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First published: Tuesday, November 23, 2010

Since before the last election we have been promised a root and branch analysis of the health system and a plan to fix public hospitals. We don’t even have a health system. Instead we have multiple poorly connected pieces For our patients there is the public hospital system, the publicly subsidised private hospital system, the GP system, the community care system, the publicly funded private allied health system, the mental health system, the publicly funded private dental system, the public dental system, the Aged Care system, and a myriad of other poorly connected pieces of a nightmare for our patients to negotiate.

Things started off badly when it became clear that the root and branch analysis would leave out the public funding of private hospitals through the PHI rebate and other charges. Three years of reports and discussions, from the National Health and Hospitals Reform Commission, the National Preventive Health Taskforce, and the Primary Health Care Reference Group, has been the basis for the Federal Government’s recent plans, most of which is contained in the two documents: A National Health And Hospitals Network For Australia’s Future1, and A National Health and Hospitals Network: Further Investments in Australia’s Health2.

It is important to distinguish between the reform plans much of which won’t be implemented until 2014, and the extensive funding promises extracted by the States directed at specific areas of the health system where major problems have been identified. These funding promises will not be discussed in detail because they are not reform.

The reform plan agreed to at the recent COAG meeting concentrates on funding arrangements between Federal and State Governments, with the clawback of 30% of the GST revenue from the States to be spent by the Federal Government on both its hospital funding and its takeover of all primary care and aged care. This is a significant change to Federal/ State arrangements. The GST issue however, despite it being politically quite contentious, has little bearing on the overall funding of the hospital or health system.

The funding commitment from the Federal Government is for 60% of the cost of any inpatient activity based on an average cost of the specific activity eg pneumonia, hip replacement, heart attack. This would then mean that if the States agree to a particular level of activity, the Federal Government is locked into funding 60% of the price as determined by a Pricing Committee. If the States do not commit to sufficient activity (40% funded by themselves) to achieve national standards, this should be highlighted but the real consequences of such failure to achieve targets remains unclear. In addition, the Federal Government has committed to funding 60% of the cost of outpatient services, research and training, and 60% of the cost of planned new capital investment although the later requires agreement between the two levels of Government.

This commitment to a specific share of funding from the Federal Government is a major change. That is positive after years of seeing a historical 50/50 funding commitment ignored. A new entity, the Pricing Tribunal, will be established to determine ‘efficient pricing’, and will be appointed with agreement by Fed and State and Territory Governments. which should result in a reasonably independent and transparent entity. Its terms of reference for its determinations will need to be agreed by both Federal and State and Territory Governments. One of the claims for the new funding model was that it would address the fact that health inflation is increasing faster than State Government revenue. Unfortunately, whether the States are contributing 40% or 60% of hospital costs, this funding model does not address the issue in the long term. Unless the Federal Government increases hospital funding over time towards 100%, States will eventually find it impossible to fund hospitals. With the extra funds promised, this will not happen in the life of any current parliament so perhaps that’s why the States have not pointed out this long term failing of the model.

Three key planks of hospital reform are the commitments to activity based funding, national performance indicators, including targets for waiting times for Emergency Departments and for elective surgery, and the development of Local Hospital Networks.

Activity based funding is a well established mechanism for apportioning funds in Victoria. It removes that proportion of hospital funding from political interference, but it is far from perfect. The reform proposal recognises that it fails when applied to small hospitals and has made allowance for that. The proposal does not recognise the higher costs of treating patients of low socio-economic status, and is an inadequate model for funding high cost low volume admissions such as intensive care. In Victoria where such funding has been used for 15 years there are all sorts of mechanisms to deal with this inadequacy. However, the experience to address that issue exists and should be manageable, but is a potential problem for State Governments who may have to bear the associated costs without support from the Federal Government. It also sets the scene for gaming, the prioritisation of predictable admissions over the more difficult to categorize admissions on which a hospital may lose financially. Adherence to national benchmarks may be used to reduce that problem.

Local Hospital Networks (LHN) are to be formed but the size of these networks is yet to be determined. Whilst increased clinical involvement in governance has been proposed, the details are yet to be developed. Consumer or citizen involvement has not been mentioned. These networks will have to negotiate with the State and Territory Governments to determine activity targets which will then determine funding. Thus, State and Territory Governments retain control. Such networks already exist in Victoria so it isn’t new and despite the rhetoric, the Victorian system is still plagued by long waits for elective surgery and for Emergency Department services. This fact underlines the point that problems in public hospitals are multifactorial, and the formation of networks as outlined may do very little to improve hospital performance.

