A Health Policy for Australia’: response #4

A Health Policy For Australia is a welcome contribution to the debate about health reform which we desperately need to have. The problems facing our health system and our patients are well documented.

A large part of the paper concerns funding mechanisms, insurance, and rationing. The approach to this issue appears to be a very ‘economic’ one. The authors indicate that unlimited demand is a problem, and that moral hazard must be addressed whatever the form of insurance, public or private. They argue that although copayments may limit access which would be bad, copayments also control excess demand and limit moral hazard.

They mention the market power of service providers in setting increasing prices in the face of increasing demand, but fail to mention the place of the service providers in servicing that demand, and contributing to ‘overuse’. The impression is that ‘overuse’ of services is due to the patient, and the means to control such ‘overuse’ is to control the patient with a copayment.

Defining ‘overuse’ as the inappropriate or excessive utilization of resources, it is worth looking at how such ‘overuse’ might occur.

  • A patient attends a GP with a child with a sore ear. That is attended to but the mum then asks the GP to check the other two kids’ ears too, just in case.
  • A patient attends a GP demanding an MRI (expensive xray); the GP knows that despite his explanation of the inappropriateness of such a test, which the patient rejects, if the GP doesn’t order the test the patient will go to the next clinic.
  • A patient has a heart attack, is admitted to a private hospital and undergoes coronary angiography, a procedure to check the coronary arteries. This is done twice as frequently in private hospitals than in public hospitals following a heart attack [1].
  • A patient attends a physiotherapist weekly for two years following an injury at work and when asked whether the treatment helps, she indicates that it doesn’t.
  • A patient attends a specialist clinic and is asked to come back for review in three months. His neighbour attends the same clinic for the same problem but sees a different doctor and is asked to come back in six months. (This example is based on the results of a randomized controlled trial in which doctors at a university hospital outpatient clinic in North America were allocated to receive income by salary or by fee for service. It was found that the fee for service doctors scheduled 30% more return visits than their salaried colleagues [2].)

Who is to blame for this? I suggest that no one is to blame, and particularly not the patient. Even in the first example, the problem is not the mum, it’s that the overstretched GP with a full waiting room is not the appropriate person to address the fact that mum feels inadequate to deal with uncertainty.

But the major factor contributing to ‘overuse’ in all of these examples is the fee for service funding mechanism. If that is changed and combined with adequate resourcing for the doctors and a team approach to dealing with the problem, then ‘overuse’ will be markedly reduced. This will minimise the need for copayments and the associated risks of limiting access because of costs. Whilst all of the conditions on copayments suggested in the paper are very appropriate, especially removing the service provider from deciding on the copayment, this does not eliminate the risk of decreased access due to copayments.

More importantly, the fee for service contribution to the difficulties of rationing has not been acknowledged in this paper, let alone considered as an issue to be addressed. Rather, the emphasis has been on questioning the concept of the universal provision of free health care.

Further points raised about the universal provision of free health care include political naivety and cost. In the current climate, the paper’s proposal as it stands could be regarded as politically naïve, given the desperate clamber for the ‘middle ground’ by the opposition and the neo-liberal economic irrationalism of the current Federal Government. The proposals in the paper are supposed to be a set of ideas that are possible but require political will. A system with minimal, if any, copayments could remain a part of that. Political naivety was undoubtedly an argument used against William Wilberforce in his fight against slavery.

The argument that it would be too costly to eliminate patient contributions (20% of all health care expenditure) ignores the cost savings inherent in the provision of care in the public system. For example, Harper found that the private system charged twice as much as the public system to perform coronary angiography with no evidence of better outcomes, and that half of that came from taxes anyway [3]. If these unchallenged figures reflect the reality across Australia, then simply spending the money in the public sector has the potential to save a substantial portion of that 20% currently being diverted to private health care providers.

It is also curious that the potentially pejorative term ‘free health care’ is used in relation to an insurance product. Universal health care must be the only area in which the product of insurance is labelled ‘free’. Private health insurance does not attract the label, anymore than car and household insurance does.

