Thursday, February 17, 2011

COAG healthcare reform: A perspective from WA

This week the Gillard Government finally reached an in-principle agreement with state Governments about reforms to the Australian heath care system. In this piece WA health economist Luke Slawomirski consisers the implications of the in-principle agreement. This piece first appeared in Online Opinion (here).
Health (Care) Reform
by Luke Slawomirski
The in-principle agreement struck between the Commonwealth and the States at COAG on Sunday is good. It is not great. While Australians have reason to be cautiously optimistic that health care reform is back on, it is also disappointing that it doesn’t go far enough.
More transparency
Firstly the positives. These revolve around the emphasis on transparency, accountability and efficiency. The key drivers will be
(a)    introduction of Activity Based Funding (ABF) for hospital services - paying public providers an agreed fee per care episodes such as a knee replacement,
(b)   the development of ‘efficient prices’ for episodes - a difficult, but not impossible task as some commentators have indicated
(c)    a more transparent, pooled federal funding mechanism.
Health care is one of the most opaque industries around and reforming the ‘blank cheque’ block funding approach, at least for hospitals, has to be a good thing. Increased scrutiny brought about by these measures can help reduce pernicious aspects of health care such as unwarranted variation in clinical practice and over treatment. 
The creation of Local Hospital Networks (LHNs) also has the potential to translate into better, more efficient services. In metropolitan and semi-rural regions, hospitals will be able to establish partnerships with nearby peers, and consolidate and rationalise services. This can not only enable economies of scale but also improve quality and safety because increases in the volume of cases for procedures and treatments increases are often accompanied by improvements in quality and decreased complications. 
Also encouraging are the provisions built in to ensure smaller, rural hospitals are not swept away by the utilitarian calculus and rationalisations of ABF.
Lack of integration
Now to the not so good parts. Setting aside the likely mess of establishing Medicare Locals and GP Super Clinics, a key problem is the non-integration of primary and tertiary care. The health care system could operate much more efficiently if there was more clinical and administrative coordination between primary providers such as GPs, pharmacist etc, and hospitals. LHNs would be much more effective if the network included at least some local primary care providers.
Much of this is a result of the funding split between the Commonwealth and state budget – and this is, unfortunately not rectified in this agreement, counter to a key recommendation of the National Health and Hospitals Reform Commission’s 2009 Report.
No prevention or promotion
It is all very hospital-centric, much to the disappointment of those who know that in the long run, the most value for money in health is in prevention and promotion. This makes all the talk of ‘efficiency’ ring a little hollow.
Implied in the agreement is the misconception that the principal driver of health, and preventer of ill-health, is health care. It is now accepted that this is not the case at all. Health care (especially tertiary care) is, at best, only a modest contributor while the dominant factors are structural and societal. Even in developed nations such as Australia, health and disease rates are predominantly influenced by things like education, literacy, income equality, social mobility and cultural factors.
There is also not much mention of mental health and nothing on addressing Indigenous health status. Both are essentially a prevention problem, whose long-term solutions reside within the sphere of the cultural, social and economic determinants, well outside the health care sector and
Of course, selling prevention is politically extremely difficult as it lays outside the reach bio-medical technology. However, Julia Gillard explained parts of the deal very well on the 7.30 Report on Monday night (14.2.2010). There is no reason why she and other political leaders cannot begin to communicate with the community the real need for and benefits of prevention.
Cost escalation and lost opportunities
Health care is extremely expensive. Its costs, as a percentage of GDP, are rising. The reasons for the escalating cost are erroneously attributed to demand side drivers including demographic change and an ageing population. This is largely incorrect. The main driver of escalating cost is actually on the supply side - the constant development of new medical and pharmaceutical technology. The rising expectations these foster in the community then serve to amplify an already rising demand.
There is no mention of addressing these in the part of the agreement on efficient cost growth. One hopes that this will be adequately tackled in the setting of efficient prices outlined in the agreement. However in its negotiations with this (admittedly pre-Gillard) government does not have a solid track record in tackling vested interests within the medical industry.
The other problem is opportunity cost – each public dollar spent on a hospital bed or PBS prescription is a dollar unspent on schools, playgrounds or other preventive expenditure.
Likewise, each interview minute spent by the PM talking about hospital beds and Super Clinics is a minute not spent communicating the value of programs and initiatives that keep people out of hospitals.
Prevention, of course, requires expenditure of financial and political capital. In a world of scarce resources (and three year electoral cycles) it is often more expedient to talk about ‘more beds and more GPs’ than tackling the root causes of disease, which are notoriously difficult to explain to the public.
In summary, the agreement reached at COAG was definitely a win for the Prime Minister. However, it is very pragmatic and there is a lot of detail left to sort out. Most importantly, it could have been a lot better. If Julia Gillard wishes to be remembered as a reformist like her political hero Nye Bevan and mentor Bob Hawke, some of the shortcomings briefly outlined above may need to be addressed before the next election.
Luke Slawomirski is a Health Economist and has worked as a clinician in Australia and overseas. The views expressed here are his own.

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