The development of national performance indicators and targets is to be commended, is long overdue, and can be used to improve efficiency. It is proposed that these will apply to public and private hospitals and to primary care. The nature of the performance indicators will be determined by both levels of government in consultation with clinicians. This data will be publicly available, and will relate to access, safety and quality, and financial performance and efficiency. No mention is made about adjusting this data according to the presence of co-morbidities or socioeconomic status or other well recognised variables which make a significant difference to simple measures of performance. The potential for comparing apples with oranges is huge. The recent Productivity Commission report on public and private hospitals struggled with this issue and regarded its own conclusions as ‘experimental’ at least partly because of the paucity of data3.

The proposal states that ‘The Commonwealth will also work with the states to measure the time between referral and getting on the waiting list, with the aim of incorporating this into the measurement of patient waiting times’2. An indication of commitment to meaningful performance indicators would be the immediate replacement of grossly misleading elective surgery waiting times with this more accurate measure, especially in relation to the setting of targets.

Achievement of performance indicators and targets depends on at least two factors. The efficient use of funds and resources is clearly needed. Adequate reso
urces however, are also crucial. The suggestion in the proposal that funding should in some way be tied to achievement of targets has the potential for gross inefficiency. Performance indicators have been used by States for years. They have been tied to funding, and, in the absence of adequate resources, have resulted in gaming which politicians desperately try to ignore. In Victoria for over three years it has been generally known by those involved and interested that Emergency Departments have invented virtual wards as the desperately try to meet unachievable clearance targets. Thus, a patient waiting for something over which the staff have no control eg an empty inpatient bed, may be reclassified as having left the Emergency Department even though the patient hasn’t moved. Persistent investigative reporting finally resulted in the Minister agreeing that this was an issue, as was manipulation of waiting list data. When bureaucrats are faced with potential loss of funding they will be very inventive in an understandable effort to maintain funds in the interests of the institution for which they work. Even since the exposure of virtual wards, patients are now moved around the corner into other areas which are designated to be not in the Emergency Department despite being funded and staffed by the Emergency Department. The other perverse effect of targets is that patients who would normally be categorized as very low priority are treated before their priority warrants because they can be dealt with quickly and targets can be more easily met. Money and staff time is wasted working out how to achieve unrealistic targets, to the detriment of patient care. Auditing will go some way to reducing this problem but the linking of funding to performance is of great concern, and the demonstration that it results in improved performance indicators may be completely misleading.

The proposal suggests that ‘enhanced data collection and reporting ……………will provide rich information for clinicians to be able to reflect on their own practices and drive continuous improvement’1. This use of data respects the professionalism of doctors, nurses, and other staff, and of the bureaucrats, most of whom are very keen to provide the best possible service. They will know if the targets are unachievable because of lack of resources. They can compare their situation with other like hospitals. Financial punishments or rewards ignores and overrides this professionalism and is asking for trouble.

The development of national standards and the monitoring of such standards and performance indicators will require a bureaucratic national body and is an absolute necessity for the reform process. The fair determination of efficient pricing will also require a new structure. The development of Local Hospital Networks will also be a new level of bureaucracy but in both NSW and Victoria structures which partly or completely fulfil this task already exists so in such states the amount of bureaucracy may not alter. In States where hospitals run independently there will be an increased bureaucracy.

The proposals recognise that two important causes of public hospital dysfunction, inadequate primary care, and insufficient Aged Care capacity, need to be addressed. The central proposal for primary care is the takeover of all funding and policy setting from the States (except Victoria). This should lead to simplified responsibility and reduced duplication of services and bureaucracies. General policy setting should be a national function as well, but investing a remote Canberra bureaucracy with the responsibility for the development and implementation of specific programs at a local level will be a continuation and expansion of the current heavily bureaucratic, poorly accountable and unresponsive system which drives health providers to distraction. It is not uncommon for such providers to be funded through forty different programs, and to have staff dedicated just to applying and accounting for funds instead of delivering care. The rhetoric has been ‘a national system that is funded nationally and run locally’2. The development of 60 primary health care organisations, to be called Medicare Locals covering an average of 400,000 people is proposed to address this. No structural reform of funding at the local level is proposed. Instead, the Locals are charged with co-ordinating and integrating services, and ‘better target(ing) services to respond to …… gaps’1. The concept is very promising but whilst funding and policy decisions are controlled centrally these organisations will struggle to have a significant impact, especially on issues of equitable access. This is a long way from the structural reform required to enable services to be ‘run locally’, and to be responsive to local needs.

