is no mechanism available whereby insurers can identify and manage disease risk before it becomes an episode of illness.

Doctors are remunerated on a fee-for-service basis for compartmentalised interventions. They are not reimbursed or rewarded for collaborating with practitioners across disciplinary boundaries to develop integrated care regimes or to monitor health outcomes. Fee-for-service incorporates powerful financial incentives to over-servicing and discourages preventative care.



Our strategy is based on five principles:

  1. Information asymmetries between doctor and patient require the intervention of intermediaries or brokers which make available comparative price and service quality data to patients, and enable patients as consumers to purchase their preferred services.
  2. The purchases facilitated by consumer intermediaries must be fully cost-conscious. Costs for episodes of treatment or care must be specified and transparent so that intermediaries may substitute lower cost for higher cost puchases.
  3. To offer integrated and cost-effective care, consumer intermediaries must be able to package a mix of services and insurance products to meet a variety of consumer preferences.
  4. Consumer intermediaries must be able to compete for subscribers of members on the basis of package price and service quality.
  5. Consumer intermediaries require a framework of internal and external regulation to limit the impact of adverse selection and moral hazard.

Putting the structure in place

As a first step, our two friendly societies will jointly underwrite a health insurance plan for the members of organisations participating in the venture Integrated Health Care. These may be associations, clubs, churches, credit unions or any membership-based organisation. Participating organisations will be entitled to input in product design, marketing and management levels for the plan. The financial performance of the plan may be linked to commission and fee income for participating organisations. Transactions and direct marketing will be undertaken by the underwriters.

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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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