Managing demand and supply in health

Submission from John Menadue, Centre for Policy Development, to the Senate Community Affairs Committee, 3 July 2009

Main Points

• Healthcare costs must be contained, particularly if we are to live within the cap of 2% real expenditure growth that the Federal Government has determined. There is no way the Government can achieve a 2% cap on the growth of annual real spending in health unless demand is better managed and the system-wide supply problems are addressed.
• The rapid growth in health costs, at about 5% pa in real terms, is being driven by increased usage. We all use health services too much. Ageing is not the problem.
• The health sector is largely unaccountable for its performance in any meaningful way to its funders, the taxpayers.
• We need a community dialogue to highlight that, with limited resources, hard choices have to be made and that as individuals we need to take more financial responsibility for our use of health services. The ‘moral hazard’ issue must be addressed. Fee for service (FFS) must be modified to minimise perverse incentives in treatment. We could learn a lot from the Canadians about the way they go about their public dialogue, from the Romanov Royal Commission through to the current Health Council of Canada. The Council has the great advantage of being government funded, but being able to operate largely free of health bureaucracies like those which imperil health reform in Australia.
• There are many ways to improve productivity and achieve savings that amount to over $10 billion per annum. Resources are poorly utilised. We don’t need to spend more. We need to spend it more wisely. The only proviso I would make is that we probably need to spend more in the short term to address ‘bottlenecks’ like emergency departments whilst the long-term restructuring is put in place.
• Past incremental and band-aid responses will not achieve the reforms we need. It requires far-reaching structural and systemic changes that will confront powerful vested interests like the AMA, private health insurance funds and state governments and their health bureaucracies. These vested interests will accede to incremental reform but remain vehemently opposed to any structural reform that would threaten their interests. It is no help when the interim report of the National Health and Hospital Reform Commission (NHHRC) blithely skates over the structural problems by accepting the existing ‘overall balance of spending through taxation, private health insurance and individual out of pocket contributions’. The health sector is in dire need of structural reform. That ‘overall balance’ must be changed.
• The Productivity Commission is better-equipped than the NHHRC to bring the economic rigour and ‘outside view’ (free of conflicts of interest) that we need to address the big issues, particularly curbing over-use and getting better value for money. The Department of Health and Ageing shows far too little concern for efficiency and value for money.
• The Government is sadly lacking in clarity about what it wants to do in health, in contrast to the clarity that characterised Labor’s establishment of Medicare in 1974. The Government’s health strategy is a well-kept secret. But I remain hopeful.