Whilst improving access and reducing inequity is a stated priority area for the Federal Government, the best they have proposed to address this general problem are some very specific and welcome initiatives for the elderly, those with mental illness, and indigenous Australians. The rest get nothing. The major structural barrier to equitable access ie fee for service plus copayments, is ignored. Needs based funding to regions is ignored.

Performance indicators for primary care are to be introduced but it is unclear whether these will be at a Locals level or smaller, and unless primary care has the resources to achieve targets, such indicators, especially if associated with financial incentives, are likely to lead to gaming, inefficiency, and perverse behaviour which may result in decreased quality of care overall. For example, achieving access targets in areas of workforce shortage is simply impossible. Achieving improved diabetic control in patients who find cost is a barrier to seeing the doctor or nurse, buying the medication, or even buying the right food, is much more difficult in some areas than others. Local factors tend to be ignored in pay for performance use of indicators.

The introduction of voluntary enrolment and capitation fees for diabetics introduces two very good principles ie encouraging patients with chronic diseases to have one medical team, and moving away from payment for single episodes of care, a move which encourages the development of team based care. It addresses a disease which accounts for 30% of preventable admissions to hospitals and ignores the other 70%. It fails to address the problems of those patients who can’t find a doctor or can’t afford to see a doctor or buy the drugs. Without control of copayments, there exists a perverse incentive to avoid difficult patients and a means to do so. The most needy will continue to miss out.

The extension of funding for practice nurses to urban GP clinics (previously only for rural and remote) is appropriate and long overdue and may improve access by allowing GPs to concentrate on more complex issues, but will do nothing for financial barriers to care4.

The other factor affecting hospital function which is addressed by the proposals is that of Aged Care. Capacity constraints mean that many patients wait in hospital for Aged Care places to become available, contributing to ‘access block’ Funding has been provided to increase the provision of such places. This is not reform. It is an appropriate but still inadequate response to a long standing and well documented problem. Taking over 100% responsibility for funding Aged Care is reform and means that, combined with the Federal G commitment to 60% funding of public hospitals, it does have a financial incentive to improve Aged Care. Taking over control of delivery of Aged Care services has the same potential negative consequences as its takeover of primary care. It ignores its mantra of national funding, local control. Improving payments for GPs to see patients in Aged Care facilities is not reform. It is an appropriate and belated response to a well documented problem. Aged
Care facilities struggle to attract adequate staff. Staffing requirements are inadequate to control quality. Remuneration for staff is inadequate to attract quality staff. Once again, performance indicators can be measured and published, but unless resources are available, targets will not be met without gaming. So, the issue has been referred to the Productivity Commission. Meanwhile, public hospitals will continue to care for patients who should be in Aged Care facilities, or should never have needed admission from such facilities.

Both workforce numbers and distribution are well recognised by the Federal Government as issues which must be addressed. The proposals invest significantly in training place numbers for GPs and specialists, but have not as yet addressed nursing shortages. The increased training places will be needed to cope with the major increase in medical graduates which has resulted from previous Government decisions and this investment was inevitable. It is important, but is not reform. The distribution issue is very clearly documented in the proposal. This has been addressed with more programs to attract doctors to rural areas. Variations on such programs have been in existence for 15 years at least. Some are useless, some help a little, but until the fee for service plus copayment system of funding doctors is questioned, doctors will continue to congregate in the richer larger urban areas where their income is assured. This structural barrier to better distribution of workforce has been ignored. With all Medicare and PBS funding dependent on the presence of a doctor, the distribution of all of this funding will continue to follow the inverse care law ‘the least needy get the most, and the most needy get the least5
One factor affecting public hospital performance is completely ignored by the proposals. There is a shortage of specialists in these hospitals and no shortage in the private hospitals next door. Specialists have many reasons to work less in public hospitals but must have somewhere to work instead and the publicly subsidised private hospitals provide them with an alternative. There has been a definite reduction in specialist hours spent in public compared to private hospitals since the growth in private hospital work over the last ten years but no mention is made of the contribution of Federal Government policy through changes to community rating and funding support for private hospitals at the expense of public hospitals.