The place of fee for service vs salaried is discussed briefly in relation to staffing of primary care centres. It is not mentioned however, in relation to allocative inefficiency. There are many contributing factors to the poor distribution of service providers but fee for service is clearly a significant factor as copayments can be much more easily elicited from patients in the leafy suburbs of Toorak than in outback Western Australia, adding to the disincentives to practice in rural and remote areas or poor urban areas.

The approach to the public vs private issue, i.e. that it is not a core issue and that provision of services can be separated from funding issues, leaves much unsaid. Whilst other countries such as Canada manage with about 95% of their public hospital services in private hospitals, an important distinction needs to be made. Almost all those hospitals are not for profit concerns and are thus comparable to the not for profit usually religious based public hospitals in Australia. The concept that private hospitals in Australia would be funded like public hospitals through DRG based government funding may be reasonable but for the inconvenient facts that about 50% of private beds are in for profit private hospitals, and private hospitals currently charge up to twice as much for procedures as public hospitals [3]. Requiring private hospitals to survive on this level of reduced funding needs to be considered in such a proposal. To suggest that ‘no firm need fear…. going out of business’ does not ring true and would lead to stakeholder resistance.

Efficiency is a significant and very appropriate emphasis of this paper. The overwhelming evidence from North America and Australia is that for profit hospital care is more expensive than not for profit care [3],[4], even when public funds are used to buy the services from private hospitals [5]. In addition, mortality rates in North American for profit facilities, both hospital and outpatient services, are generally higher than in not for profit facilities [6],[7]. Thus, the for profit sector is less efficient, delivering poorer outcomes for more money. For the 50% of private beds in Australia which are currently run for profit, this evidence suggests that under the proposal, their efficiency will be less than the public hospitals. Whilst costs would be controlled by DRG based funding as suggested, the evidence suggests that mortality rates will be worse than in the public hospitals.

The answer may be to strictly regulate medical outcomes. Consideration of this issue raises another major problem with our health system. We do not measure health outcomes at the level required to ensure hospital efficiency. For example, we still don’t know if there has been any improvement in the number of deaths occurring each year in public and private hospitals due to preventable medical errors [8]. In 1995, it was shown that 18,000 deaths occurred in public and private hospitals in Australia due to adverse events, and that 69% were preventable [9]. Even this appalling information has not been sufficient to stimulate the nationwide collection of useful data to assess outcomes of hospital stays. Without data, there is nothing to regulate. Efficiency cannot be determined. Profits can, and they will determine the quality of care.

Finally I would agree with Gavin Mooney’s concern regarding community input. The paper supports increased community input into decision making but this should include involvement in setting the values and principles underlying any reform.

Tim Woodruff
Doctors Reform Society


1. Robertson IK, Richardson JR Coronary angiography and coronary artery revascularisation rates in public and private hospital patients after acute myocardial infarction.. Med J Aust 2000 Sep 18;173(6):291-5

2. Phelps C 1997, Health Economics, Second Edition, Addison-Wesley.

3. Harper RW, Sampson KD, See PL, Kealey JL, Meredith IT. Costs, charges and revenues of elective coronary angioplasty and stenting: the public versus the private system. Med J Aust 2000 Sep 18; 173(6):285-6

4. Devereaux PJ, Diane Heels-Ansdell D et al. Payments for care at private for-profit and private not-for-profit hospitals: a systematic review and meta-analysis. CMAJ2004;170(12):1817-24

5. Silverman EM, Skinner JS. The association between for-profit hospital ownership and increased Medicare spending. N Engl J Med. 1999 Aug 5;341(6):420-6.

6. Devereaux PJ, Choi PT et al. A systematic review and meta-analysis of studies comparing mortality rates of private for-profit and private not-for-profit hospitals. CMAJ. 2002 May 28;166(11):1399-406

7. Devereaux PJ, Schuniemann HJ et al. Comparison of mortality between private for-profit and private not-for-profit hemodialysis centers: a systematic review and meta-analysis… JAMA. 2002 Nov 20;288(19):2449-57

8. Wilson RM, Van Der Weyden MB. The safety of Australian healthcare: 10 years after QAHCS. Med J Aust 2005; 182: 260-261

9. Wilson RM, Runciman WB, Gibberd RW, et al. The Quality in Australian Health Care Study. Med J Aust 1995; 163: 458-471