The adoption of many but not all of the recommendations of the Preventive Health Taskforce is welcome as this targets several of the most obvious areas requiring investment. The funding commitment to this area remains below 2% of spending however, despite the rhetoric about how we must move from a medical model of illness to a social model of prevention and wellness6.

In the political battle to get State and Territory acceptance of the financial reform, a total of $5.3 billion over 4 years was committed to Aged Care, primary care, hospitals, and workforce issues with $3.4 billion of this to hospitals. This is about a quarter of the shortfall to hospitals if the 50/50 funding arrangement was restored but, if the 60% funding arrangements can be set in place in less than 4 years, the changes could result in an effective restoration or even increase in the Federal component of the 50/50 arrangement (allowing for the GST). The additional funding extracted from the Federal Government should not be seen as reform however. It is a partial move toward the historical funding arrangement and has the capacity to benefit patients in the short term. Another sweetener in the package was increased funding for mental health as part of the Federal Government taking over full responsibility for primary care including mental health. Whilst desperately needed and welcome, the increased funding is program based, controlled from Canberra, and desperately short of what is needed. Local control is not part of the package.

Nursing workforce, dental care, mental health, and the major issue of social determinants of health have not been part of the reform discussion. This does not bode well for these issues ever becoming an integrated part of health reform.

The Federal Government’s knowledge of the inefficiencies, inequities, lack of quality control, and poor integration of the predominantly publicly funded parts of the health system appears reasonably comprehensive as reflected in its two documents. The exclusion of the publicly subsidised private hospital sector and private allied health sector from most of the discussion indicates a lack of commitment to comprehensive reform. The proposed solutions to the problems demonstrate some very good principles such as national funding, national standards, local control, patient enrolment, capitation, and primary health care organisations. The documents do not reflect an understanding of the structural issues which form the basis for the problems outlined. Without that understanding however, the proposed solutions will fail to adequately address many of the problems. Equitable access to care in rural, remote, and poorer outer urban areas is an obvious example, with inequities perpetuated by adherence to a fee for service payment system completely dependent on provider availability. Safety nets and programs fail to correct these inequities and the proposals ignore the necessary structural reform and needs based regional funding7. Centralised control of policy implementation in primary care and aged care will not address local needs nor facilitate integration and teamwork, essential for a patient centred approach. Tacking on another dental health plan (if it ever comes) will not integrate dental care with other care nor achieve equitable access. Powerful LHNs will dominate relatively weak Medicare Locals and result in a hospital focused approach to care rather than a strengthening of primary care.

Despite the partial adoption of many good principles, the total package to date is disappointing. Some of the building blocks to improvement are proposed but if this is all there is to the biggest structural change to our health system since the introduction of Medicare then we can expect a continuation of inequities, inefficiencies, and a continuing nightmare of uncoordinated care.

1. A National Health And Hospitals Network For Australia’s Future, http://www.yourhealth.gov.au/internet/yourhealth/publishing.nsf/Content/nhhn-report-toc

2. A National Health and Hospitals Network: Further Investments in Australia’s Health. http://www.health.gov.au/ accessed 28/4/10

3. Public and Private Hospitals Productivity Commission Research report Dec 2009.
http://www.pc.gov.au/projects/study/hospitals/report

4. Building a 21st Century Primary Health Care System. Australia’s First National Primary Health Care Strategy. Commonwealth of Australia 2010 http://www.yourhealth.gov.au/internet/yourhealth/publishing.nsf/Content/report-primaryhealth

5. The inverse care law. Lancet, 27 February 1971 Julian Tudor Hart

6. Taking Preventative Action A Response To Australia: The Healthiest Country By 2020 The Report Of The National Preventative Health Taskforce http://www.yourhealth.gov.au/internet/yourhealth/publishing.nsf/Content/report-preventativehealthcare

7. Putting health in local hands: Shifting governance and funding to regional health organisations
Tim Woodruff, Fiona Armstrong, David Legge, and Rod Wilson. Centre for Policy Development.
http://cpd.org.au/

8. The Rudd hospital plan – many pitfalls to avoid on the way to a better health system
Kathy Eagar eMJA – Rapid Online Publication 24 March2010 http://www.mja.com.au/public/rop/contents_rop.html

9. The Rudd reforms: a poisoned chalice in the long run
Jeff R J Richardson eMJA – Rapid Onlin
e Publication 24 March 2010
http://www.mja.com.au/public/rop/contents_rop.html